1. REDUCING THE UNCERTAINTY OF RELEASE ON ASSIGNMENT
Section 50A of the Retail Shop Leases Act, 1994 (Qld) ("Act") provides as follows:
"50A Release Of Assignor From Lease
(1) This section applies to the assignment of a retail shop lease if—
(a) lessor, assignor and assignee (each a disclosing person) of the lease have each complied with sections 22B and 22C, or any order mentioned in section 22E(2) and imposed on the disclosing person; and
(b) disclosure statement given under the sections or order by the disclosing person is not a defective statement.
(2) When the assignment is entered into the assignor is released from any liability under the lease to which the assignor would otherwise be subject if there is any default by the assignee."
It is important to note that this section only applies to leases entered on or after 3 April 2006. The common law position in relation to privity of contract continues to apply to leases entered before 3 April 2006.
You will note that section 50A(1) provides that the release given to the assignor under section 50A(2) is subject to:
- the lessor, assignor and assignee each giving disclosure statements as required by sections 22B and 22C or as ordered by the Tribunal under section 22E; and
- each disclosure statement not being a 'defective statement'.
I have reproduced sections 22B, 22C and 22E below.
"22B Assignor's And Prospective Assignee's Disclosure Obligations To Each Other
(1) An assignor of a retail shop lease must give a prospective assignee a disclosure statement at least 7 days before asking the lessor to consent to the assignment.
(2) The prospective assignee must give a disclosure statement to the assignor before the lessor is asked to consent to the assignment."
"22C Lessor's And Prospective Assignee's Disclosure Obligations To Each Other
(1) At least 7 days before an assignment of a retail shop lease is entered into (the disclosure period), the lessor must give the prospective assignee a disclosure statement and a copy of the lease.
(2) The lessor is taken to have given the disclosure statement to the prospective assignee within the disclosure period if—
(a) the prospective assignee—
(i) is a major lessee; and
(ii) gives the lessor written notice stating that the prospective assignee—
(A) has received appropriate financial and legal advice about the assignment; and
(B) waives the entitlement to receive the disclosure statement within the disclosure period; and
(b) the lessor gives the disclosure statement to the prospective assignee before the prospective assignee enters into the assignment.
(3) The prospective assignee must give a disclosure statement to the lessor before the assignment is entered into."
"22E Effect Of Failure To Comply With Sections 22A–22D
(1) This section applies if a person (the disclosing person) fails to give another person (the receiving person) a document under sections 22A to 22D and the relevant lease or assignment is entered into.
(2) A retail tenancy dispute exists between the persons, and the receiving person, within the relevant period, may ask the tribunal for an order that the disclosing person give the document to the receiving person.
(3) In this section—
relevant period means—
(a) section 22A or 22D(1)—within 2 months after the lease is entered into; or
(b) section 22B, 22C or 22D(2)—within 2 months after the assignment is entered into."
The more interesting aspect of a release for the assignor relates to the issue of whether any of the disclosure statements are defective. The concept of defective statement is introduced in relation to a lessor's disclosure to a prospective lessee under section 22(8). However, section 50A(1)(b) clearly contemplates that an assignor or an assignee may also give a defective statement. Section 22(8) provides as follows:
"(8) In this section—
defective statement, for a disclosure statement, means a statement that is incomplete or contains information that is false or misleading in a material particular."
You will note there are 2 limbs to this definition as follows:
1. a disclosure statement which is incomplete; or
2. a disclosure statement that is false or misleading in a material particular.
Incomplete
The Merriam-Webster's Dictionary of Law defines 'incomplete' as not complete; lacking some part. Complete is further defined to mean having all necessary parts, elements or steps. So an incomplete disclosure statement would be one in which one or more questions have not been answered or relevant attachments are not attached.
It is not difficult to imagine a lessor giving an incomplete (and hence defective) disclosure statement by omitting to answer one of the many questions in the prescribed form of disclosure statement.
False Or Misleading In A Material Particular
This limb of the definition of defective statement requires the statement to contain information that is:
1. false in a material particular; or
2. misleading is a material particular.
The Merriam-Webster's Dictionary of Law defines false as not true or correct; erroneous. True is further defined as being in accordance with the actual state of affairs.
The same dictionary defines:
misleading as possessing the capacity or tendency to create a mistaken understanding or impression;
material as being of real importance or consequence; being an essential component, or being relevant to a subject under consideration; being such as would affect or be taken into consideration by a reasonable person in acting or making a decision; and
particular as an individual fact, point, circumstance or detail.
There is no definition of 'material particular' in the Act. Whilst not expressly stated in the Act, I consider that the reference to 'particular' is a reference to the prescribed particulars set out in section 3 of the Retail Shop Leases Regulation, 2006 ("Regulation"). So the issue to be considered is which (if not all) of the prescribed particulars are to be considered material.
Despite a thorough search, I could not find any Retail Shop Leases Tribunal cases which deal with the meaning of defective statement. This is a little surprising given that this definition was introduced into the Act with effect from 3 April 2006.
However, cases dealing with section 52 of the Trade Practices Act, 1974 are likely to be relevant in relation to the meaning of 'misleading'. In Re Creditor Tribunal , the court stated that 'misleading' was a word capable of expressing various shades of meaning, and that its meaning was apt to be decisively influenced by the context in which it was found. Furthermore, Lockhart J in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd observed that 'misleading' does not necessarily involve an element of intent.
Consequently, determining whether a disclosure statement is a defective statement may, depending upon the circumstances, require an in depth analysis of the information contained in it.
It is not difficult to imagine an assignor being denied a release because one of the parties to an assignment gives a defective statement either accidentally or intentionally. In addition, section 22E would not assist an assignor because it refers to an order being made for the disclosing person to give the disclosure statement to the receiving person. If the disclosing person gives a defective statement then the only remedy for the assignor would be to claim compensation from the disclosing person under section 43A.
So far as I have been able to determine, there have been no Tribunal decisions in relation to section 50A. However, I envisage that the issue of whether an assignor was, as a matter of law, released upon an assignment is likely to be raised in the future should an assignor be joined as a defendant to proceedings brought against a defaulting assignee.
One final point to note is that section 50A does not expressly provide for a release for the assignor's guarantor. Consequently, whether the assignor's guarantor is released is likely to depend upon the wording of the guarantee. Generally speaking, a guarantor is released when the principal debtor (ie the lessee) is released. However, it may be possible to draft a guarantee in such a way so that the obligations of the guarantor continue even though the assignor is released due to the operation of section 50A.
Given that section 50A does not yet appear to have been the subject of consideration by the Tribunal or the Courts, the issues relating to:
(a) no release for an assignor due to defective disclosure; and
(b) release for an assignor's guarantors,
may be the subject of further amendments to the Act.
2. UNDERSTANDING THE OBLIGATIONS OF THE PARTIES WHEN LEASES ARE RENEWED
There are 2 situations to consider in relation to lease renewals as follows:
(a) where there is an option to renew; and
(b) where there is no option to renew.
I have dealt with each situation below.
Where There Is An Option To Renew
For leases entered into on or after 3 April 2006, section 46 of the Act has been amended to read as follows:
"46 Lessor's Notice About When Option To Renew Or Extend Must Be Exercised
(1) This section applies if a retail shop lease provides for an option on the lessee's part to renew or extend the lease.
(2) At least 2 months, but not longer than 6 months, before the option date, the lessor must give the lessee written notice of the option date.
Maximum penalty—40 penalty units.
(3) In this section—
option date means the date stated in the lease as the date by which the lessee, if the lessee intends to exercise the option, must exercise it."
The effect of this section is to require a lessor to notify a lessee of the last day that the lessee may exercise its option to renew. The section effectively reverses the onus for notification from the lessee to the lessor.
Points to note about this section are as follows:
(a) The maximum penalty for a lessor failing to notify a lessee is 40 penalty units (currently $3,000) which a lessor may consider to be relatively inexpensive if the lessor was considering a redevelopment and would like to avoid the expense of relocating the lessee's business.
(b) Lessors or their managers should be advised of their obligations under section 46 so that they may diarise the relevant dates to avoid exposing the lessor to a penalty.
Early Market Rent Determination
In addition to the obligations imposed upon a lessor under section 46, for leases entered into on or after 3 April 2006, a new section 27A has been inserted in the Act which provides as follows:
"27A Lessee May Require Early Determination Of Current Market Rent
(1) This section applies if a retail shop lease provides for an option on the lessee's part to renew or extend the lease at the current market rent of the leased shop.
(1A) However, this section does not apply if—
(a) the lessee is a major lessee; and
(b) before the lessee entered into the lease the lessee gave the lessor a written notice stating that the lessee received appropriate financial and legal advice about the lease; and
(c) the lease provides for the timing and basis for each review of the lease.
(2) Unless the current market rent has already been agreed between the lessor and lessee, the lessee may, by written notice given to the lessor in the early determination period, ask for the current market rent to be determined.
(3) Sections 28(2) and (3) and 29 apply to the determination.
(4) The current market rent must be determined as at the date the request is made under subsection (2).
(5) The rent payable under the renewal or extension is the current market rent determined under this section.
(6) Despite any other provision of this Act or the lease, the last day on which the option mentioned in subsection (1) may be exercised is the earlier of the following—
(a) 21 days after the lessee receives written notice of the current market rent determined under this section;
(b) the day the lease ends.
(7) In this section—
early determination period means—
(a) for a lease of not more than 1 year, the period—
(i) starting 3 months before the option expiry day; and
(ii) ending 1 month before the option expiry day.
(b) for a lease of more than 1 year, the period—
(i) starting 6 months before the option expiry day; and
(ii) ending 3 months before the option expiry day.
option expiry day means the last day on which the option to renew or extend the lease may, under the lease, be exercised."
The effect of this section is to enable a lessee to trigger a market rent determination before it is required to exercise its option to renew. The theory behind this is to enable the lessee to make an informed decision before it exercises its option to renew.
Points to note in relation to this section are as follows:
(a) If the market rent for the option term has not already been agreed, the lessee may start the rent determination process under section 27A(2) during the 'early determination period' as defined in section 27A(7). Consequently, the lessee will lose its right to require an early determination of the current market rent if the lessee misses its 'window'.
(b) it is possible that the current market rent determination may not occur until after the lease expires. In such a circumstance, the last day for exercise of the option to renew by the lessee will be, under section 27A(6), the expiry date of the lease. Consequently, a lessee who waits until the end of the early determination period may be forced to exercise its option to renew without knowing what the current market rent is.
Where There Is No Option To Renew
For leases entered into on or after 3 April 2006, a new section 46AA has been inserted in the Act which provides as follows:
"46AA Renewing Lease If No Option Or Other Agreement
(1) This section applies if a retail shop lease—
(a) does not provide for an option on the lessee's part to renew or extend the lease; and
(b) is not the subject of an agreement for its renewal or extension.
(2) The lessor must, by written notice given to the lessee within the notice period—
(a) offer the lessee a renewal or extension of the lease on terms, including terms about rent, stated in the notice; or
(b) tell the lessee that the lessor does not intend to offer the lessee a renewal or extension of the lease.
(3) An offer made under subsection (2)(a) can not be revoked—
(a) until 1 month after it is made; or
(b) if the lessee accepts the offer within 1 month after it is made.
(4) If the lessor does not comply with subsection (2), the term of the lease is extended until 6 months after the lessor gives the notice (the extended period).
(4A) However, subsection (4) applies only if the lessee, by written notice given to the lessor before the lease would otherwise expire, asks for the extension.
(5) The lessee may terminate the lease before the extended period ends by giving at least 1 month's written notice of termination to the lessor.
(6) In this section—
notice period means the period that is—
(a) for a lease of not more than 1 year—at least 3 months, but not longer than 6 months, before the lease is to end; or
(b) for a lease of more than 1 year—at least 6 months, but not longer than 1 year, before the lease is to end."
Under this new section, a lessor must give a notice to the lessee as to whether the lessor intends to offer the lessee a new lease within the notice period specified in section 46AA(6).
If the lessee gives notice to the lessor asking for an extension before the expiry date under section 46AA(4A), then the consequence for the lessor failing to give a notice under section 46AA(2) is that the lease will be extended until 6 months after the lessor gives that notice. If the lessee gives no such notice under section 46AA(4A) then there is no consequence for the lessor failing to comply with section 46AA(2).
Points to note for this section are as follows:
(a) The lessee is only entitled to the extension if it gives a notice under section 46AA(4A) before the expiry date of the lease.
(b) Any notice from a lessor given under section 46AA(2) which offers the lessee a new lease should:
(i) state that it is being given under section 46AA(2);
(ii) set out all relevant commercial terms; and
(iii) ideally specify the form of lease to be used.
(c) It would appear that any offer made under section 46AA(2), if accepted by a lessee, would create a binding agreement for lease. If this is the case then, in order to avoid falling foul of section 22, a lessor should, when making an offer under section 46AA(2), give the lessee a lessor disclosure statement and a draft lease.
3.'NO COMPETITION' CLAUSES IN SUPERMARKET LEASES
In August 2008, the ACCC published its report in relation to its inquiry into the competitiveness of retail prices for standard groceries ("Report"). In the Report, the ACCC considered the anti-competitive effect of clauses in supermarket leases which either:
(a) prohibit a lessor from establishing a second or third supermarket into a shopping centre; or
(b) provide for a signification reduction in the rent payable by the lessee if a second or third supermarket is established in a shopping centre.
The ACCC's views expressed in the Report are as follows:
(1) Most competition between supermarkets occurs at the local level so that any agreement which has the effect of preventing a competing supermarket from commencing operations in a shopping centre has the potential to limit competition.
(2) Section 47(4) of the Trade Practices Act, 1974 (Cth) ("TPA") prohibits any acquisition of goods or services made on conditions where the purpose or likely effect of the acquisition will result in a substantial lessening of competition. This section applies to leases and conditions included in leases which limit the grant of leases to other persons.
(3) Section 46 of the TPA prohibits a person who has a substantial degree of market power from taking advantage of that market power by preventing the entry of another person to the market.
The ACCC went on to indicate in the Report that it will assess whether Part IV of the TPA provides an effective mechanism for dealing with restrictive provisions in supermarket leases. So far as I am aware, the ACCC's assessment is ongoing with no legislative amendments proposed at this stage. However, it is possible that future legislative amendments may introduce some form or restriction or ban upon the inclusion of these types of restrictive clauses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
