Changes to Commercial Leasing Legislation and Landlord/Tenant Obligations – Part 2 of 3

From 1 July 2020, the Retail and Commercial Leases Act 1995 (SA) (Act) has been amended by the Retail and Commercial Leases (Miscellaneous) Amendment Act 2019 (SA) (Amending Act) to incorporate a number of key changes. The changes impact heavily on the landlord and tenant relationship.

This is Part 2 in a three part retail and commercial leasing series produced by Eckermann Lawyers, which will outline the key changes introduced by the Amending Act. In particular:

• Part 1 focused on key amendments and clarifications which affect the application of the Act;
• Part 2 considers new landlord obligations and disclosure statement requirements; and
• Part 3 will outline the changes with respect to bank guarantees/security bonds and “holding over” considerations.

Part 2 – Landlord and tenant obligations

Landlord obligations prior to entering lease

The Amending Act has introduced new procedures that a landlord must follow when initiating negotiations with a prospective tenant.

A landlord must now provide a prospective tenant a draft copy of the proposed lease as soon as negotiations begin. The draft lease does not have to include the prospective tenant’s details, but should rather serve as an outline of the general terms of the lease that the prospective tenant can expect. This new requirements is designed to allow for a higher level of transparency throughout the negotiation process.

In addition, at the same time that a landlord provides the prospective tenant with a draft copy of the lease, the landlord must also provide the prospective tenant with a copy of the Retail & Commercial Leasing Guide (Guide) published by the Small Business Commissioner of South Australia (SBC). The Guide is an overview of rights and obligations that arise under the Act and it can be found here.

SBC’s Retail & Commercial Leasing Guide: The Guide discusses how the Act applies to a lease and incorporates the recent changes passed by the Amending Act. It contains a checklist for prospective tenants to follow before signing a lease as well as a number of tips to ensure the maintenance of tenant security. Furthermore, the Guide contains an overview of landlord and tenant rights and obligations such as the assignment of a lease, sub-leasing, and exemptions. In addition, the Guide summarises the key functions of the SBC including dispute resolution, advocacy, and the provision of further information to parties on a case-by-case basis.

The obligation to provide the Guide is beneficial to prospective tenants as it ensures that administrative procedures are up to date as well as providing extensive preliminary information to prospective tenants.

Disclosure statement

Under the previous version of the Act, disclosure statement requirements were relatively lenient. The Amending Act has introduced a few stricter requirements. Landlords are still required to provide tenants with a disclosure statement; however, the disclosure statement must be signed by or on behalf of the landlord and be provided to the tenant prior to entering the lease. A strict maximum penalty of $8,000 may otherwise apply.

In addition, the Amending Act clarifies how the disclosure statement should be served on the tenant or the tenant’s agent. The prescribed methods are:

• by personal service; or
• by leaving it at the tenant’s usual or last known place of residence or business with someone over the age of 16; or
• by post; or
• by transmitting it through fax or email.

The Amending Act also requires the tenant, within 14 days of being served with the disclosure statement, to return a signed acknowledgement of receipt of the disclosure statement to the landlord. The intention of the disclosure statement is to provide the tenant with an overview of their obligations under the lease in a simple and easy-to-read format. For instance, the disclosure statement outlines key terms of the lease such as the rent payable, the term of the lease, and outgoings. As such, it is important to ensure the tenant has been provided the disclosure statement to minimise risk, from the landlord’s perspective, but also for increased transparency of the lease obligations, from the tenant’s perspective.

Importantly, the Amending Act no longer requires a disclosure statement in regards to a renewal of a lease.

Lease documentation

Under the Amending Act:

• if a lease is not to be registered – the landlord must provide the tenant with an executed copy of the lease within one month after the landlord receives the executed copy from the tenant; and
• if a lease is being registered – the landlord must lodge the lease for registration within one month of the lease being executed and provided back to the landlord. The landlord must then provide the tenant with a signed copy of the lease, as well as confirmation of registration also within one month of the date of its registration.

The strict timeframes of these obligations encourage prompt execution and return of the lease to tenants.

It is critical that landlords and agents are aware of these timeframes when negotiating and preparing a new lease, as site plans and other requirements for registration will need to be considered in advance.

Summary

Part 2 of this series has considered key landlord obligations in relation to leases under the Amending Act. Part 3 will outline the changes with respect to bank guarantees/security bonds and “holding over” considerations.

We encourage you to contact the team at Eckermann Lawyers should you require retail and commercial leasing advice, including advice in relation to the new changes.