The South Australian Government began a review of the Retail and Commercial Leases Act in 2014. A Bill has just been tabled proposing some 28 amendments to the Act. The SCCA and Executive Director Angus Nardi have been close to the review and have provided significant feedback to the review parties. It would appear the outcome is satisfactory.
In July, the SA Deputy Premier and Attorney-General, Vickie Chapman, tabled a 13-page Bill in Parliament proposing 28 amendments to the Retail and Commercial Leases Act 1995 and Landlord and Tenant Act 1936.
The Bill is a final step in a review that commenced in late December 2014 via the release of an 11-page issues paper, undertaken by retired District Court Judge Alan Moss as appointed by the then Minister for Small Business in the former Labor Government, Tom Koutsantonis.
The 43-page Moss review was ultimately completed in early 2016 and tabled in Parliament in May 2016, and the Government then sought feedback on Mr Moss’ 20 specific recommendations.
Since that time, the SA Small Business Commissioner, John Chapman, has led the review process on behalf of the Government, and it’s a credit to Commissioner Chapman and his office for helping to steer the review to its finalisation.
This includes the ongoing consideration of several issues, including in light of the change of Government at the March 2018 state election, and also several relevant court decisions handed down in 2012, 2017 and 2019.
Like all retail lease legislation reviews, the baseline is obviously the current legislation, which has had several amendments since its original commencement on 30 June 1995 under a then Liberal Government.
Despite some broad similarities, the SA legislation has a few differences when compared with other jurisdictions. As an example, shopping centre tenants have a preferential right of renewal when their lease expires.
Further, the SA legislation governs casual mall licensing, whereas in other jurisdictions it is generally governed in line with the SCCA’s Casual Mall Licensing Code, which is authorised by the Australian Competition and Consumer Commission (ACCC).
The last key change was new Regulations in 2010 (which commenced in April 2011) and resulted in the raising of the rental threshold from $250,000 to $400,000, which is a principal trigger for what retail shop leases the Act applies to.
Like most retail lease legislation reviews, the Bill is also as much about what issues didn’t make the final cut.
To cite a few examples, this includes an earlier proposal to enable a ‘failing retailer’ to exit their lease on notice and be released from any further obligation to a landlord.
Aside from issues about what would constitute a ‘failing retailer’, we expressed concerns that the reasons for a retailer ‘failing’ could be wide-ranging, and hence it was not reasonable that a landlord should have to accept such additional retail, economic and business risks.
Similarly, we had concerns that such a proposal could interfere with the insolvency regime under the Corporations Act 2001. It was also concerning that in exiting a lease, a retailer’s liability could have been limited to the amount in a bank guarantee. We strongly proposed that a lessor should still be able to pursue recovering any losses through other means.
Fortunately, this proposal was abandoned.
Another earlier proposal that was abandoned related to potentially limiting a lessor’s ability to obtain a bank guarantee as security, which we believed overlooked the fact that security relates to a lessee’s obligations under the lease, and that a guarantee is only drawn upon when a lessee fails to meet their obligations under the lease.
Before I address some of the amendments in the Bill, it’s worth noting that it is largely similar to the Bill tabled by the former Labor Government in July 2017, which passed the Lower House in September 2017, was debated in the Upper House in late 2017, but failed to pass the Parliament before it was pro-rogued ahead of the March 2018 state election.
On the same day that the former Government tabled their Bill, the Upper House independent MP John Darley tabled his own Bill, which sought to address issues that arose from a decision handed down in the Supreme Court in December 2012, known as the ‘Buffalo Motor Inn’ case.
This decision related to the increasing of the Act’s rental threshold in 2011, that I noted above, including the ability for a lessor to pass on land tax to a lessee. The former Government’s Bill did not completely address this issue.
Noting additional amendments made by the current Government to the 2017 Bill, I highlight five issues that the industry should be aware of given their impact on leasing and investment.
Overall, subject to its passage, the Bill requires lessors to ‘do more’, within new prescribed timeframes and with increased penalties.
Broadly, it’s worth noting that this sits within the theme noted by Deputy Premier Chapman in tabling the Bill, that ‘the primary purpose of the Act is to protect the position of lessees of retail shop premises who pay rent below a specified threshold’. This reflects Mr Moss’ observation that ‘The Act is properly characterised as consumer protection legislation, the primary purpose of which is to protect the position of lessees of retail shop premises…’
The first key outcome of the review is the retention of the Act’s ‘rental’ threshold, which is a principal determination as to what leases the Act applies to. The prescribed threshold will continue to sit at $400,000 per annum, and is exclusive of GST.
The retention of the rental threshold was in fact the first recommendation of the Moss review, noting as follows: ‘The threshold for the application of the Act should continue to be determined by the amount of the rental and not by lettable area. The SBC (Small Business Commissioner) should monitor the marketplace and make recommendations for the alteration of the threshold amount (if necessary) every two years’.
Before commenting on the retention of the rental threshold, it’s worth noting that the Bill includes a provision which provides that the Valuer-General must, within certain terms and conditions, conduct a review of the prescribed rental threshold and provide a report to the Minister with any recommendations for change.
We proposed that it would be common sense in the current rental threshold being shifted to a floorspace threshold, similar to other jurisdictions such as New South Wales, Queensland, Western Australia and the Australian Capital Territory.
During the earlier stages of the review, Mr Moss in fact recommended a transition to a floorspace threshold, and specifically a 500m2 threshold (as compared to the 1,000m2 threshold in legislation in other jurisdictions) to sufficiently ensure coverage of ‘small businesses’.
Mr Moss noted that a floor space threshold would provide much greater clarity and reduce uncertainty, and we endorsed his view.
We also provided that a floor space threshold would provide greater certainty and move away from the notion that a lease can ‘move in and out’ of the Act, and hence turn on or off relevant provisions, depending on the level of rent. A floorspace threshold would also have the benefit of not needing to be further reviewed, such as what is now proposed in the Bill in relation to the ongoing rental threshold.
It’s worth noting that the Government has inserted a new amendment that seeks to address issues arising from two previous court decisions and Mr Darley’s 2017 Bill noted above, including in relation to the registration of leases to ‘protect’ the rental threshold upon which a lease was entered into.
The Bill will also exempt public companies and their subsidiaries from having the protection of the Act, including those listed on a foreign stock exchange, which is similar to other jurisdictions. This applies the general principle that a public company is large enough to look after its own interests and hence doesn’t need the protection of legislation.
Overall, section 4 of the Bill, which clarifies what retail shop leases the Act does and doesn’t apply to, is substantially longer and more complex that the current section. Subject to the Bill’s passage, lessors should familiarise themselves with this section and all scenarios in relation to the Act’s application.
Second, the Bill provides for enhanced provision of lease documentation to a lessee by a lessor, including in relation to Disclosure Statements, a written copy of the proposed lease along with the retail shop lease information brochure published by the Small Business Commissioner, and also an executed copy of the lease being provided to a lessee within a one-month timeframe of its execution.
Third, the Bill proposes that the maximum amount for a security bond is three months’ rent (exclusive of GST), referencing the rent payable during the first year of the lease. It’s worth noting that the previous Government Bill tabled in 2017 proposed a maximum of four weeks’ rent.
Fourth, like a provision that was inserted in the NSW legislation in 2017, lessors will need to return a lessee’s bank guarantee within two-months of them fulfilling their lease obligations. This issue arose initially during the NSW legislative review, when it was put to us that lessors were sitting on bank guarantees for a lengthy period after a tenant had fulfilled their obligations.
Fifth, the Bill increases several maximum penalties, and also imposes two new offences under the legislation (eg. in relation to the new requirement to return a bank guarantee within a two-month period, noted above). The maximum penalties, which have not been reviewed since 1995, have been increased broadly in line with CPI since that time, increasing from the current $10,000 to $15,000.
Overall, we are comfortable with the Bill passing the Parliament in its tabled form, noting the comprehensive review and the balance of the Bill.
We have provided some feedback on the Bill which seeks to improve its practical application, including to address issues that can arise beyond a lessor’s control in meeting certain obligations and timeframes.
At the time of writing this article, the Bill has not been debated in the Lower House, and will also need to pass the Upper House, which the Government does not control. Given that Labor tabled an original form of the Bill in 2017, notwithstanding the Government’s five additional amendments, it could be reasonably anticipated that the Bill should receive Labor’s support without material amendment.
I congratulate the Deputy Premier and Attorney-General, Vickie Chapman, for tabling the final Bill including proposing further amendments to the former Government’s 2017 Bill. I also acknowledge Alan Moss for his substantial work on the review, along with the Small Business Commissioner, John Chapman, and his team for their ongoing engagemen
