Change brewing for tenants

What do amendments to Victoria’s Retail Leases Act mean for pharmacy? Stephanie McGrath takes a look

The recent Retail Leases Amendment Bill in Victoria introduced changes to leases for retail premises (such as pharmacies) including:

  • Landlords will be allowed to pass on the costs of essential safety measure compliance to retail tenants;
  • Retail tenants must be informed of the proposed rent before they extend their lease, instead of afterwards;
  • A new 14 day cooling off period after exercising an option to renew;
  • A right to initiate an early market review of rent;
  • Landlords will be required to return a retail tenant’s security deposit within 30 days; and
  • Updated disclosure requirements for landlords.

Essential safety measures

It has been the longstanding practice of landlords to pass onto retail tenants the costs of compliance with essential safety measures (being maintenance costs for essential services e.g. air conditioning) under the Building Act 1993 (Vic).

In 2015 President Garde of VCAT issued an advisory opinion about section 251 of the Building Act 1993 (Vic). His opinion of the interrelation between the relevant provisions of the Building Act and the Retail Leases Act was that landlords cannot recover maintenance costs for essential services and compliance.

As a result, if retail tenants incurred costs of these works that the landlord failed to carry out, the tenant could seek to recover those costs from the landlord.

As the opinion is not legally binding, uncertainty in this area remained.

To provide certainty, the Bill proposes to amend the Building Act to provide that a landlord can recover the costs of essential safety measures if the lease permits recovery and further, that unless the lease says otherwise, an occupier cannot recover from the landlord or set off from the rent any amount paid in respect of essential safety measure compliance.

Options to renew

Once law, the Bill will require a landlord to notify retail tenants about the last date for the retail tenant to renew its lease – being at least three months before that date (which is down from six months under the current legislation).

The landlord will also need to confirm:

  • the rent for the first year of the renewed term;
  • the tenant’s right to an early market review;
  • the tenant’s right to a cooling off period; and
  • any changes to the most recent Disclosure Statement they have given the tenant.

Cooling off period

As a retail tenant, you can now withdraw from your option to renew within 14 days of exercising your right to renew, provided you have not requested an early market review (noting if you request an early market review the latest date by which you have to exercise your option is delayed if a specialist retail valuer is appointed).

Early market review

The Bill introduces a retail tenant’s right to request an early market review of rent where the lease provides for a market rent review.

If the retail tenant requests an early review, and a specialist retail valuer is appointed, the last date before which the retail tenant must exercise an option to renew can be delayed so that the market rent can be determined before the last date to exercise the option.

This is a very welcome change and makes commercial sense. I expect it to provide more transparency for retail tenants as to the rent they will be paying before they elect to exercise their option and continue their lease.

Return of security deposit

This next change fills a glaring hole in the legislation – the return of a retail tenant’s security deposit by a fixed time.

The Bill requires a landlord to return a retail tenant’s security deposit within 30 days after the end of the lease.

Landlord Disclosure

For landlords, a disclosure statement will have to be given to a retail tenant at least 14 days before they enter into a lease. The current legislation requires 7 days.  From a landlord perspective, this change will only affect those pharmacy tenants who sublease any part of their pharmacy to subtenants. In that case, the pharmacy tenant is the landlord and will have to comply with the disclosure requirements.

Further information

If you require any specific information or assistance to protect your interests, please do not hesitate to contact the writer on 0488 00 24 24.

Stephanie McGrath is a Senior Legal Advisor practising in commercial law with a focus on health, business and property across Australia.

Stephanie’s significant pharmacy experience includes buying and selling interests in pharmacies Australia-wide, advising clients in relation to compliance with the requirements of different State and Territory Pharmacy Regulatory Bodies, applications to Medicare, applications and objections under the Pharmacy Location Rules and Ministerial Discretional Applications, partnership disputes and much more.

Disclaimer: The content of this article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. You should seek legal or other professional advice before acting or relying on any content of this article.

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