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The Queensland Retail Shop Lease Amendment Bill 2015

We’ve recently (2015) seen an Amendment Bill to the Queensland Retail Leases Act of 1994. Robert Speirs, an inveterate critic of Australian Retail Lease legislation, in his inimitable style, gives us his view on the resultant state of affairs!

The Queensland Retail Shop Leases Amendment Bill 2015 amends the Retail Shop Leases Act 1994.

It starts by introducing into s.5 some key concepts. The first of these wrestles with the meaning of ‘retail shop lease’ itself. Section 5A(1) now tells us that “a retail shop lease is a lease of a retail shop”. If you have managed to assimilate this shattering insight, settle back. Get comfortable. It’s going to be a long night.

The brains trust behind these amendments seems to have been motivated by the desire to align the Queensland legislation with the New South Wales and Victorian enactments. And let us applaud this sentiment.

But when did sort-of-aligning the legislation strike this brains trust as a good idea? We have to be thankful it was a different brains trust pulling on the horn when the Queensland/New South Wales railroad track was married up, back in 1930. These gurus worked out that the train would run a whole lot better if you didn’t have to change the wheels when you crossed the border. Pity they’re not still around.

Turning now to important details, the Bill (in s.5A and by amending the current definition of ‘retail shop lease’) excludes from operation of the Act shops with an area of more than 1,000m2. The exclusion was previously more than 1,000m2 and leased to a listed company or its subsidiary.

Victoria has the listed company exclusion, New South Wales has the area exclusion, and (before the amendment) Queensland has got both together. The amendment aligns Queensland to New South Wales.

Section 5A of the Bill then goes on to exclude from the definition of ‘retail shop lease’, a lease of premises for a range of functions already covered by the Act, plus an automatic teller machine and a vending machine.

The exclusion of ATMs is probably a sensible amendment, and one which the New South Wales brains trust could take on board. I say ‘probably’ because the industry has long operated on the assumption that ATMs are covered, and in all likelihood will continue to do so, whatever the legislation now says. By removing the listed company exemption, the Bill will have the effect that banks will be regulated (if they are in a shopping centre), but that ATMs will not.

Finally, s.5A tries to give relief to non-retail mixed-use developments which, until now, could be collateral damage.

Remember that a retail shop is defined to include premises situated in a retail shopping centre, and that a retail shopping centre is defined as a cluster of premises with four attributes, the last being that the cluster is generally promoted or regarded as a shopping centre.

This definition created a problem for developments where, for instance, an office complex was plonked on top of a shopping centre. Taken literally, the offices all risked being retail shops.

The owner’s response to this risk has been to say that, because of its different look and functionality, the office tower component is not generally regarded as a shopping centre. Which is a pretty good argument, but not as good as a slam dunk.

In New South Wales, the brains trust tried to overcome the problem by enacting the office tower exemption. This works for the office tower development, but is a bit sad when the office component is limited to, say, two or three storeys (hardly a ‘tower’), or where the retail and office components are comprised in two or three storeys, in a long, low building.

Again, the owner has to rely on the ‘look/feel/functionality’ argument to avoid the office leases being hit by bullets from the retail shop machine gun.

Anyway, the Bill tries to cauterise this damage by excluding floors of a building where the retail area is 25% or less of the total lettable area of the floor. This, at least, is a step in the right direction.

Next the Bill amends s.11 (when a lease is entered into) so that it more or less aligns with New South Wales and Victoria.

It then introduces the concept of when an assignment is entered into. This concept is a stranger to New South Wales, but is known to Victoria.

The Act already deals with the thorny problem of whether the Act applies to premises that become a retail shop after the commencement of the lease – it doesn’t (s.15). The Bill now looks at the other end as well. The new s.14(2) provides that, if the premises cease to be a retail shop after the commencement of the lease, the Act continues to apply.

The Bill amends the lessors’ disclosure obligations. Like New South Wales, the Act requires a lessor to provide a disclosure statement at least seven days before the lease is entered into.

But, unlike New South Wales, the lessee can waive the seven days, if it is a major lessee (i.e. the lessee of at least five retail shops). The Bill takes this exemption one sensible step further, by now enabling any lessee to waive the seven-day requirement, provided that it gives a waiver notice and a legal advice certificate.

I applaud this amendment (but not its procedural complexity) and urge other jurisdictions to get their track gauges married up.

The Bill sadly then rabbits on about sublessor disclosure, franchisor disclosure, and assignment disclosure.

It also then messes about with disclosure statements and options.Section 21E says that the lessor must serve a disclosure statement after an option is exercised. The lessee can then elect to renege on the exercise of the option.

This is bull-in-a-china-shop legislation. It reads like another disincentive for lessors to grant options.

Tenants would rather have an option than this well-intentioned but misguided protection. As is often the case with retail legislation, we are throwing the baby out with the bath water.

We then turn to rent reviews.

Section 27 of the Act deals with the usual restrictions on the ability of a lessor to review the rent. The Bill amends s.27(8)(b) so as to make it easier for the lessee to waive the rent review protocols. Section 36 of the Act makes some rent review provisions void. The Bill permits a major lessee to give a notice under s.27(8) to avoid that consequence. But nothing can save a ratchet clause (s.36A).

Similarly, the Bill makes it easier for the lessee to waive an early market rent review before exercising an option to renew.

The Bill makes a lot of rats and mice amendments which should make the Act easier to navigate.

The outgoings and marketing fund provisions are amended.

Section 43 is amended, dealing with the lessee’s entitlement to compensation for interference by the lessor. Failure by the lessee to give notice of the interference is not fatal to the claim (for the period before notice is given) but is a factor to be taken into account. We are now running on a different gauge.

The Bill then does some housekeeping on the misleading conduct provisions of the Act.

New s.44A limits the compensation payable if the lessee is disturbed in circumstances where specific disclosure of the likely disturbance is provided to the lessee in a notice before the lease was entered into. However, in order to obtain the relief, the disturbance must occur within one year from the date the lease is entered into. This relief could be illusory in some developments, particularly when you think about the difference between ‘entered into’ and ‘commenced’.

The Bill does more housekeeping on the relocation provisions of the Act.

Section 48, dealing with the lessor recovering legal costs, is amended by removing the entitlement to recover mortgagee consent fees. But it does permit the lessor to recover its legal fees from the lessee if the lessor submits the final lease for signing, and the lessee then pulls out.

The Bill introduces s.50B, which says that a refurbishment provision is void unless it gives general details of the nature, extent and timing of the refurbishment. This aligns with New South Wales.

Importantly, the core trading hour provisions are amended, but sadly not in a way that is useful to the participants in the shopping-centre industry in the 21st century.

The brains trust is stuck in the groove that thinks a shopping centre operates on one set of trading hours. The brains trust has missed the bus that tells us that the Queensland economy now operates on dining, not mining.

So if you have a standard set of core trading hours, from 9:00am to 5:00pm, for the butchers and chemists, how do you require all of the restaurants and bars to open from noon to midnight?

At present, the answer is by the lessor adopting a complicated, de facto structure. Does the brains trust want to make it harder to do business? And how, if you have invested hundreds of hours in public hearings and research, can you fail to see something so obvious?

The Bill had an opportunity to do something useful on this important issue. But it decided to fiddle, and let Rome burn.

The ultimate outcome is yet another disappointment.

There have been some sensible tweaks, but your despairing correspondent seeks in vain for any bold, conceptual strokes that might facilitate, rather than hobble, the shopping-centre industry.

Sadly, we will continue to have to change trains at the border. And we are getting out of one red rattler into another, when the retail industry needs a TGV. SCN