Retail Leasing Disclosure Obligations
When leasing commercial property, it is important for tenants and landlords to understand the relationship they are entering and the rights and obligations they have.
In Western Australia, retail leases are regulated by the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the ‘Act’).
Generally, and subject to some exceptions, the Act applies to retail businesses and businesses operating in a shopping complex.
The Act promotes fairness and transparency during the retail leasing process and facilitates access to alternative dispute resolution processes. Unconscionable, misleading and deception conduct in relation to retail shop leases is prohibited.
A landlord leasing or offering to lease retail premises has specific disclosure obligations. This article outlines the information a landlord must provide during a leasing transaction and some of the important provisions of the Act.
Landlord disclosure obligations
The purpose of disclosure is to allow a prospective tenant to make an informed decision about leasing a retail premises.
The following documents must be provided by a landlord to a prospective tenant who is considering entering a retail lease, no later than 7 days before entering the lease:
- a Tenant Guide attached to the front of the lease, designed to assist tenants in understanding their legal rights and obligations regarding the leasing transaction;
- a proposed lease;
- a disclosure statement containing a statement that the tenant should seek independent legal advice;
- an operating expenses budget.
A tenant is not required to provide any disclosure documentation however the landlord’s disclosure statement provides a section for the tenant to note any specific requirements or representations. The tenant should sign and return an acknowledgement of having received the disclosure statement prior to entering the lease.
What is a disclosure statement?
The purpose of a disclosure statement is to provide a snapshot of the main commercial terms of the proposed lease. The disclosure statement sets out key facts about the retail premises and proposed lease and must have attached annual estimates of operating expenditure.
The disclosure statement should be in the form prescribed by the Commercial Tenancy (Retail Shops) Agreements Regulations 1985 and contain the following information:
- the retail premises and lettable area;
- the tenancy mix and services provided;
- location of the premises, area and services provided;
- term of the lease – commencement, termination and options to extend;
- rent and rent reviews and methods of calculation;
- permitted use of the premises;
- estimated outgoings – tenant’s contribution to landlord’s expenses (operating expenses) and any additional charges payable for fitout contributions, marketing or sinking funds.
Consequences of not conforming with disclosure obligations
Failure to provide a disclosure statement or providing an incomplete or inaccurate disclosure statement enables a tenant to terminate the lease at any time up to 6 months after the lease was entered into or apply for an order for compensation to cover any monetary loss suffered.
A tenant may also have a right to terminate a lease up to 60 days after it commences and /or apply for an order for compensation if a landlord fails to provide the tenant with the Tenant Guide.
The tenant may not terminate on grounds that a disclosure statement is false or misleading if the landlord acted honestly and reasonably, and the tenant is in substantially as good a position as if the error had not occurred.
Disclosure statements are not required on the renewal of a retail lease pursuant to an option provision or on the assignment of a retail lease.
The lease contains provisions such as the term, commencement and termination dates, the rental including rent increases and methods for calculating increases, outgoings and other charges, alterations, maintenance and repairs, assignment and subleases, permitted use, inspections, insurances and demolition clauses. It is important to carefully read the lease terms to ensure they reflect the parties’ negotiations.
The Act provides various rights for tenants that generally cannot be contracted out of, including:
- a minimum 5-year lease period (including options for renewal);
- prescribed methods for terminating a tenancy;
- fair processes for conducting rent reviews;
- prohibiting a requirement for the tenant open a shop at specified times;
- the prohibition against a tenant being required to pay a landlord key money for the grant, extension, renewal, consent to assignment or sublease of a lease;
- a prohibition against the landlord recovering operating expenses not specific to the leased premises in a retail shopping centre, or costs for construction or structural improvements to the centre or for plant or equipment owned by the centre;
- a prohibition on passing on certain legal fees to the tenant;
- a requirement for landlords to provide notice of the date on which an option to renew will no longer be exercisable.
Many lease disputes arise from misunderstandings or unclear communications. The disclosure obligations prescribed by the Act aim to reduce the opportunity for dispute by requiring transparency during the negotiation phase.
Parties to a retail leasing arrangement should be aware of their rights and obligations and landlords should ensure that leasing and disclosure documents are carefully prepared. Failing to follow the correct processes or providing incomplete or inaccurate documents can have costly results.
If you or someone you know wants more information or needs help or advice, please contact us on 08 9422 8111 or email email@example.com.