Retail Leases Amendment Bill 2019 – legislative risk to retail tenants

The proposed Retail Leases Amendment Bill 2019 (“the Bill”) is awaiting passage through the Victorian parliament.

The proposed amendments to the Retail Leases Act have been reasonably well publicised, the subject of various articles largely extolling the virtues of the Bill for retail tenants.

You can read the announcement from the Minister for Small Business here: https://www.premier.vic.gov.au/fairer-leases-for-victorian-small-business-owners/ A multitude of sites are offering commentary largely along the same vein.

But one element of the Bill gives reason for pause. This element does not increase certainty for retail tenants. Instead it undermines retail tenants’ rights and introduces an ominous level of legislative risk to landlords and tenants -

In 2015 VCAT’s President Garde issued an advisory opinion indicating that a landlord under a retail lease could not pass on the costs of essential safety maintenance. That ruling relied on Section 251 of the Building Act – although the ruling was made in the context of the Retail Leases Act the principles enunciated would apply to all leases.

The VCAT opinion is not binding and, to date, the Supreme Court has not been required to pass judgment on the issue. Nevertheless it carries significant weight and landlords and tenants, well advised, have proceeded to act as though the ruling reflects good law or, at least, may reflect good law.

There is significant commentary available in relation to the advisory opinion and again we do not propose going into detail here.

The Bill would amend the Retail Leases Act and the Building Act to specifically entitle retail landlords to pass on their costs of essential safety maintenance. So retail landlords will be able to charge tenants costs of essential safety maintenance that non-retail landlords are not entitled to.

Even worse, the amendment will operate retrospectively, in that it will apply to leases entered into prior to the commencement of the amending provisions.

That is to say that:

• landlords who, adhering to the best assessment of the law at the relevant time, did not seek to impose essential safety maintenance costs on a tenant will be effectively punished by being denied benefits available to landlords who sought to ignore the state of the law; and

• tenants who relied on the state of the law as it was at the time they signed their lease (and so did not raise or press requests for amendment to remove obligations in relation to payment for essential safety maintenance) will be punished by being required to meet new outgoings not previously required to be paid.

In our view the proposed Bill applying changes retrospectively, increasing costs to unsuspecting tenants under the guise of increasing ‘certainty’ to those same tenants needs to be approached with great caution. This is perhaps particularly the case where all media releases in relation to the Bill relate only to how it improves the position for tenants – that is not the case in relation to this particular amendment.

It is reasonably common for a retail lease to contain provisions to the effect of “unless prohibited by the Act … [insert provision prohibited by the Act]”. Legislation such as that proposed by the Bill undermines the confidence parties can have when contracting in the context of well-established legislation – shifting the established sands.

There are problems with uncertainty in the retail sphere – those uncertainties deserve (and will, time permitting, be the subject of) their own article(s). The changes set out above do not assist to address them.

With any luck parliament will address the issue (ideally the entire issue, but at least the retrospectivity) before passing the legislation – we can always hope.