This article is from the Australian Property Journal archive
RETAIL tenants’ statutory right to a five-year lease term is coming under scrutiny as part of the Western Australian government’s review of commercial tenancy agreements between small retailers and landlords, including shopping centre owners.
The state government reviews the Commercial Tenancy (Retail Shops) Agreements Act 1985 every five years and has released a discussion paper that looks at various issues that may require updating. Also under consideration in this cycle are rent review rules, access to lease information, full disclosure of operating costs such as utility charges, early termination and end of lease rights, and unconscionable or unfair conduct.
The paper also asks about any changes that may be required based on the impact of COVID-19.
The CT Act currently provides most retail shop tenants with the right to a minimum five year lease term. Tenants with leases longer than six months have the option to renew and extend the lease term so that the total term is at least five years.
“Some stakeholders believe the right to the statutory option of a minimum five-year term has resulted in a lack of flexibility and innovation in the sector,” the paper says.
“Landlords may be reluctant to enter into leases with new tenants for more than six months because they do not want to be locked in to providing a minimum five-year lease.
The paper also said under the status quo tenants could invest time and money in their business with no capacity to continue in the premises after the six-month period and recoup their costs.
Four options are proposed. Under option A, the status quo would be retained; option B would see the right to a five-year term retained and the Act amended to provide for a different mechanism to contract out of the right; option C would retain the right to a five-year term but after a tenant has been in possession of premises for 12 rather than six months, while option D would see the right to a five-year term removed.
The paper says that option D “provides landlord(s) with complete flexibility in relation to the length of the lease term”, but offers no certainty or security of tenure for tenants.
Retail tenancy legislation in all Australian jurisdictions except Queensland and NSW provides for the minimum five-year lease term.
Currently, the WA laws only cover small shops operating in shopping centres or shops situated outside of shopping centres that mainly sell goods. The review will also look at whether the Act should be expanded to protect other small businesses, including those outside of a shopping centre that provide services such as travel, real estate or watch and bike repairs.
The Act provides for dispute resolution through the Small Business Commissioner and State Administrative Tribunal, and the government is also seeking feedback on the effectiveness of this process.
The McGowan government introduced a temporary code of conduct, a rent rise freeze, eviction moratorium and financial support measures for retail tenants and landlords struggling with the impact of COVID-19 restrictions during the pandemic.
“Now we are in recovery mode, the government is looking to the future and learning from past experience to ensure that commercial tenancy laws in WA remain fit for purpose,” Commerce Minister Roger Cook said.
“It’s vital for the WA economy that we have a strong and vibrant retail sector with fair and transparent tenancy agreements an important element. For this reason, I would urge industry participants and interested parties to take part in this public consultation.”
