Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017

Ms CHAPMAN (Bragg—Deputy Leader of the Opposition) (15:54): I indicate that I will be the lead speaker in respect of the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017. Parliament would have noted that a number of parcels of amendments to this bill have been foreshadowed, but I propose to address the substantive bill in the first instance and hope to then explain the foreshadowed amendments in my name. They are in 220(1) and 220(4), as printed and tabled.

On 5 July this year the government introduced this bill to amend the Retail and Commercial Leases Act 1995, essentially to deal with recommendations arising out of a 2016 review of the operation of this act. On the same day the Hon. John Darley, in the other place, introduced a bill into the Legislative Council to deal with a matter arising out of a change of regulations to this act that were promulgated in 2010.

It is worth noting a brief history of the principal act to which we are referring. I think it is fair to say that prior to the passing of the principal act in 1995 the protection of lessees, particularly in retail shop premises, was then provided under the Landlord and Tenant Act 1936. There had been a long-held view by many small business operators that the rent—being a substantial financial outgoing—and the fair operation of the lease were critical to the success or failure of their business, and I do not think anything is changed in that regard.

However, it was also acknowledged that there was a significant imbalance of the commercial power between the lessee and the lessor which, in some circumstances, could leave the lessee at a significant disadvantage. So it is not new that we have, essentially, consumer protection law largely drafted to protect tenants in a commercial arrangement where, in some cases, there is a very significant imbalance between the power of the lessor and the lessee.

That is not universal by any means, but I suppose to a similar degree we have consumer-based protection in residential tenancy law in this state that has operated now for a number of decades, and which works on the presumption that it is likely the lessee is the one who is the most vulnerable in that relationship. That is the tenant in a residential arrangement.

Of course, in some instances the tenant can be articulate and educated and the lessor, the owner of the house, may be someone who has just one investment property that they do not reside in and that they hold on the understanding of a commercial arrangement, and they may be seen as quite inferior to the tenant. However, largely the development of laws in both these areas has been on the basis that the lessee is likely to be the more vulnerable, certainly less powerful, in a David and Goliath situation of power imbalance.

There have been a number of amendments, particularly in 1997 and 2002, to our Retail and Commercial Leases Act. Currently, the act provides for matters as follows:

  • it covers most non-residential landlord and tenant relationships;
  • it imposes mandatory disclosure requirements;
  • it prohibits certain conduct by landlords;
  • it deems certain provisions in leases to be void;
  • it provides tenant-friendly provisions (that is, the renewal of leases and security of tenure); and
  • it provides dispute resolution processes.

 

The act is supported by regulations promulgated in 2010. These are particularly important because the annual rent threshold, which attracted the application of the provision of the act, was increased from $250,000 to $400,000 and was effected on 4 April 2011. Frankly, that is when the disaster started in respect of the application of this act.

In December 2013, the state Labor government committed to a review of the act. The government appointed Mr Alan Moss, a retired District Court judge, to undertake the review. The review was handed down on 14 April 2016. That review was released for a three-month period of consultation and 37 submissions were received. The review was handed to the Small Business Commissioner, Mr John Chapman, then I think Mr Rau originally, but in any event the Minister for Small Business has the responsibility for the progress of the bill.

The government bill before us essentially claims to deal with matters recommended under the Moss review, accepting 16 of the 20 recommendations. Essentially, the bill provides for the following:

  • allowing retail shop leases to move into and out of the jurisdiction of the act;
  • an adjustment of the rent threshold that triggers the operation of the act and clarification that the figures used are exclusive of GST;
  • clarifying the provision of information to lessees at the time of entering into a lease broadly increasing, that is around 60 per cent, the maximum penalties by CPI since 1995;
  • providing maximum penalties of $8,000 for two new offences;
  • permitting the government to exclude certain classes of leases and licences; and
  • permitting the Small Business Commissioner to certify exclusionary causes and exempt leases and licences from the act.

 

Unsurprisingly, during the consultation the Small Business Commissioner has supported the bill and submissions have been received from the Law Society and the Property Council. Similarly, there is general acceptance. It is fair to say that the Property Council probably covers the interests of landlords, and of course must be therefore consulted largely in this space. It is fair to say that the Moss review was fairly mild in its recommendations to the extent of the breadth that is covered, and it is fair to say that from the submissions we received that broadly the reforms proposed are accepted. The opposition agrees with a number of those submissions.

What is the elephant in the room in this matter is the notable omission in the Moss review and in the government bill—namely, the issue that has been alive since the 2010 regulations and the identification of consequences of increasing the rent threshold of a number of transitional cases, that is, the tenancy arrangements entered into prior to 2011, which were substantially renewed, such as another five years after the change.

This aspect was very concerning to the Law Society. Obviously, it was not a process that came back before the parliament, but it was identified when the regulations rapidly increased the threshold from a $250,000 annual rent to a $400,000 rent. Perhaps inadvertently at that stage, but we will give the benefit of the doubt in that regard, it caused some severe financial impost on a number of transitional cases.

In the beginning, before the involvement of the current minister, there were requests submitted by the Law Society and, unsurprisingly, the financial and legal advisers of the landlords who were caught in this mess. Those requests were just completely ignored. Submissions were put to Mr Alan Moss and the Small Business Commissioner and, again, they were completely ignored, with no explanation or review as to why no action was being taken.

The government's published intention back in 2010 was that the new rent threshold would not apply to leases entered into prior to 4 April 2011 or renewals of leases or new leases entered into on right of renewal before that date. That is a clear commitment that was made at that time. Those who are now complaining about the adverse impact of these make it very clear that they had no reason to doubt the government's commitment in that regard, and if there was some corroboration, I suppose, of the concerns that were raised and the justification for those concerns being raised it was during the reign of minister Kenyon, who had responsibility in this matter shortly after this period.

One of the casualties in this action as a result of this threshold change related to a retail tenancy that was originally referred to minister Kenyon and then to the subsequent minister, minister Koutsantonis. In fact, I also wrote to the Attorney-General in May this year, but of course my responsibility on behalf of the opposition in relation to this area is relatively recent. In response to that correspondence to the Attorney-General, the current minister responded and advised that the matter was 'complex' and that after further correspondence he disclosed that it was a matter for parties entering into a lease to obtain their own independent legal advice. Notably, he also said:

With regard to the Moss review, the advice to the State Government was that this area needed to be clarified (i.e. leases may move in or out of the Act). It is the State Government's intention to reinforce this point in amendments to the Act which will be brought to the Parliament in due course.

Members should be aware that there are two important Supreme Court cases in respect of this issue; that is, firstly, the Buffalo Motor Inn case, WST v GRE Pty Ltd, and more recently, Diakou Nominees Pty Ltd v Gouger Nominees Pty Ltd. Both of these cases involve people who have been caught in the crossfire of the change of regulation. Both of these cases held that the new rent thresholds applied to existing leases; however, it should be noted that the Diakou case on appeal is still being considered by the plaintiffs in the Full Court.

You would think that, surely, in these circumstances, rather than the government saying, 'We're going to make some minor amendment which should resolve this in the future,' they would understand that there has been an utter stuff-up in respect of the modernising and updating of this legislation in which now seven years have passed and there has been no resolution for the people left in the crossfire. It is rather appalling conduct on the part of the government to have allowed this situation to go so long. That is the first thing.

Secondly, notwithstanding their original commitment, and notwithstanding correspondence that I have from the then minister Kenyon that this issue could be resolved and was expected to be resolved, it was not. I say shame on the government for just simply leaving these people in the lurch. As a result, unsurprisingly, the Hon. John Darley, at the introduction of this bill, moved a bill to try to resolve this issue on behalf of the people left in the middle.

That bill sought to remedy the inequalities consequential on changing the threshold in 2010 by regulation not protecting the interest of parties, particularly landlords, with pre-existing issues. The direct consequence of the effect of these changes relates to the liability to pay land tax. Now we get to the real issue of what is in question here, that is: who is going to pay the land tax?

The effect of this change, without there being any remedy to the people in the casualty list here, is that there is actually a transfer over from one to another. Section 30 of the act provides that lessees who have an annual rent higher than the threshold can have the land tax recovered from them by the owner. The threshold increase resulted in a situation where owners who had previously passed the land tax to their tenants would now be liable to pay it. This could be at a cost of tens of thousands of dollars, and clearly this was a matter taken into account when negotiating a lease before the 2010 threshold change by regulation.

Quite likely, in my view, the government has now seen that there is more political mileage in being the hero in providing relief to tenants rather than landlords. Again, I think that is shameful. They think, 'Well, look, bad luck. It's only a few whingeing landlords who are going to complain about this. We will be the heroes in the lead-up to the election. We will protect the interests of the tenants and they are going to now be relieved of very substantial bills of land tax.' Minister Koutsantonis, the Treasurer, will not give a toss who pays them; they are going to get the same money anyway. The conduct in doing this is utterly shameful. I think that it needed to be remedied and so did the Hon. John Darley. It needs to be resolved.

To simply turn a blind eye to it and say, 'We are going to go and contemporise the law generally and we are going to have Mr Moss look at it. We are going to consider whether we have different rules or different models of application of how we protect the parties in this space,' and ignore this elephant in the room I think is most unacceptable and certainly unbecoming conduct of a government that is supposed to be responsibly considering and protecting the interests of those who reasonably enter into commercial arrangements as per the law of the land of that day. That is what is reasonable.

As I have said, Mr Darley's bill then provided for statutory relief in view of the government's refusal to provide regulatory relief; specifically, that if a lease was entered into or renewed before 4 April 2011 and the rent at that time was more than $250,000, then the act will not apply. The effect will protect the existing rights and obligations of those owners and lessees. As I have pointed out, even with the passage of Mr Darley's bill, to do so would have no net effect on the total revenue because, from the Treasurer's point of view, they do not really care who pays as long as they get paid.

I noted with interest the Attorney-General's recent statement in this house when he was talking about residential parks. I remember a former treasurer of this parliament, the Hon. Kevin Foley, charging people land tax in residential parks. They had a right to space, actually, rather than land. It took a very long time to convince him that in fact he was charging people that he should not have been charging. It took lengthy submissions to remedy that situation. I noticed when we finally won that argument that he did not give any money back.

Nevertheless, these are the sorts of things that obviously as members of parliament we have to be vigilant about. Where we see some unfairness, we need to raise it with the government of the day and seek some appropriate relief. Sometimes that is statutory; in this case, the imposition of a regulation with promises to do A, which had the consequential effect of B, obviously to the detriment of the landlords in the transitional period, should have been dealt with by this government.

It had been honourably recognised by former ministers and now has been shoved under the carpet under the current regime. As shameful as that is, our remedy is to indicate that, whilst we support the substance of this bill, I will move amendments that are in my name, as per 221, and I will deal with the particulars of those when we get to them.

The Small Business Commissioner, Mr John Chapman, who I should state for the record is no relative of mine, provided us with a briefing and I thank him for that. Clearly, in the course of that briefing he was fully aware of the cases that tried to use the court process to get the protection that they thought they had of former ministers and to seek relief. However, it seems from those briefings, and I am sure the minister will correct me if I am wrong, that there are only a small number of cases that have at least been identified at this point where someone has come forward and said, 'Hang on a minute, we weren't supposed to be in this category.' As I said, because there is no net detriment to the financial receipts of the government then probably the question of how many cases is academic.

Unsurprisingly, the litigants in respect of the court cases had sought to put a submission to Mr Alan Moss. My understanding is that a request to meet with Alan Moss, the reviewer, was met with, 'His contract finished last year,' and therefore I was not, at least as a representative, to be afforded any further discussion with him. However, it could not have gone unnoticed by Mr Moss that this was a live and concerning issue. Nevertheless, the government terminated his contract. That is fair enough; he does not have to meet with me or do anything else. He was probably paid to do it, I suppose.

Again, this just smells of the approach that the government has had in what was quite a legitimate review with quite legitimate reforms raised in respect of legislation. But there has been a continued refusal by the last two ministers, at least since 2012, to deal with this matter in a manner that would provide some justice to the parties concerned. I will refer in detail to the amendments that deal with the transitional matters, if I can paraphrase them as that.

A further matter has been raised in respect of the circumstances of a new party being stuck paying land tax unexpectedly, and the Property Council suggests that to protect both parties the new provisions should only come into effect at the next market rent review under the lease. Both stakeholders have raised concern as to whether the act will apply and provide protection for all tenants of government-run entities. They assert that Renewal SA or government-owned properties may not be protected. Obviously, this can be clarified by the government and I seek that the minister do so in his response, unless he wants to wait until the committee stage.

Additionally, the Property Council recommended that the rent threshold review be in smaller increments in the future, which was the original recommendation of Mr Alan Moss. Notwithstanding this, by regulation the government increased the threshold from $250,000 to $400,000 in 2011, as I said. The Shopping Centre Council of Australia submitted that the criteria for application should be floorspace area rather than rental paid. As we know, Mr Alan Moss rejected that idea. We have accepted this in our previous indication of support of the bill generally.

The reviewer of the rent threshold is to be the Valuer-General every five years. The Valuation of Land Act 1971 provides no guidance on how this is to be carried out and they seek clarification, including stakeholders being consulted before any change. It is unusual to specify the particulars of a review, other than the time in which they should be undertaken or completed by statute, but I think questions need to be followed up in this regard with answers from the government.

In any event, the Shopping Centre Council of Australia also claimed the time line for the lessor to lodge a lease for registration is too strict. They say that it should be one month after the lease is returned to the lessor following the execution of the lease. They suggested an amendment to allow for one month, but with the capacity to extend that when the consent from the head lessor or mortgagee, or a requirement for a plan to be filed at the LTO, or other events beyond the control of the lessor, to be taken into account.

Accordingly, I indicate that we are persuaded that that is reasonable, and we would invite the government to consider the amendments foreshadowed in 220(4) standing in my name, to accommodate that request, which we consider reasonable in the circumstances. I think that covers the matter of giving notice to the government about our position on this matter. I invite the minister to respond to those matters, should he wish to do so, otherwise we will continue in committee.