Insights / August 7th, 2017

Relief for landlords!

In April 2016 retired District Court Judge Mr Alan Moss conducted a review of the Retail and Commercial Leases Act 1995 (SA) (“the Act”) and made a host of suggested changes to the Act (“the review”). Whilst the review outlined some important changes to the Act many industry professionals were concerned with some of the recommendations.

In particular industry experts noted their concerns with suggestions that all leases must be registered, the tightening of bank guarantee requirements and the ability for tenants to terminate a lease due to economic hardship.

Subsequent to the review and consultation with the property industry a Bill has now been tabled in Parliament that, if passed will vary the Act.

In what will be welcome relief to landlords and many industry experts, the Bill does not include some of Moss’ recommendations, such as:

  • Registration of Leases – the Bill does not contain a mandatory obligation to register leases. It was considered that this would impose too great a burden on landlords and unnecessarily increase “red tape”.

  • Bank Guarantees – the Bill does not contain a requirement for bank guarantees provided as security to be held by the Small Business Commissioner (SBC). Bank guarantees are an important mechanism for landlords to protect themselves from a tenant breaching a lease. A change in this regard, may have made it difficult for landlords to draw down on the bank guarantees with the potential for tedious application processes to arise. Landlords should however be aware that the Bill proposes minimum time-frames within which a landlord must return a bank guarantee (once a tenant has complied with its obligations under a lease). A further proposed change was to limit bank guarantees to 3 months’ rent. Many landlords would consider this constraint detrimental to commercial negotiations and the landlord’s security requirements. Landlords will be reassured that the Bill does not propose to implement this limit.

  • Tenant’s ability to terminate for business failure – arguably the most controversial proposal in the review was the notion that a tenant should have a legislative pathway for an orderly exit from a lease if the tenant’s business was failing. Many industry groups were very concerned with this proposal and the uncertainty that the provision may create. Additionally landlords were quick to point out that like tenants, landlords also require security of tenure and such a change would jeopardise the purpose of landlords entering into long term commercial arrangements to begin with. The Bill does not include the right for a tenant to terminate a lease for business failure.

While landlords may be relieved that the Bill does not propose to implement these changes, there are still a number of changes set out in the Bill, that if enacted, will need to be considered carefully.

The table below illustrates some (but not all) of the changes that landlords and industry experts will need to take into consideration should they be enacted:

Both landlords and tenants should also be aware of the increased penalties set out in the Bill for offences under the Act. In many instances these penalties have increased by 50%.

If you have any queries regarding the proposed changes set out in the Bill or wish to clarify any aspect of the Retail and Commercial Leases Act please contact Sam Richardson or one of our Property team.