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Shop Leases - New protections and obligations for retailers and landlords |
New laws on shop leases came into effect at the beginning of 2006, bringing some significant new protections for retailers who lease premises, and a 30 March 2006 deadline for landlords to comply with a new bond obligation. |
A new security bond scheme affects the collection and management of cash bonds paid by tenants. Cash bonds now need to be lodged with the Rental Bonds Board within 20 business days after they are paid. |
Any cash bond held for existing retail shop leases (which previously should have been held in an interest-bearing deposit), must be withdrawn by 30 March 2006, and, together with the interest earned, be lodged with the Rental Bonds Board. It is a criminal offence not to comply with this requirement, and it applies to all existing retail shop letting where the landlord holds a cash security bond (whether invested or not). |
The new laws apply to all premises used for a list of 150 or so types of businesses - not just those which look like shops. There is no general rule for the type of premise covered, but it is a safe bet that if premises are let to a business which sells goods, the lease must comply with the new law. This applies to houses and factories (or parts of them)as well as premises that are obviously built as shops. |
At the pre-lease stage, the laws now make it clear that landlords in shopping centres have to disclose a range of information about sales, traffic count and turnover that may be important to a tenant's decision to take up a lease. Shopping centres will also have to clearly indicate whether they can assure a tenant that the current mix of outlets will not be altered by introducing a competitor to the tenant during the course of the lease. |
Other changes to the law should provide greater clarity about expenses and outgoings the landlord can claim from the tenant. |
For instance, the definition of outgoings now makes it clear that such expenses are to be directly and reasonably attributable to the operation, maintenance, and repair of the building. Advertising and promotion expenditure by shopping centres must now be properly accounted for, and tenants have a right to withhold payment of the outgoings until there is a proper accounting. |
Landlords have new obligations on fit-out costs, disturbances to a tenancy, and relocation costs payable to a retailer. |
Where a lease contains an option to renew at current market rent, the tenant can request a determination of rent up to six months before the lease finishes. Where a landlord and tenant cannot agree what the current market rent is, the process by which they can apply to have the rent determined by a specialist retail valuer has been streamlined, at equal cost to both. |
The process for transferring a lease to another operator has been changed. The landlord must now make up his mind within 28 days of receipt from the tenant of a statement disclosing key facts about the person proposed to take over the lease. |
This statement is prepared by the current tenant and signed by the tenant and the proposed new tenant. Once this statement is received, if the landlord does not reply in 28 days, the transfer is deemed to have been agreed to. |
If the procedure is followed, current tenants can be protected from paying the landlord amounts payable by the new tenant. |
Another of the changes could have the result that, if the requirements of the new laws are not complied with, a written lease for a year is automatically extended to five years. It could also mean that an informal or unwritten lease for a short period is extended to five years. |
If you are a landlord with commercial lettings, now may be a good time for a consultation to ensure that you comply with the new retail lease laws. |
