Retail Leases

The Retail Leases Act appears to have been drafted with the intention of providing additional protection for tenants against landlords. Apart of this process includes the creation of obligations on the landlord to provide the tenant with more information then might otherwise be available to the tenant. A draft lease must be available for inspection by prospective tenants before a shop is advertised or before a tenant is offered a lease. It is not always clear how this provision works when the landlord is not always able to determine whether his premises would be attractive to potential retail tenants. In any case if a prospective tenant wishes to enter into a retail lease then the tenant must be provided with a Disclosure Statement in a prescribed form at least seven (7) days before the lease is entered into. Failure on the part of the landlord to give the tenant a proper Disclosure Statement at the proper time may enable the tenant to terminate the lease during the first six months or perhaps claim compensation from the landlord if the information in the Disclosure Statement is deficient.

The Act has the effect of invalidating "ratchet clauses". Accordingly a retail lease must not include a provision which prevents rent from decreasing if a review to current market rent occurs or if CPI is negative. Similarly provisions that permit the landlord to charge the higher of two alternative methods of determining rent are invalid.

There appears to be an intention on the part of those who drafted the Retail Leases Act to encourage landlords to use leases that express the rent as being inclusive of outgoings. If the lease requires that the tenant pay outgoings in addition to rent then the landlord is required to provide substantial amounts of information to the tenant in that regard and in some cases the landlord may even be required to provide the tenant with an auditor's report (the cost of which is to be borne by the landlord).

The Retail Leases Act limits the basis on which landlords can withhold their consent to the transfer of the lease to a new tenant. Generally the Act precludes a landlord from imposing conditions on a transfer to a new tenant except conditions that require that the proposed new tenant has at least the same business experience and financial resources as the initial tenant.

Tenants of non-retail leases who wish to exercise an option to renew have to face the difficulty that they are required to exercise the option before knowing what the rent will be if the lease stipulates that the new rent will be current market rent. Under the Retail Leases Act the tenant may insist on a rent determination prior to exercising the option. If the tenant requests a rent determination within the specified time limits then the period for exercise of the option is extended and a valuer must be appointed. If used properly this provision permits the tenant to consider the new rent before he or she is bound for the further term.

The Act also includes the provision requiring that the landlord give the tenant written notice of whether the landlord intends to offer the tenant a renewed lease or indicating that no renewal or extension is going to be offered. If the landlord fails to give either notification within the specified time then the tenant may have the option to extend the lease for a further six months. This aspect of the Act is a further example of the necessity for both the landlord and the tenant to make appropriate diary entries to serve as reminders of actions that should be taken.

The Retail Leases Act adds extra layers of complexity to an already complex area of the law and both landlords and tenants should carefully consider the effects of the Act before taking action.