Retail and Commercial Leases (Miscellaneous) Amendment Bill

Second Reading

The retail and commercial leasing sector is dominated by small businesses. This sector is of vital importance to South Australia's economy and is a major provider of employment in this state. The property industry is also a major contributor to the state's economy, through its provision and development of retail premises.

Underpinning the relationships between property owners and their small business tenants is the Retail and Commercial Leases Act 1995, which was enacted on 6 April 1995 and commenced operation on 30 June 1995. The act was introduced to regulate the leasing of retail shops and replace part 4 of the Landlord and Tenant Act 1936. The primary purpose of the act is to protect the position of lessees of retail shop premises who pay rent below a specified threshold. The act is therefore vital to the growth and development of small business in South Australia.

In December 2013, the then state government and opposition committed to undertake a review of the act. A formal independent review process was initiated by the Small Business Commissioner on behalf of the former minister for small business in December 2014. Public consultation was carried out by way of an issues paper published by the commissioner in December 2014, and 37 submissions were received from a broad range of organisations, industry groups and individuals. Retired District Court judge Mr Alan Moss considered these responses in the preparation of the Moss review, which was tabled in this parliament on 24 May 2016.

Following the release of the Moss review, interested parties were invited to provide their views on the review's 20 recommendations and to make any further comments or suggestions which they considered necessary or relevant.Following the submission closing date of 26 August 2016, 60 submissions were received from lessors, lessees, conveyancers, shopping centres and other key industry stakeholders, including law firms and the Law Society of South Australia. Submissions were also received from the Attorney-General's Department, Crown Lands Program, Department for Environment and Water, the Crown Solicitor's Office and the Office of the Valuer-General.

The feedback and comments provided in the two tranches of extensive consultation shaped the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (the former bill), which was introduced in the lower house by the former government on 5 July 2017. This bill passed in the lower house on 28 September 2017, and was read a first time in the upper house on 17 October 2017, but lapsed when parliament was prorogued prior to the state election in March 2018.

The government has considered the amendments proposed in the former bill and has accepted those amendments as the basis for the current bill. The current bill intends to make processes under the act less ambiguous and improve the transparency of the legislation, which is consistent with industry expectations. The amendments aim to build on the existing protective measures for lessees within the legislation by:

  • clarifying important aspects of the legislation, such as making it explicit that retail shop leases can move into and out of the jurisdiction of the act by means of adjusting the rent threshold that triggers the operation of the act, and making certain that various sums such as the rent threshold and security bonds are clearly understood to be exclusive of GST;
  • clarifying arrangements for the provision of information to lessees entering into leases such as draft leases and disclosure statements, as well as clarifying various terms and definitions to improve certainty, and removing redundant terms;
  • increasing the various maximum penalties within the act. These maximum penalties have not been reviewed since 1995 and the current bill proposes an increase of 60 per cent, which is broadly in line with the 68 per cent movement in the CPI over the 20-year period from 1995 to 2015. Further, maximum penalties of $8,000 have been proposed for two new offences under the legislation;
  • permitting the government to exclude certain classes of leases and licences from the application of the act; and
  • permitting the Small Business Commissioner to certify exclusionary clauses and exempt leases and licences from the act.

The proposed changes to section 4 of the act relating to the application of the act will apply prospectively from the date that the amendments take effect. There is some legislative uncertainty regarding the application of the act between 4 April 2011 (when the prescribed threshold of rent was increased from $250,000 to $400,000) and the date when the proposed amendments will commence.

Members may recall that the 2017 decision of Justice Stanley in Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72 (the Diakou case) provides guidance on the interpretation of section 4 where the lease rent was originally above the threshold (i.e. the act did not apply to the lease) but has now fallen below the threshold because the rental threshold was revised and increased to $400,000 on 4 April 2011.

Justice Stanley found that once the annual rent did not exceed the prescribed sum the act should apply. The proposed amendments to section 4 of the act take account of the findings in the Diakou case, and in addition provide for the circumstances in which the act will or will not apply to a lease, depending on a range of factors including rent decreases, prescribed threshold increases and the type of lease entered into.

When the former bill was debated in September 2017, an amendment was made to make clear that the terms 'public company' and 'subsidiary' have the same meaning as in section 9 of the Corporations Act 2001 of the commonwealth. Effectively, this means that a public company is a company other than a proprietary company. This amendment, which provides further clarity as to the scope of leases captured by the act, has been incorporated in the current bill.

During the debate on the former bill, the question of whether overseas companies and their subsidiaries should be exempted from the protections of the act was raised. The current bill includes a provision excluding bodies corporate whose securities are listed on a stock exchange outside of Australia from the application of the act. This provision is based on the equivalent provisions in Victoria and New South Wales and applies to leases entered into after the commencement of the provision.

It is intended that the act may or may not apply to a lease, depending on whether the lessee at any given time is or is not a foreign company within the meaning of the act. For example, if the lessee is a foreign company at the time the lease is entered into, then the act will not apply. However, if at any time during the term of the lease the lessee ceases to be a foreign company, the act may again apply to the lease.

The government proposes five further amendments in the current bill that have not been previously considered or debated in the context of the former bill. The first is an amendment to address the complex issue arising from an increase to the rental threshold in 2010 made by the regulations. The government recognises that this change in the threshold has caused great difficulties for some landlords and tenants with long-term leases. The government proposes an amendment to make it express within the act that a registered lease which, at the time of the registration, falls outside of the rental threshold shall remain outside of the act regardless of any increase of the threshold which would bring the lease within the scope of the act.

This proposed amendment would cater particularly for long-term leases, such as hotels and motels, where the rent may exceed the current threshold of $400,000 when the lease is entered into but is subsequently captured by the requirements of the act when the rental threshold is raised and the rent falls below the raised threshold. This amendment provides a clear opportunity, at the point at which the lease is entered into, for the parties to protect the value of the lease and addresses the issues raised by the Deputy Premier and Attorney-General when the former bill was debated in the lower house.

To provide background on this issue to members, some of whom may already be aware of the issues raised in these legal matters since 2011, changes to the rent threshold under the former government created a severe situation for some business owners and landlords. The Moss review did not address this issue, despite it being known to the then government, and therefore could not provide a workable solution for those affected.

Unfortunately, the time to rectify this issue and provide some recourse for those affected was not acted upon by the former government. It was left up to the opposition and the Hon. John Darley MLC to provide options to the parliament for reform. This bill has worked towards a solution for this issue, going forward, in light of the issues raised through two substantive Supreme Court matters. While this cannot properly provide recourse for the actions of the former government in 2010 and 2011, I trust this assists into the future.

The second amendment seeks to ensure that public companies limited by guarantee and registered with the Australian Charities and Not-for-profits Commission are not excluded from the application of the act, thereby ensuring that this type of lessee is still afforded the consumer protections provided under the act.

If, after the commencement of this amendment, the status of the registered charity changes, the registered charity may subsequently fall within or outside the application of the act. For example, the act will apply to a public company that is a registered charity at the time the lease is entered into. However, if that company is later deregistered as a charity but remains a public company, then the act will no longer apply.

I thank WorkSkil, who provided submissions and counsel on this matter, for their work, and I am pleased to have been able to incorporate this sensible amendment into the government's bill. Proposed section 4(6) has been inserted to make clear that the act may or may not apply to a lease depending on whether a lessor or lessee becomes or ceases to be a lessor or lessee of a kind referred to in proposed section 4(2) of the act.

The third amendment increases the security from an amount not exceeding four weeks' rent to an amount not exceeding three months' rent, which is based on the recommendation set out in the Moss review and feedback received from key stakeholders and industry groups. This amendment will provide greater protection to tenants. Stakeholder feedback suggests that a one-month rental bond results in landlords acting too quickly to terminate the lease of a slow-paying tenant.

The fourth amendment changes references to sections 23 and 35 of the act. Since the act was last amended, the Australian institute of valuers and land economists has changed its name to the Australian Property Institute. The organisation has also amended its constitution to replace the reference of 'president' with 'chair'. These changes are accordingly reflected in the amendments to these sections. The final amendment is a technical amendment to section 32(e) of the act to include a reference to the emergency services levy in outgoing statements.

I reiterate that the government's bill acts on work undertaken by Mr Moss previously and extensive submissions and work of the Small Business Commissioner, his office and the industry. I trust this reform will make processes under the act less ambiguous and improve the transparency of the legislation, which is consistent with industry expectations. I commend the bill to the house and seek leave to have the explanation of clauses inserted in Hansard without my reading it.

EXPLANATION OF CLAUSES

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of Retail and Commercial Leases Act 1995

4—Amendment of section 3—Interpretation

This clause inserts definitions of GST and GST law which are consequential on the amendments to the Act in relation to rent and rent threshold. Definitions of public company and subsidiary (terms used in section 4 of the Act) are also added, to have the same meaning as in the Corporations Act 2001 of the Commonwealth. This clause also inserts a new subsection setting out the meaning of prescribed threshold in relation to the rent payable under a retail shop lease. The threshold of rent is defined to mean the amount of $400,000 per annum or such greater amount that may be prescribed by the regulations. The amount of $400,000 is the same amount as is currently prescribed by the regulations for the purposes of section 4. The definition also clarifies that the threshold amount does not include GST.

5—Amendment of section 4—Application of Act

This clause substitutes section 4 as follows:

4—Application of Act

Proposed section 4 sets out the circumstances in which the Act will or will not apply to a retail shop lease. In addition to re-enacting the provisions in the current section, the proposed section re-enacts and amends the provision currently in section 4(2). This is to clarify and provide for additional circumstances in which the rent threshold may be a determinative factor in whether or not the Act applies to a retail shop lease and to include two new circumstances in which the Act will or will not apply to a retail shop lease.

Proposed section 4(2)(a) provides that the Act does not apply to a retail shop lease at any time the rent payable under the lease exceeds the prescribed threshold (that is, $400,000 per annum). This provision will apply to leases entered into before or after the commencement of the provision, and regardless of whether the Act does or does not apply in relation to the lease at the time the lease is entered into. This means that the Act may apply or cease to apply to a particular lease during the term of the lease, either as a result of a change in the amount of rent that may be payable (for example, as a result of a rent review), or as a result of any increase in the amount of the prescribed threshold (by way of a regulation under the Act).

If, at the time a lease is entered into, the rent payable under the lease exceeds the prescribed threshold (and thus the Act does not apply to the lease), proposed subsection (3) provides for a mechanism whereby the parties may prevent the Act ever applying to the lease in circumstances where the Act would otherwise apply because of the provisions in proposed subsection (2)(a). If a retail shop lease is lodged for registration by the lessor within 3 months after the lease is executed and, at the time of lodgement, the rent payable under the lease exceeds the prescribed threshold, the Act will not apply to the lease and will continue not to apply to the lease despite the fact that the Act would otherwise, or may in the future, otherwise apply to the lease (either as a result of a change in the amount of rent that may be payable or any increase in the amount of the prescribed threshold).

Proposed subsection (4) provides 2 circumstances in which the provisions in proposed subsection (3) do not apply. The first is to or in respect of a lease entered into before the commencement of the proposed provision. The second is to the renewal of a lease on or after the commencement of the proposed provision pursuant to a right or option conferred by a lease entered into before that commencement. The provision clarifies, however, that despite the definition of 'renewal' of a lease in section 3 of the Act, the provisions in subsection (3) may apply to or in respect of a new retail shop lease (whether on the same or different terms) entered into by an existing lessee and lessor after the commencement of the provision.

Section 4(2)(c)(i) of the current Act provides that the Act will not apply to a retail shop lease if the lessee is a public company or a subsidiary of a public company. Proposed subsection (2)(e) re-enacts and amends this provision to allow the Act to still apply if the public company is a public charitable company (or a subsidiary of a public charitable company). Public charitable company is defined in proposed subsection (7) as a public company limited by guarantee and registered under the Australian Charities and Not-for-profits Commission Act 2012 of the Commonwealth.

Proposed subsection (2)(f) provides that the Act does not apply to foreign companies.

Proposed subsection (6) clarifies to avoid doubt, that the circumstances in proposed subsections (2)(d), (e), (f) or (g) may or may not apply to a lease over the term of that lease depending on whether the lessor or lessee becomes or ceases to be a lessor or lessee of a kind referred to in those paragraphs.

6—Insertion of section 6A

This clause inserts a new section:

6A—Valuer-General to review prescribed threshold

The proposed new section provides for the Valuer-General to conduct a review of the amount of the prescribed threshold for the purposes of the Act (being the threshold amount of rent at which the Act will cease to apply to a particular lease). On completing a review, the Valuer-General is to provide a report to the Minister on whether an increase in the prescribed threshold is recommended. The first review is to be conducted within 2 years of the commencement of this provision and every 5 years after that. The regulations may (but need not) specify requirements in relation to the review regarding matters to be considered by the Valuer-General, or consultation to be undertaken.

7—Amendment of section 9—Commissioner's functions

This amendment is consequential on the amendments to sections 20K and 77(2) of the Act by this measure, and reflects the fact that the Act assigns other functions to the Small Business Commissioner in addition to those set out in section 9.

8—Substitution of section 11

This clause substitutes a new section 11:

11—Copy of lease to be provided to prospective lessee

This clause provides that a lessor who offers, or invites an offer, to enter into a retail shop lease, or advertises that a retail shop is for lease, must provide a prospective lessee with a written copy of the proposed lease as soon negotiations are entered into. Under current section 11, a copy of the lease need only be made available to the lessee for inspection. As is the case for the current section 11, the copy of the proposed lease need not include the particulars as to the lessee, rent or term of the lease. In addition, the lessee must provide the lessee with a copy of the information brochure published by the Small Business Commissioner.

9—Amendment of section 12—Lessee to be given disclosure statement

This clause amends section 12 to provide that a lessor must, before entering into a retail shop lease, give the lessee a signed disclosure statement in duplicate. The lessee must then sign both copies of the statement and return 1 copy to the lessor within 14 days.

10—Amendment of section 14—Lease preparation costs

This amendment deletes the reference to stamping and stamp duty in relation to the lease, as this is no longer payable.

11—Amendment of section 15—Premium prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with the granting of a retail shop lease from $10,000 to $15,000.

12—Substitution of section 16

This clause substitutes a new section 16:

16—Lease documentation

Current section 16, which sets out the requirements for the provision of an executed copy of a lease to the lessee, has been rewritten to remove the references to stamp duty, as this is no longer payable on a retail shop lease. If a lease is not to be registered, the lessor is required to provide a copy of the executed lease within 1 month after it has been returned to the lessor following its execution by the lessee. In the case of a lease that is to be registered, the lessor must lodge the lease for registration within 1 month of its execution and return by the lessee, and a copy of the executed, registered lease must be given to the lessee within 1 month of the lease being returned to the lessor following its registration.

13—Amendment of section 19—Security bond

This clause proposes to amend section 19(1) to increase the penalty for requiring more than 1 security bond for the same lease or requiring the payment of security bond that exceeds 3 months rent from $1,000 to $1,500. The section is amended to provide that the amount of security bond and any calculation using the amount of security bond, is to be exclusive of GST. Clarification of the manner in which the maximum amount of security bond is to be calculated is provided for in subsection (1a).

14—Amendment of section 20—Repayment of security

This clause increases the time in which a written notice of dispute as to repayment of a bond must be lodged with the Commissioner under subsection (4) from 7 days to 14 days, and makes a consequential amendment to subsection (5).

15—Insertion of section 20AA

This amendment inserts a new section 20AA:

20AA—Return of bank guarantees

The proposed clause requires a lessor who has received a bank guarantee to return it to the lessee within 2 months of completing the performance of the obligations under the lease for which it was provided as security, unless the guarantee has expired or been cancelled, or for such time as there are court proceedings in relation to the guarantee. A consent or release necessary to have the bank guarantee cancelled may be provided instead if a lessor is unable to return the original guarantee. A lessor may be liable to pay a lessee compensation for any loss or damage suffered as a result of failing to return a bank guarantee, as well as any reasonable costs incurred by the lessee in connection with cancelling the guarantee. This provision will apply to a bank guarantee given in relation to a lease whether entered into before or after the commencement of this provision.

16—Amendment of section 20B—Minimum 5 year term

This clause amends section 20B by removing the reference to a period of holding over exceeding 6 months. This is to make it clear that a period of holding over after the termination of an earlier lease greater than 6 months, does not imply a new 5 year term of the lease.

17—Amendment of section 20K—Certified exclusionary clause

This clause amends section 20K to include the ability for the Commissioner, in addition to an independent lawyer, to sign a certificate in relation to a certified exclusionary clause. The Commissioner may require payment of a prescribed fee for providing such a certificate.

18—Amendment of section 20L—Premium for renewal or extension prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with the renewal or extension of a retail shop lease from $10,000 to $15,000.

19—Amendment of section 20M—Unlawful threats

This clause increases the penalty for the offence of making threats to dissuade a lessee from exercising a right or option to renew or extend a retail shop lease or exercising the lessee's rights under Part 4A of the Act from $10,000 to $15,000.

20—Amendment of section 23—Reviews to current market rent

This clause updates the reference in the section from the President of the Australian Institute of Valuers and Land Economists (SA Division) Inc. with the Chair of the South Australian State Committee of the Australian Property Institute Limited. The clause also provides that, for the purposes of the section, the holder of such other office representing property interests in the State may, instead, be prescribed by the regulations.

21—Amendment of section 24—Turnover rent

This amendment increases the penalty from $1,000 to $1,500 for the offence of a lessor requiring a lessee to provide information about the lessee's turnover when the lease does not provide for rent or a component of the rent to be determined by reference to turnover.

22—Amendment of section 32—Lessor to provide auditor's report on outgoings

This amendment adds a reference to the emergency services levy to section 32(e). It also updates an obsolete reference with a reference to the Corporations Act 2001 of the Commonwealth.

23—Amendment of section 35—Determination of current market rent under options to renew

This clause updates the reference in section 35(1)(c) from the President of the Australian Institute of Valuers and Land Economists (SA Division) Inc. with the Chair of the South Australian State Committee of the Australian Property Institute Limited. The clause also provides that, for the purposes of the section, the holder of such other office representing property interests in the State may, instead, be prescribed by the regulations.

24—Amendment of section 44—Premium on assignment prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with consenting to the assignment of a retail shop lease from $10,000 to $15,000.

25—Amendment of section 51—Confidentiality of turnover information

The amendment to this section increases the penalty for the offence of divulging or communicating confidential information about the turnover of a lessee's business from $10,000 to $15,000.

26—Amendment of section 55—Lessor to provide auditor's report on advertising and promotion expenditure

This clause updates obsolete references with references to the Corporations Act 2001 of the Commonwealth.

27—Amendment of section 75—Vexatious acts

This clause increases the penalty for the offence of parties to a lease engaging in vexatious conduct in connection with the exercise of a right or power under the Act or a lease from $5,000 to $8,000.

28—Amendment of section 77—Exemptions

This amendment provides that, in addition to the Magistrates Court, the Commissioner may grant an exemption from all or any provisions of this Act, on the application of an interested person, in relation to a particular retail shop lease (or proposed lease) or a particular retail shop (or proposed shop). The clause also increases the penalty for contravening a condition of an exemption granted under section 77 from $500 to $800.

29—Substitution of section 80

This clause substitutes a new provision setting out the regulation making powers under the Act:

80—Regulations

The proposed new section 80 sets out the regulation making powers under the Act to include those provisions now more commonly included. It provides that any regulations made may be of general or limited application and may confer powers or impose duties in connection with the regulations on the Minister or the Commissioner. As is currently the case, it also allows for regulations to prescribe codes of practice to be complied with by lessees and lessors and to impose maximum penalties of $2,000 for contravention of a regulation. The regulations may also make provision of a saving or transitional nature and make different provision according to the classes of persons or matters to which it is expressed to apply, fix fees and make exemptions.

Part 3—Amendment of Landlord and Tenant Act 1936

30—Insertion of section 13A

This clause inserts a new section

13A—Jurisdiction of the Magistrates Court

Proposed new section 13A clarifies that the Magistrates Court has jurisdiction to hear and determine applications and proceedings under Part 2 in relation to distress for rent. If the jurisdictional monetary or property value limits of the Magistrates Court are exceeded, the proceedings are to be referred to the District Court.

31—Amendment of section 24—Adverse claims

This amendment is consequential on the insertion of new section 13A.

Debate adjourned on motion of Mr Brown.