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Retail and Commercial Leasing – is change finally on the way?

Significant amendments have been proposed to the Retail and Commercial Leases Act 1995 (SA) affecting tenants and landlords. Are these proposed changes going to impact you?

On 3 July 2019, the South Australian State Government introduced the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019 (“the 2019 Bill”) into Parliament.

If passed the 2019 Bill will introduce significant amendments to the Retail and Commercial Leases Act 1995 (SA) (“the Act”).

The 2019 Bill is similar to the amendments proposed by its predecessor, the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (“the 2017 Bill”). The 2017 Bill was introduced into Parliament by the former State Government but lapsed when Parliament was prorogued prior to the state election in March 2018.

The amendments replicated from the 2017 Bill include:

  • clarification of the meaning of a public company;
  • clarification that monetary figures under the Act (such as amounts for rental thresholds and security bonds) are GST exclusive;
  • permitting the Small Business Commissioner to exempt leases from the Act;
  • provisions dealing with the return of bank guarantees; and
  • increasing penalties under the Act (in some instances by up to 50%).

For a detailed summary of these amendments please refer to our earlier blog available here.

The 2019 Bill also includes some further proposed amendments to the Act not originally comprised in the 2017 Bill. The purpose of this article is to summarise these additional proposed amendments:

Registration and operation of the Act

Since 2011 when the rental threshold under the Act was increased from $250,000 to $400,000 there has been uncertainty as to whether during the term, a lease could move within or outside the operation of the Act. The 2017 Supreme Court case of Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72 provided some (but not absolute) clarity on this issue.

The 2017 Bill sought to clarify that the rental threshold will function to exclude the application of the Act if at any point in time the rent payable under a lease exceeds the threshold (regardless of whether or not the Act applied at the time the lease was entered into).

The intent of the 2017 Bill was to provide greater clarity and certainty to landlords and tenants as to the potential operation of the Act when the rent threshold may be most relevant (e.g. long term leases).

The 2019 Bill extends beyond this and states that if the rent payable under a lease exceeds the rental threshold and the lease (or lease renewal) is lodged for registration within 3 months after execution, that lease will not be brought within the ambit of the Act, even if there is a subsequent increase to the threshold (or if the rent deceases on a market rent review) such that the lease would otherwise have fallen within the ambit of the Act.

Traditionally registration of a lease has been considered predominately for the benefit of the tenant rather than the landlord. However, under the amendments proposed by the 2019 Bill, by registering the lease (or lease renewal) within the stipulated timeframe, the landlord can avoid the potential future application of the Act.

As the Act provides certain consumer protections to tenants, this amendment if passed may cause landlords to re-consider registering leases. Landlords will need to be aware of the timeframes in which the lease must be lodged for registration. Landlords may seek to ensure all tenants certify leases on execution and/or include provisions in their standard lease agreement requiring tenants to certify the lease at any time the landlord requests. Landlords should also ensure the lease will be in registrable form or capable of being in registrable form including ensuring lease plans are prepared and registered (if necessary).

Public Companies limited by guarantee and registered charities

The 2017 Bill sought to clarify that certain entities including public companies and their subsidiaries as defined under section 9 of the Corporations Act 2001 (Cth) would not receive the benefit of the Act.

Under the 2019 Bill, public companies who are registered with the Australian Charities and Not for Profit Commission will not be excluded from the application of the Act. This will be a welcome relief for registered charities, who as tenants, will still be afforded the consumer protections provided by the Act even if they are public companies.

Security bond

The Act currently provides that a security bond cannot exceed four weeks’ rent. The 2019 Bill seeks to increase this amount to three months’ rent. This increase better aligns with the quantum of other forms of security (e.g. bank guarantees) that might be provided by tenants. Whilst the increase in the amount of the security bond would be welcomed by landlords, there is no change to the requirement that the security bond be lodged with the Small Business Commissioner (“SBC”). This requirement can result in difficulties for landlords when seeking to call on a security deposit held by the SBC, particularly where there is a dispute with the tenant. Accordingly, we anticipate that this amendment to the Act will not change the current industry preference of landlords requesting bank guarantees instead of security bonds.

Valuer

Since the Act was last amended the ‘Australian Institute of Valuers and Land Economics’ has been renamed the ‘Australian Property Institute’. The 2019 Bill seeks to change these references in the Act. References to ‘President’ will also be amended to ‘Chair’ in light of changes to the constitution of the Australian Property Institute.

Auditor’s Report - Emergency Services Levy

The final additional amendment proposed by the 2019 Bill is a technical amendment to section 32(e) of the Act to include a reference to the emergency services levy when considering the landlord’s obligations to provide an audited report of outgoings at the end of each accounting period.

In general, the amendments contained in the 2019 Bill (including the amendments retained from the 2017 Bill) will most likely be welcomed by landlords, tenants and industry experts alike.

If the 2019 Bill is passed, the amendments to the Act will address the issues arising from the decision handed down earlier this year by the Supreme Court of South Australia in Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc (“Pastina”). In Pastina, the Court, perhaps unexpectedly, ruled that in certain circumstances, a holding over period of greater than six months can give rise to a new 5-year term. The 2019 Bill if passed will amend the Act so that a holding over period of greater than six months will not trigger a new 5 year term.

If you have any queries regarding the proposed changes set out in the 2019 Bill, or want to clarify any aspect of the Act please contact Sam Richardson or a member of our Property team by clicking on the following link - Contact Us.

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