Retail Lease Costs under the Amended Retail Lease Act

The amendments to the Retail Leases Act in 2005 have changed what lease preparation expenses Landlords can pass on to Tenants.  The following is an overview of those changes and the lease preparation expenses that can still be passed on to tenants.

What are lease preparation expenses?

These include all legal and other expenses incurred by the lessor in connection with entering into a new lease, but they do not include registration fees.

So lease preparation expenses include:

• Landlord Solicitor’s costs for drafting the lease
• Stamp duty on the lease
• Land title searches
• Company searches on tenant companies
• Bankruptcy searches
• Mortgagee’s consent fees
• Registration agent’s fees

None of these expenses can be passed on to tenants.

So what can the tenant be required to pay?

Tenants can be required to pay the registration fee on the lease – currently $97.00.

Tenants can also be required to pay the Landlord’s “reasonable” legal costs for amending the lease at the request of the tenant in certain circumstances.  Amendments to correct an omission or error in the lease so that the lease terms reflect the agreement of the parties can not be passed on to a tenant, nor can amendments to the term of the lease, the rent or the particulars – for example $5 million public liability instead of $10 million.

Current Leases with Extensions or Options to Renew

Current leases entered into before 1 July 2005 are not affected by the amendments.  However when looking at whether extensions of a lease or new leases pursuant to the exercise of an option to renew are subject to the amendments the critical date is not the date of the current lease – it’s the date that the extension is granted or the period when the option can be exercised.  If the period in which the option to renew can be exercised is after 1 July 2005 then the amendments to the Act will apply.

Outgoings, Fit-out Costs, Outgoings Estimates and Disclosure Statements

Landlords can not require tenants to pay for any outgoings that are not disclosed in the disclosure statement.

Landlords can require tenants to pay for work the landlord has to do to the premises to enable the tenant to install their fit-out.  However the maximum amount to be paid by the tenant must be agreed between the parties before the lease is entered into.

If Landlords require tenants to undertake particular types or standards of fit-out then the tenant must be provided with a fit-out guide at the same time that they receive the lessor’s disclosure statement.  Tenants can not be required to meet any standard of fit-out that is not detailed in the fit-out guide or statement.

During the lease, Landlords must provide an estimate of outgoings to the Tenant in respect of each accounting period of the Landlord during the term of the lease at least 1 month before the commencement of the accounting period concerned.

If the shop is in a retail shopping centre, the estimate of outgoings is to include:

1. a statement of management fees, broken down into the fees to be paid by the lessee towards the administration costs of running the centre and other fees paid to the management company; and
2. a statement of cleaning costs to be paid by the lessee, broken down into the costs of consumables and other costs.