With the Commercial Tenancy (Retail Shops) Agreements Regulations (No. 2) 2012 (WA) (Regulations) being gazetted on Friday 30 November 2012, the amendments to the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Act) and the Regulations will now both come into effect on 1 January 2013.

The Act and Regulations aim to 'improve the tenancy rights of small business and to enhance the clarity and effectiveness of the legislation'. However, many landlords may view the changes as unduly restrictive and imposing an additional significant administrative burden.

Landlords will need to ensure they are across the amendments so that they do not fall foul of the amended legislation and risk lease clauses being void, leases being terminated by the tenant or leases being automatically extended in certain circumstances.

Key amendments to the Act and Regulations

Applicable to retail shop leases entered into on or after 1 January 2013

Disclosure statements

The Regulations set out a new more comprehensive form of disclosure statement which will be required for any retail shop lease entered into on or after 1 January 2013. Further, landlords will now be required to ensure that disclosure statements are complete as well as not containing any false or misleading information.

The new form of disclosure statement is similar but not identical to the form of disclosure required on the eastern seaboard. This is frustrating for national landlords.

Tenants will have the ability to terminate a lease or seek compensation from the landlord if the landlord has not complied with the prescribed disclosure obligations within 6 months of the lease being entered into. The old time frame was 60 days.

However, a tenant cannot rely on an erroneous disclosure statement if it does not have a substantive impact on the tenant's position. This provides landlords with some measure of protection.

Relocation

For retail shop leases where 5 years of the term (including any prior term) have already expired,  a relocation clause will be void unless it meets the minimum requirements set out in the Act, including providing 6 months notice to the tenant, details of the alternative premises and an offer of a new lease on the same or better terms as the existing lease and the payment of relocation costs and compensation.

For all other retail shop leases (i.e. where 5 years of occupancy has not elapsed), a relocation clause will be void unless it is in the form prescribed by the Regulations or has been specifically approved by the State Administrative Tribunal (SAT). Whilst landlords can still apply to SAT for approval of relocation clauses in special circumstances, this approval may now be more difficult to obtain given that a prescribed clause is specified in the Regulations. Landlords need to be aware of the potential difficulty they may face in seeking SAT approval for a relocation clause that differs from the form prescribed by the Regulations.

Some of the key requirements of the relocation clause prescribed by the Regulations are as follows:

• The tenant must be given at least 6 months written notice terminating its lease on the ground that the landlord intends to redevelop.
  
  
• The notice to the tenant must be accompanied by an offer to the tenant to take a lease of the redeveloped shop or an alternative shop. If the landlord does not give the tenant such an offer, the landlord will be liable to pay compensation to the tenant.
  
  
• The shop the subject of the landlord's offer must have similar estimated trading potential, floor configuration and lettable area as the tenant's existing shop.
  
  
• The tenant has 60 days to accept the landlord's offer.
  
  
• The annual rent and proportion of operating expenses must not be more than what is payable under the tenant's existing lease and the new lease must be on the same terms as the tenant's existing lease. 
  
  
• The landlord must pay the tenant's reasonable costs of relocating to the new shop. This includes the cost of reinstalling the tenant's fixtures and fittings in the new shop.
  
  
• The landlord must pay the tenant reasonable compensation for loss and damage (including loss of goodwill) arising from the termination of the tenant's lease. So far as the tenant's fitout of the existing shop is concerned, the landlord's liability is confined to paying the written down value of the tenant's fitout costs. This compensation requirement applies regardless of whether the tenant is offered a lease of a new shop.
  
  
• The tenant is entitled to a rent abatement for any period in which it cannot reasonably trade after the termination of the existing lease including because of the need to fitout and relocate to the new shop.

Refurbishment and refitting of premises

Any lease provision requiring a tenant to refurbish or refit the premises will be void unless it gives details of the required refit or refurbishment, including outlining the nature, extent and timing of the required refurbishment.

Right to at least 5 years' tenancy

Where previously the statutory option to a 5 year term applied to any retail shop lease, the Act now limits this to leases with a term 'of more than 6 months'. 

This amendment addresses the practical concerns regarding short term leases such as casual mall arrangements. However, landlords should be aware that a lease of a term 'of more than 6 months' includes a tenancy where the tenant has been continuously in possession of a retail shop for more than 6 months as a result of the lease being renewed or continued.

Also, instead of 90 days notice to exercise the statutory option, a tenant will now only be required to give 30 days notice.

Applicable to all retail shop leases from 1 January 2013

Market rent

The Act now specifies that the value of the goodwill, stock, fixtures and fittings (not owned by the landlord) and structural improvements (paid for by the tenant) are to be excluded from the assessment of current market rent. The Act also now provides that a landlord must provide information to a valuer undertaking a market rent review within 14 days of a valuer's request.

Notifying tenants of options to renew

The Act now imposes a new obligation on a landlord to give its tenants written notice of the last date on which an option to renew is exercisable. This notice must be given between 6 and 12 months before that last date.

If a landlord fails to do so, the last date to exercise the option becomes the date which is 6 months after the landlord gives this notice to the tenant. If such a date is after the expiry of the lease, the lease is deemed to continue until that date (subject to the tenant's right to terminate).

Consequently, it is critical that landlords give this notice to their tenants as a failure to do so will effectively extend the option period.

Liability for costs

A landlord will no longer be able to claim from any person (including the tenant) the landlord's legal or other expenses incurred in relation to the negotiation, preparation or execution of the lease, obtaining mortgagee consent, or the landlord's compliance with the Act.

While this is a substantial change for retail shop leases in Western Australia, this provision essentially brings the Act in line with the retail shops legislation in most other Australian jurisdictions regarding the passing on of landlord's costs.

What landlord and tenants need to do

As the Act and Regulations will come into effect on 1 January 2013, landlords must review these requirements carefully now and ensure that their leases comply with the changes in the Act and the Regulations. Tenants should be aware of their additional rights offered under the amended legislation.

As a copy of the standard lease must be given with any disclosure statement, it is important for landlords to finalise their review and amendment of their standard leases as a matter of priority, especially given the short period of time until the commencement of the amended legislation in the New Year.

We can provide legal and practical advice as to how best to deal with these issues and reduce the likelihood of a landlord or tenant being in breach of the amended legislation.