Amendments to the Retail and Commercial Leases Act 1995 (RCLA) that will impact on the leasing and licencing practices of Councils have arrived.
The Retail and Commercial Lease (Miscellaneous) Amendment Act 2019 (Amendment Act) has been proclaimed and takes effect as from 1 July 2020.
What this means for Local Government
Classes of Tenants are to be exempt from the RCLA
Amendments to Section 4 of the RCLA mean that lessees and licensees (Tenants) of many Council leases and licenses may come within a new exemption that is linked to ‘a class specified by the regulations’. If the regulations are amended as previously discussed, this will make life easier for Council staff involved in the administration of leases and licenses of Council property such as sporting clubs and community groups.
The RCLA has always applied to most of the leases and licences entered into by Councils due to the broad definition of a ‘retail shop’. There has been ongoing debate about whether leases to community groups and sporting clubs (often for a peppercorn rent) should come within the ambit of the RCLA. The application of the RCLA to the majority of these occupancy arrangements places significant costly, and arguably unnecessary, administrative burden on Council administrations.
The new subsection in Section 4 excludes the RCLA from applying to a lessor if they are:
- the Crown or an agency or instrumentality of the Crown in right of the State, another State or Territory, or the Commonwealth; or
- a municipal or district council or other authority with powers and functions of local government; and
- the Tenant is of a class specified by the regulations for the purposes of this paragraph.
This means that the RCLA will not apply to a Council as lessor if the Tenant is a person specified in the regulations as being excluded from the RCLA applying.
Unfortunately at the time of writing the regulations have not been amended to include new classes of excluded Tenants. Hopefully this is dealt with sooner rather than later. It is likely that the exclusions will apply to community friendly activities as it was previously recognised that the following types of activities should be eligible for exemption:
- Rental of pools and hydrotherapy services within the health system by a private physiotherapist, or swimming instructor;
- Lease of Local Government facilities for Men’s sheds and other volunteer organisations;
- Volunteer operations by sporting clubs of small shops at Council owned sporting facilities.
A number of Councils have successfully sought exemptions in the past to certain classes of leases and licences from the application of the RCLA. Hopefully moving forward this will not be necessary as these will be excluded by the regulations.
Application to the Small Business Commissioner for exemption from the RCLA
A Council as lessor will now be able to apply to the Small Business Commissioner for an exemption to the RCLA where necessary. This provides a third option to the current applications available to either the Magistrates Court or the Minister for Small Business.
In recent years a number of Councils have successfully sought exemptions from parts or the whole of the RCLA under section 77. This has often involved commercial leases and licences of tourist parks due to the restrictions in the RCLA relating to obligations to carry out capital improvements by a Tenant. This new option may prove to be faster and more efficient.
Changes to the provision to provide a copy of the lease during negotiations
Pursuant to the new section 11, when negotiations are commenced with a prospective lessee the prospective lessee must be provided with:
- a copy of the proposed lease (particulars of lessee, rent and term not required at this stage). The penalty for not doing so is up to $8,000.00. and
- a copy of the Small Business Commissioner’s Information Brochure called “Retail & Commercial Leasing Guide” (Section 11(2)). The penalty for not doing so is up to $8,000.00.
There are stricter rules regarding disclosure statements in the Amendment Act.
A disclosure statement will be required to be signed by the lessor (not a requirement at present but often done) and it must be served on the Tenant personally; or
- by leaving at the last known place of residence, business or registered business office;
- by post - the service date is to be taken to have occurred when it would be delivered in the ordinary course of post; and
- by facsimile or email.
The Tenant is then required to provide the lessor with a signed acknowledgment of receipt within 14 days of service.
There is now a new offence for failure to comply with this section with the maximum penalty for non-compliance set at $8,000.
One important amendment is that there is no longer a requirement for a disclosure statement to be provided to a Tenant prior to a renewal of a lease.
Finally we note that the Retail and Commercial Leases ( Miscellaneaous ) Variation Regulations 2020 ( Variation Regulations) which come into operation on 1 July 2020 make some minor changes to the prescribed form of disclosure statement, including making express reference to the Emergency Services Levy in the category of outgoings and amending the wording of clause 7 regarding ‘consequences of breach’. Therefore Councils will need to update the form of template disclosure statement currently being used from 1 July 2020.
Five year minimum term on holding over
Section 20 B (minimum five year term) no longer contains the words ‘with the consent of the lessor and the period of holding over does not exceed six months’.
This is a good result and means that there is no longer a new automatic five year lease term when a Tenant has been holding over (Section 20BA(3)(b).
Certified Exclusionary Clause certificates pursuant to Section 20 (K) allowing a Tenant to waive its statutory rights of security of tenure (minimum 5 year term) after receiving independent legal advice will now be able to be signed by the Small Business Commissioner as an alternative to lawyers.
The amendment is important for Councils and means that non-commercial Tenants without a lawyer will be able to approach the Small Business Commissioner (for a fee of $200) instead of obtaining one-off legal advice when seeking to enter into a lease or licence that is for a term less than five years.
There are a number of other changes that will have a significant impact on commercial leases and a brief snapshot of these is provided below.
There is a new obligation on a lessor to return a bank guarantee within two months of completing its obligations under a lease. The period does not commence until after the Tenant completes performance of the obligations under the lease. For example this would include a delay in completing make good obligations at the end of a lease.
Outside of the circumstances noted above, failure by a lessor to return a bank guarantee within time could result in compensation being owed to a Tenant for loss or damage suffered as a result of the delay and a penalty of up to $8000.
GST exclusive amendments
The rent threshold of $400,000 and other sums under the RCLA are all confirmed to be GST exclusive. This was previously unclear.
The current rent threshold for leases moving into and out of the Act remains at $400,000.00. The amount is exclusive of GST. This means a lease where the rent is more than $400,000.00 (ex GST) is excluded from the application of the RCLA.
The threshold is to be reviewed by the Valuer General by 30 October 2022 (maybe later) and every 5 years thereafter (Section 6A).
The permitted security bond amount has increased to three months (GST exclusive) of the initial annual rent (Section 19) , disregarding any incentives. It was previously four weeks.
An overseas company which is registered on an international stock exchange is excluded from the RCLA (Section 4(2)(f).
Public charitable bodies
A public charitable body which is registered with the Australian Charities and Not for-Profits Commission will now be subject to the RCLA (Section 4(2).
Fluctuation of application of RCLA when rent threshold changes
If the rent threshold changes parties can avoid the risk of coming in and out of the RCLA by ensuring the lease and subsequent extensions are registered.
If the lease is outside the RCLA because the rent is over the then current threshold and if it the lease is registered within three months of it being signed it will remain outside the RCLA even if the threshold is increased later (Section 4(3)). No mention is made in relation to a lease that is not subject to the RCLA for other reasons such as the lessee being a public company.
Watch this space
We will keep you advised as to the status of the proposed exemptions to be included in the regulations as this will significantly impact on the legal obligations of Councils when it comes to leasing and licencing.
In the meantime, it is important that Councils understand their obligations under the RCLA especially as the penalties have in most cases increased from $500 to $8000 for non compliance.
If you have any questions regarding this or any other property issue, please contact one of the members of our Local Government property team. We would be happy to visit your Council and meet with staff to discuss this and any other issues you wish to raise.