This law update is the third (and final) in our series of updates that examines the issues that are being canvassed by the current review of the Commercial Tenancy (Retail Shops) Act 1985 (WA) (Retail Shops Act).
The Retail Shops Act currently requires a landlord, at the tenant’s request, to indicate whether it will offer a lease renewal at the end of the term of the lease. However, the landlord is not obliged to offer a sitting tenant a lease renewal or a further term (except in the case of the statutory option, to ensure the tenant has a lease for a minimum of five years).
Tenant advocates argue that tenants have invested in the premises, built up an asset (i.e. the new business) and, in some cases, the location is critical to the business. Loss of the leased premises is, potentially, a severe cost for the tenant. As a result, they argue that tenants should have a preferential right to a new lease or to extend their existing lease.
South Australia and the Australian Capital Territory are the only jurisdictions that have legislation providing tenants with this preferential right.
We do not support amending the Retail Shops Act to provide tenants with a preferential right to a new lease or to extend their current lease.
We are not aware of this being a significant issue in Western Australia. For the most part, our experience is that if an existing tenant wishes to continue to lease a premises after the expiry of the term, then provided that:
a landlord will, generally, grant that existing tenant a new lease.
Despite this, we do come across some instances where this is not the case. Particularly, in instances where the landlord is a government body, department (or similar) and it considers it necessary (due to its obligations to its constituents) or is legally obligated, to test the market, via expression of interest, each time a lease comes to an end.
If the Retail Shops Act is to be amended to provide such a preferential right, there must be appropriate safeguards for landlords built into the provision, such as not:
Tenant stakeholders have suggested the Retail Shops Act should be amended to provide:
The discussion paper proposes, if these requests were to be accommodated, the State Administrative Tribunal (SAT) would have a key role in the process.
We do not support any proposal to allow leases to be altered or ended on the basis of severe financial hardship suffered by the tenant.
No other jurisdiction in Australia has legislation conferring such a right.
There has been a long held principle of government not to legislate to interfere with commercial agreements - especially when it would allow for commercial agreements to be ended.
Financial cycles and financial risks are part of commercial business. The ability to deal with these risks is a hallmark of a good business operator. We should not have a system that supports underperforming businesses.
Trying to determine mitigation mechanisms to deal with unforeseen and unexpected events is, in our opinion, a futile exercise. This request for amendment seems to have arisen as a result of the COVID-19 pandemic. COVID-19 was a ‘once in a one hundred year’ event and relief for tenants was legislated for at the time. We think that such events should be dealt with as and when they arise.
Minimum Trading Hours
The Retail Shops Act currently prohibits a landlord requiring a tenant to open a retail shop for specific hours. Most jurisdictions allow for trading hours to be specified in the lease.
The review will consider whether the Retail Shops Act should be amended to allow a retail shop lease to require a tenant to trade during specified hours.
Western Australia is the only jurisdiction in Australia with a prohibition on requiring tenants to trade during core trading hours.
We understand that not all businesses should operate during all the shopping centre’s core trading hours. For example, requiring a fish and chip shop to open at 9.00am would not be fair. There are other examples.
Having shops in a shopping centre or shopping precinct open at the same time adds to the vibrancy and success of that centre or precinct and the businesses carried on there.
We, therefore, support the landlord and the tenant agreeing core trading hours for the operation of the business carried out in the leased premises. These hours would be set out in the lease and the lease could provide a mechanism for the hours to change over time.
Standard Trading Hours
The Retail Shops Act currently provides for standard trading hours that are used only for determining the tenant’s contribution to the landlord’s operating expenses. Under the Retail Shops Act, a tenant cannot be required to contribute to the landlord’s operating expenses related to times outside of those operating hours unless they choose to open. However, tenants may be required to contribute to operating expenses incurred during the standard trading hours even if they are not open during these hours.
Western Australia is the only Australian jurisdiction with this requirement.
The standard trading hours prescribed in the Retail Shops Act have not been varied to be in line with current trading hours set out in the current retail legislation. In addition, consumer spending habits have changed significantly – for example, Sunday is now one of the most significant trading days for shopping centres.
We support the Retail Shops Act being amended to better reflect the current retail environment in respect of standard trading hours.
In our experience, it is now only a very small number of retail businesses that do not operate on Sundays.
The review is also considering whether the current provisions of the Retail Shops Act relating to unconscionable conduct are adequate.
The concern is that the low number of cases involving the unconscionable conduct provisions in the Retail Shops Act is an indication that they are not working.
The review will consider whether the Retail Shops Act should be amended:
The discussion paper cites the practice of some landlords requiring short term tenants to move premises within a shopping centre before six months so that the right to a statutory option for a five year term does not arise. In some instances, tenants have been required to move out of the premises for a day and then move back in to break the tenant’s continuous possession. These practices involve cost and inconvenience to tenants.
The example given in the discussion paper with respect to the practices surrounding the six month tenancy is a direct consequence of the current provisions of the Retail Shops Act with respect to short term leases and the unpredictability of the result of making an application to the SAT for the approval of a term shorter than five years. This whole issue would disappear if the provisions of the Retail Shops Act and five year lease term were removed – allowing landlords and tenants to reach a commercial agreement in relation to the appropriate length of lease term, in the circumstances.
Under US law, an act or practice is unfair if it causes, or is likely to cause, substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.
We consider that introducing this new concept that would, in effect, replace unconscionable conduct should be dealt with on a national basis. We are of the view that the appropriate place to deal with this would be in the Australian Consumer Law, which already contains a concept of “unfairness” as it relates to unfair contract terms.
Alternate Dispute Resolution
The SAT has broad powers to consider and make decisions in relation to a question arising under a lease. The Small Business Development Commissioner has a role under the Retail Shops Act to assist the parties to resolve a matter and provide alternative dispute resolution services.
The current dispute resolution process under the Retail Shops Act requires that, except in certain prescribed circumstances, before an application can be made to the SAT the parties attempt to resolve the matter through the Small Business Commissioner processes. In order for the parties to make an application to the SAT, the Small Business Commissioner must issue a certificate.
The Small Business Commissioner can only issue a certificate if:
The review is considering whether the Retail Shops Act should be amended by altering the range of matters that do not require alternative dispute resolution.
We support amending the Retail Shops Act to exclude from the alternative dispute resolution processes those matters under other pieces of legislation that impinge on retail leases and which require determination under the SAT (such as under the Strata Titles Act 1985 (WA)). This will remove time‑consuming inconsistencies between legislation.
State Administrative Tribunal
The review discussion paper is seeking feedback on whether the SAT’s powers in respect of the Retail Shops Act are appropriate and working as intended.
It has been suggested that the SAT should have jurisdiction to hear matters involving a retail shop lease that include other land related legislation such as the Property Law Act 1969 (WA) (PLA) or the Transfer of Land Act 1983 (WA) (TLA).
We are strongly of the view that the PLA and the TLA are fundamental pieces of legislation relating to property law in Western Australia. It is appropriate that such fundamental pieces of legislation are only dealt with by the superior courts.
The review invites stakeholders to identify any new issues arising as a result of COVID‑19 that might require consideration as part of the statutory review of the Retail Shops Act.
The discussion paper specifically refers to the potential ongoing and financial hardship attributable to the COVID-19 pandemic.
In our opinion, amendments to the Retail Shops Act to address exceptional events or crises such as the COVID‑19 pandemic is beyond the scope of the Retail Shops Act.
The Retail Shops Act was created to deal with the “normal” operation of the landlord‑tenant relationship.
Any relief, or other measures required, to respond to an event such as the COVID‑19 pandemic should be the subject of its own legislation.