NQLA 2008

Presented by Donnie Harris

The Generation Y DisclaimerThe Generation Y Disclaimer

I am not responsible for anything that I say here today. If I say something that is incorrect or misleading, it is someone else’s fault and not mine.

RETAIL SHOP LEASING – A RETAIL SHOP LEASING – A BRIDGE TOO FAR?BRIDGE TOO FAR?

Purpose of the Presentation?Purpose of the Presentation?

AgendaAgenda1.1. What is a retail shop lease?What is a retail shop lease?2. 2. Excluded retail shopsExcluded retail shops3. Disclosure obligations3. Disclosure obligations4.4. Options to renewOptions to renew5.5. Rent ReviewsRent Reviews6. Outgoings6. Outgoings7. 7. Unconscionable conductUnconscionable conduct8.8. False or misleading statement or False or misleading statement or

misrepresentationmisrepresentation

What is a Retail Shop?What is a Retail Shop?

ExampleExample

Mr and Mrs Smith have just finished building 3Mr and Mrs Smith have just finished building 3new shops which they will lease to a hairdresser,new shops which they will lease to a hairdresser,newsagent and an accountant. Mr and Mrs Smith newsagent and an accountant. Mr and Mrs Smith

alsoalsoown 4 existing shops (convenienceown 4 existing shops (conveniencestore, bakery, liquor shop and pharmacy) which store, bakery, liquor shop and pharmacy) which

arearelocated across the road from the new shops. Thelocated across the road from the new shops. Thearea will be known as the “Upper Vale Roadarea will be known as the “Upper Vale RoadShopping Centre”.Shopping Centre”.

Excluded Retail ShopsExcluded Retail Shops

1.1. 1000 square metres and publicly listed1000 square metres and publicly listed2. 2. Term less than six monthsTerm less than six months3.3. Flee market, trade show, carnival, Flee market, trade show, carnival,

festival, festival, theme or amusement park theme or amusement park 4. 4. Periodic tenancy/tenancy at will – only Periodic tenancy/tenancy at will – only

to the to the extent that the disclosure extent that the disclosure requirements do requirements do not applynot apply

5. 5. South Bank Corporation leaseSouth Bank Corporation lease6. 6. Lease to a service station if the Lease to a service station if the

Petroleum Petroleum Retail Marketing Franchise Retail Marketing Franchise Act 1980Act 1980 applies applies

Disclosure ObligationsDisclosure Obligations

New LeaseNew Lease

1.1. 7 days before lessee enters into the 7 days before lessee enters into the lease - lease - draft of the lease and a disclosure draft of the lease and a disclosure statementstatement

2.2. What happens if the lessor does not What happens if the lessor does not comply or comply or the statement is a defective the statement is a defective statement?statement?

3. 3. Major lessee qualificationMajor lessee qualification

4. 4. Lessee’s disclosure obligationLessee’s disclosure obligation

Disclosure ObligationsDisclosure Obligations

Assignment of LeaseAssignment of Lease

1.1. Assignor’s disclosure Assignor’s disclosure

2.2. Assignee’s disclosureAssignee’s disclosure

3.3. Lessor’s disclosure Lessor’s disclosure

4.4. Major lessee can waive entitlement to Major lessee can waive entitlement to receive receive disclosure statement within disclosure statement within disclosure perioddisclosure period

5.5. Financial and legal advice reportsFinancial and legal advice reports

Disclosure ObligationsDisclosure Obligations

Assignment – what are the consequences ofAssignment – what are the consequences ofnon compliance?non compliance?

1.1. Retail Tenancy Dispute Retail Tenancy Dispute

2.2. CompensationCompensation

3. 3. Section 50ASection 50A

Options to RenewOptions to Renew

1.1. Section 27 – early determinationSection 27 – early determination

2.2. Section 46 – obligation to remind the Section 46 – obligation to remind the lessee lessee of the optionof the option

3.3. Section 46AA – if there is no option, Section 46AA – if there is no option, the the lessor must give the lessee notice lessor must give the lessee notice that the that the lessor will or will not offer a lessor will or will not offer a renewalrenewal

Rent ReviewsRent Reviews

1. 1. Section 27Section 27

2. 2. Consequence of an invalid reviewConsequence of an invalid review

(a)(a) leases entered into before 1 July leases entered into before 1 July 2000;2000;

(b)(b) leases entered into after 1 July leases entered into after 1 July 20002000

OutgoingsOutgoings1.1. Reasonable expenses directly Reasonable expenses directly

attributable to attributable to the operation, maintenance the operation, maintenance and repairand repair

2.2. Lease must specify the outgoings Lease must specify the outgoings payable, payable, how the outgoings are how the outgoings are determined and determined and apportioned and how apportioned and how the outgoings may be the outgoings may be recoveredrecovered

3.3. Must not pay more than the proportion Must not pay more than the proportion that that the area of the lessee’s shop bears to the area of the lessee’s shop bears to the the total area of all premises in the centre total area of all premises in the centre or or buildingbuilding

4. 4. Audited annual statementAudited annual statement

Unconscionable ConductUnconscionable Conduct

Lessor or lessee must not “in connection Lessor or lessee must not “in connection with a retail shop engage in conduct, that with a retail shop engage in conduct, that is, in all the circumstances is, in all the circumstances unconscionable”.unconscionable”.

Conduct which could be Conduct which could be unconscionable?unconscionable?

1.1. Exploiting contractual terms for Exploiting contractual terms for ulteriorulterior motivesmotives

2. 2. Renewals/extensions/optionsRenewals/extensions/options

3. 3. Failing to enforce contractual termsFailing to enforce contractual terms

How to avoid Unconscionable How to avoid Unconscionable Conduct?Conduct?

1.1. Be prepared to negotiateBe prepared to negotiate

2.2. Disclose material informationDisclose material information

3.3. Answer questions truthfullyAnswer questions truthfully

4.4. Lessees should be encouraged to Lessees should be encouraged to seek seek independent adviceindependent advice

5.5. Honour contractual termsHonour contractual terms

6.6. Be familiar with and make use of Be familiar with and make use of dispute dispute resolution proceduresresolution procedures

False/Misleading Statement or False/Misleading Statement or MisrepresentationMisrepresentation

1. 1. Section 43 (2) (a) applies when a Section 43 (2) (a) applies when a lessee lessee “entered into the lease, or a “entered into the lease, or a renewal of it”renewal of it”

2.2. Section 43A applies to an “assignment” Section 43A applies to an “assignment” of of the lease but only for a false or the lease but only for a false or

misleading misleading statement or representation statement or representation “in a disclosure “in a disclosure statement”.statement”.

Leasing in PracticeLeasing in Practice

1.1. Develop checklists and proceduresDevelop checklists and procedures

2.2. Review precedents to ensure that Review precedents to ensure that they they don’t offend the Actdon’t offend the Act

Summing UpSumming Up

1.1. CritiqueCritique

2.2. Questions?Questions?

A Roberts Nehmer McKee Presentation