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Introduction The Commercial Tenancy

Introduction
The Commercial Tenancy (Retail Shops) Amendment Act 2011 (the ‘Amendment Act’) commenced on 1 January 2013 and was enacted to improve the rights of small business and reform the commercial tenancy laws in Western Australia.
The objectives of the Amendment Act were to improve the leasing arrangements of both parties with increased communication and access to alternative dispute resolution. This paper will explain, by reference to the amendments, how each of the following policy initiatives endeavoured to achieved this: –
* Imposing a requirement that the landlord to give the tenant a comprehensive disclosure statement prior to the start of the lease {section(s) 6(1) & 6(3)};
* Establishing a consistent process for rent reviews {section(s) 11(2) & 11(3B)};
* Giving tenants a minimum term of 5 years {section(s) 13(1), 13(2A), 13(3A) & 13(6)};
* Regulating the way in which the landlord can charge certain expenses to the tenant e.g. legal fees; and
* Prohibit misleading and deceptive conduct {section(s) 16(A)-16(D)}.
The Amendment Act has implemented several important changes to the way retail shop leases are regulated, only some of which have been discussed in this paper. Overall, it may be said that these changes benefit lessees rather than lessors, however understanding the effect and operation of the amendments is essential for those parties either entering or already a party to these arrangements.

Background – Amendment Act

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In 2003, a Review Committee undertook a review of the Commercial Tenancy Act and made several recommendations to initiate reform. The subsequent Amendment Act seeks to implement a number of these recommendations by amending the Commercial Tenancy Act to address some of the deficiencies in the legislation and to strengthen the protections for those involved in small business leasing arrangements.

Amendments to the Regulations in support of Amendment Act included a revised disclosure statement implemented to improve the quality of information provided to tenants. The reform was largely designed to assist in addressing the information imbalance that can occur between landlords and tenants, and to further ensure the Commercial Tenancy Act provides for a more transparent framework in which the respective parties can each pursue their commercial interests.

The following is an overview of how the report recommendations were implemented into the Amendment Act.

Disclosure Statement
A Disclosure Statement is to be provided to a tenant as per the Commercial Tenancies Act. The disclosure statement must be provided to the tenant 7 days before the parties enter a retail shop lease. Since the amendments came into operation on 1 January 2013, the Disclosure statement must provide for additional further information.
The Disclosure Statement includes all the financial and practical information which are relevant to the leasing arrangement of the property. This includes all standard information required per Form 1 such as the amount of rent, duration of the lease, and the amount and frequency of rental payments including any applicable rent review mechanism. Any additional information specific to the operation of the lease which may impact on the tenant such as any council notices, proposed road changes, impacts resulting from future proposed businesses and disruption or alteration of pedestrian flow. All and any special conditions as negotiated and agreed by the tenant and landlord must be reflected in the Disclosure Statement.
There is no requirement to provide a disclosure statement in the following situations: –
• Upon the renewal of the retail lease in accordance with a further option; and/or
• The assignment of the retail shop lease (new tenant).
A Disclosure Statement will not be complete unless: –
• A copy of the lease is attached;
• The current year’s annual estimates for outgoings (operating expenses); and
• A copy of the Tenant Guide is included.
Prior to the amendments, a tenant could only terminate the lease within 60 days of entering in to the agreement. Under the amended legislation however, if the landlord does not provide or comply with the disclosure statement requirements above, the tenant may: –
• Terminate the lease at any time up to 6 months after the lease was entered; and
• Seek an order from the State Administrative Tribunal (the ‘SAT’) for any monetary loss suffered.
Providing the tenant delivers to the landlord a notice of termination under section 6(1), the lease terminates 14 days after the notice was given.
Notwithstanding the above, a tenant cannot simply terminate a lease on the basis that a disclosure statement is incomplete or that it contains incorrect and misleading information. The tenant will be required to show the loss or damage they have suffered because of the incomplete disclosure and that the landlord did not act honestly and or reasonably. This clause, at the very least provides landlords with some measure of protection in an area where the balance of power appears slightly geared toward the tenant.

Whilst there are misleading and deceptive conduct provisions in the act which apply to both the landlord and the tenant, it is essentially the tenant’s responsibility to ensure they read and understand the Disclosure Statement. Any information in which the tenant is relying on upon entering the lease, should be reflected and recorded on the Disclosure Statement.
It has been argued that the amendments have created uncertainty about tenants’ rights to terminate a lease, given the greater onus on the landlord to get the disclosure statement right, the higher standard required by the landlord to adequately include all representations within the agreement is preferred rather than leaving to the tenant to identify.

Process for rent reviews
Any rent review provisions must specify only one basis in which the review is made; whether this is market review, or consumer price index.
Under the Commercial Tenancies Act, the “Market Value” is given to be the amount of rent obtainable for the retail premises in a free and open market if leased on similar terms. A Lease cannot contain any provision which prevents the rent from falling below or rising above a certain value. Rent must be allowed to increase or decrease as market evidence dictates.
The amendments provide for two provisions which allow more accurate and fairer valuations.
Section 11 of the CT Act included the following requirements: —
1) Landlords are required to provide information to a valuer who has been appointed to determine the market rent. For the valuer to have all required information to base the valuation, lease details in related to other premises in a shopping center or a group of premises should be provided; and: –
2) The market valuation of rent in relation to a retail shop is not to account for the value of the:
a. Tenants goodwill;
b. Fittings and fixtures installed and owned by the tenant; or
c. Any work or improvements carried out within the permises which have been at the tenant’s expense.
The new provisions amends clause 11(2) in that the landlord must provide the information to a valuer within 14 days of being given a written request. Failure of the landlord to provide the information in 14 days, provides the tenants with a right to seek an order from the SAT that the landlord comply.
The intention of these new provisions are designed to promote more accurate and consistent market rent reviews, creating positive commercial relationships based on fair and respectful dealings.

Minimum Term of 5 years
Section 13(1) of the Commercial Tenancies Act creates the right for retail tenants in most circumstances to a statutory period option to increase a term to five years. This is not a new clause; however, it does clarify that the right to a period of five years is only applicable to those leases with a duration of 6 months or more.

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