Insights

In brief - Information asymmetry, fidelity of the bargain and fair dealings among areas of concern

The NSW government has invited submissions from interested parties on a number of areas of concern in the Retail Leases Act, as identified in its recently released discussion paper.

Discussion paper identifies key areas of concern in Retail Leases Act

In late November 2013, the NSW Minister for Small Business and Primary Industries, Katrina Hodgkinson, released a discussion paper, 2013 Review of the Retail Leases Act 1994. With changes experienced in the retail leasing market in the past decade, the discussion paper ("the 2013 Review") outlines problems associated with the current operation of the Retail Leases Act ("the Act").

In particular, the 2013 Review identifies eight key areas of concern - information asymmetry, outgoings, fidelity of the bargain, streamlining/simplicity, fair dealings, coverage of the Act, reducing prescriptive regulation and technical issues.

NSW retail leasing legislation and reasons for review

The Act was enacted to promote fair and efficient dealings between tenants and landlords by prescribing minimum standards in retail leasing. However, submissions from the Registrar of Retail Tenancy Disputes, the Office of the NSW Small Business Commissioner and various stakeholders have identified concerns with:

• The proper administration of the provisions of the Act

• Continuing and emerging problems within the market which are not adequately addressed by current provisions

• Current provisions which may no longer be appropriate

Key areas of concern, submissions and closing date

The 2013 Review seeks submissions with respect to the following areas.

Information asymmetry: In light of tenants' disadvantage relative to landlords in access to information, the government is considering whether information on the "whole of the financial deal" relating to a lease should be lodged in a publicly accessible location. The whole of the financial deal refers to the sum of the face rent with adjustment for any side deals agreed under the lease, including all financial and non-financial incentives and concessions.

Further, the 2013 Review also raises the possibility of provisions for the collection of turnover rent data to assist the effective management of the performance of shopping centres.

Outgoings: The recovery of outgoings and the streamlining of reporting obligations of landlords are being considered to promote greater certainty for tenants and to reduce unnecessary costs associated with reporting activities.

Outgoings specifically addressed by the 2013 Review include management fees, advertising and promotion levies, land tax and environmental upgrade agreements. In particular, the government is considering whether land tax should be recoverable from a tenant as an outgoing.

Fidelity of the bargain: The 2013 Review addresses the role of tenants, sub-tenants and lot owners of strata schemes and whether they are afforded adequate protection under the Act. To promote fair and efficient dealings between parties, the 2013 Review considers the introduction of a right of first refusal or a right of last refusal to improve security of tenure for tenants.

Streamlining/simplicity: The 2013 Review considers the development of a standard retail lease and whether such a lease will be of benefit to the leasing industry. Particularly as there are currently numerous versions of retail leases being used in NSW which differ significantly, a standard lease would promote more efficient and fair dealings.

The streamlining of the process of appointing specialist retail valuers, registration, disclosure statements and mortgagee consent fees are also being considered.

Fair dealings: Although there is an implied duty to act in good faith in the performance of contractual obligations, an express duty to act in good faith has been proposed to reduce the number of disputes which arise when parties do not act in good faith.

Coverage of the Act: The government is considering the clarification of the definition of a "retail shop" and the range of commercial premises which are intended to be covered by the Act. In particular, the 2013 Review considers whether publicly listed companies and their subsidiaries should be excluded from the operation of the Act.

Reducing prescriptive regulation: To reduce unnecessary costs and red tape for businesses, the government is considering the removal of the minimum term of five years for a retail lease. The removal of other restrictions in retail tenancy legislation has also been proposed, including assignment and termination for inadequate sales.

Technical issues: In light of the growing online retail market, further clarification of the contribution of turnover data from online sales is required, as the Act does not explicitly provide for online revenue streams.

The 2013 Review also raises problems associated with the remedies and penalties currently imposed under the Act and minor drafting issues which should be remedied.

How to lodge submissions on the review of the Retail Leases Act

Any interested party should make written submissions or comments on the issues addressed by the 2013 Review or other related matters concerning the Act to the Office of the NSW Small Business Commissioner prior to the closing date of Friday 7 February 2014. The Commissioner's website also has the option of an online survey to facilitate the process of lodging submissions.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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