This law update is the first in a series of updates that examines the issues that are being canvassed by the current review of this legislation.
The Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act) regulates retail leasing agreements between landlords and tenants, and aims to remedy the disparity in power and allow for fair and transparent leasing arrangements.
A review of the Retail Shops Act is required to be conducted every five years. This review, however, is well overdue.
The purpose of this review is to ensure that the Retail Shops Act is operating effectively to:
A consultation paper, which forms part of the review process, has been released. The purpose of the consultation paper is to collect feedback on matters relevant to the operation and effectiveness of the Retail Shops Act.
The relevant issues being addressed in the consultation paper include:
Leases Covered by the Retail Shops Act
Leases to small businesses providing retail services
The Retail Shops Act covers retail businesses that sell, or predominately sell, goods. As such, the Retail Shops Act will not automatically cover leases to retail businesses that predominantly sell services, unless:
The relevant issue under consideration is whether the Retail Shops Act should be extended to automatically apply to leases for small businesses that are predominantly selling services, regardless of where the premises are located.
The Retail Shops Act, by its regulations, already extends the application of the Retail Shops Act to a range of service businesses. We think a blanket inclusion of service businesses will cast the ‘net’ too wide. For example, in our view, there is no justifiable reason why law practices and medical practices should be covered by the Retail Shops Act.
Excluded businesses or premises
The Retail Shops Act allows for specific premises or leases to be excluded from its application. The only uses that currently exclude the relevant leasing arrangements from the application of the Retail Shops Act are the operation of a vending machine or automatic teller machine.
The relevant issue under consideration is whether certain leases or premises should be excluded from the Retail Shops Act’s application, in addition to vending machines and automatic teller machines.
The consultation paper suggests:
Coverage of Small Business Tenants
The Retail Shops Act does not apply to leases where the shop has a lettable area greater than 1,000m2 or the lease is held by a publicly listed corporation or its subsidiary.
Despite this, privately owned large retail businesses can still lease multiple small premises and have those leases covered by the Retail Shops Act. Furthermore, small business tenants with a lettable area greater than 1,000m2, such as plant nurseries or art galleries, will not be covered by the Retail Shops Act.
The relevant issue under consideration is whether genuine small business tenants should be better protected by either amending the Retail Shops Act to apply to leases for certain businesses with a lettable area greater than 1,000m2 (where appropriate) or introducing a monetary threshold which excludes leases with high estimated yearly occupancy costs.
Minimum Five Year Lease
One of the key protections provided by the Retail Shops Act is the right to a minimum five year lease term. A retail shop tenant with a lease longer than six months has the choice to renew and extend the lease to a term of at least five years (with some limited exceptions).
The relevant issue under consideration is whether the right to a minimum five year lease term should be:
In our opinion, this five year term concept as applied under the Retail Shops Act is not helpful to landlords or tenants. The South Australian legislation allows for shorter terms provided the tenant’s solicitor signs a certificate that the shorter term has been explained to the tenant. This system seems to work well. In our experience, this is a simple mechanism that achieves much greater flexibility in retail lease negotiations (from the perspective of both the landlord and the tenant).
The rigid application of the minimum five year term under the Retail Shops Act diminishes flexibility in the retail rental market. Also, because the costs of exclusion of leases are not recoverable often a landlord will not grant a lease with an initial term of less than five years. As a consequence, tenants are also often hamstrung by this rigid rule.