As most readers are no doubt aware, each Australian State and Territory operates under its own idiosyncratic ideas on how retail leases should be regulated. These ideas in the main are based on hastily formulated and anecdotal concepts from the 1980s, untested at the time, and which remain of questionable value today.
Rather than challenge the need for the legislation or its utility, State and Territory governments tend to just twiddle the dials.
One of the hallmarks of the evolution of the regulations has been the propensity to add more weight to the saddlebags, by reference to what is enacted elsewhere. Which would make sense if what was enacted elsewhere carried water. But what we end up with is a bundle of thoughtless regulation with no real purpose other than to regulate.
The act of retail leasing is pretty uniform across the country, and a large segment of the retail industry has a national footprint. These considerations would lead you to expect a pretty uniform approach to the regulation of retail leasing. If we are going to regulate one of the nation’s most important industries, let’s do it well. Right?
Unfortunately, we do not do it well. Instead, each jurisdiction rides a different horse. There does not seem to be any territorial or jurisdictional basis for the different legislative approaches. Rather, the drafting of each enactment is self-indulgent, and without thought for the poor jockeys who have to ride the horses in order to comply.
I can tell you now that nobody is riding a thoroughbred. NSW and Qld are on brumbies. WA is on a draughthorse, and Vic rides a jackass. Not sure about Tas: it is either a donkey or a Shetland, and the remaining jurisdictions are somewhere in between. The ACT rides a camel.
We are now in a world where we have no requirement for 5 year terms; we have compulsory 5 year terms with the ability to opt out; and we have compulsory 5 year terms with almost no ability to opt out. We regulate by reference to the size of the premises; or by reference to the listed status of the tenant; or by reference to the amount of rent payable; or by a shandy of these considerations; and in some jurisdictions, we treat industrial warehouses or other commercial premises as retail shops.
It is an absolute shambles.
The effect is that we are regulating a national industry on a regional basis. And this means that the people who are charged with the administration of this eye-glazing edifice are constantly required to stop and consider issues like: is the shop covered by the legislation or not; if covered, is the term 5 years and what strokes do I need to play depending on the answer to that question; can I have a rent review clause which caps the amount of the increase [I can’t have this in Vic]; am I in a hurry/do I have a 7 day or 14 day disclosure quarantine; can I charge management fees or land tax.
A huge amount of management time is squandered in wrangling these questions. Which is a shame, because one way or another, the cost of that wasted time finds its way back to the occupancy cost that tenants pay. Which in itself is ironic, because the justification for the legislation is the supposed benefit it confers on tenants.
And I suppose no one would mind, if we were doing something that mattered.
But the worst part is that no one really cares. It is just an exercise in checking boxes. Can someone just slap one of the 8 alternate versions on the table and apply it across the country? No one would mind (as long as it wasn’t Vic or WA) and we could just get to it, rather than chasing the regional jurisdictional issues that currently waste so much time.
Why is the ACT a camel?
Well, this is because it has not only cherry-picked the worst elements from the other jurisdictions, it has also tweaked them so as to ensure inconsistency.
South Australia, in its wisdom, thought to introduce a preferential right of tenure, with the idea that landlords would be obliged to prefer sitting tenants to newcomers, when re-leasing their shops. At the same time it also introduced a means to avoid the preferential right, achieved by obtaining a “certified exclusionary certificate” from a lawyer, to be endorsed on the lease.
No other jurisdiction has felt the need to include similar legislation, apart from the ACT.
Pausing here, can someone tell me what is special about tenants in SA and the ACT? Why do they need a preferential right, when tenants in other jurisdictions do not?
From what I have seen, landlords in the ACT include certified exclusionary clauses in their leases as a matter of course, and require the certification to be provided, before the lease is entered into. The effect is that the provision fails to launch, and has no effect. Which makes you wonder what is the point of the regulation in the first place.
And while the drafting in the ACT is similar to SA, it is not the same. Which means that national tenants and landlords have to take time to consider and apply the differences. This is time that could be spent actually doing something productive.
In addition to the preferential right, the ACT has followed other jurisdictions into prescribing a minimum 5 year term, with the ability to contract out, if a solicitor provides yet another certificate recording that the solicitor has advised the tenant that the term is not 5 years. NSW once had provision to the same effect, but saw the light and repealed it. Repeal of that provision brought NSW into line with Qld on this point. (As I have said many times, what purpose is served by having to explain to tenants that their lease for a term of 3 years, is not a term of 5 years? It is insulting. I know wombats who have no trouble grasping this concept).
History has shown that tenants in Qld and NSW are surviving perfectly well without the legislated 5 year term. If tenants in 2 of the most populous States in the country do not need an idiotic, legislated, 5 year term, why do the others?
And again, if the parties in the ACT agree to a term of less than 5 years, then the landlord as a matter of routine will insist on the solicitors certificate, which neuters the requirement. If the requirement is useless in the first place, and can be subverted at the stroke of a pen, what is the point?
Even worse, the ACT has followed Vic down the 14 day disclosure statement path. I can only assume that tenants in Vic and the ACT are slower on the uptake than tenants in the other jurisdictions, where the tenants only need 7 days of disclosure before entering into the lease. (Maybe they need this extra time to work on the difference between 3 years and 5 years).
But unlike Vic, the ACT has followed SA in enabling the tenant to contract out of the disclosure period, by providing yet another solicitors certificate.
The overall effect is that the RLA in the ACT bristles with solicitors certificates. You get a solicitors certificate to kill the preferential right, a solicitors certificate to kill the 5 year term, and a solicitors certificate to kill the 14 day disclosure period. It makes you wonder if the legislation was drafted by the Law Society. More important it makes you wonder why they put the provisions in, when you can simply take them out. The ACT is riding a camel, when the industry needs a racehorse.
In addition to accreting the worst elements of the legislation, the ACT also strays into pointless provisions of its own invention. For example, we have critically important regulation like s21, which says that the RLA does not prevent a party to a lease from requiring the other party to pay GST on a taxable supply.
Well thank you for clearing that issue up. I mean, did anyone for a second think that the ACT’s RLA could have that effect? We know that the GST Act is Commonwealth legislation, and provides that a person who makes a taxable supply must issue a tax invoice and collect the GST from the recipient. The RLA in the ACT could not possibly overrule those statutory obligations in relation to GST even if it wanted to. So why mention it?
The only reason I can see is the impulse to kick a man while he’s down: the thirst of the bureaucrat for more regulation for the sheer fun of it. It is the urge of the drunk to slosh down one more shot before staggering off into the night.
I wonder when they are going to sober up.
Download PDF here – Retail Lease Legislation: a regional handbrake on a national machine
Disclaimer: This article is a general summary with focus on issues of interest to the authors. It is not intended to be used as legal advice.
Speirs Ryan is a boutique property law firm based in Sydney, Melbourne and Newcastle with national coverage. The firm is uniquely placed with specialist teams in both property transactions, construction and strata law
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