Disclosure statements and market rent reviews for further terms (lease renewals)
From 1 October 2020 retail leasing has changed due to amendments to the Retail Leases Act 2003 (Vic) (“the Act”).
Changes to notice and disclosure obligations in relation to further lease terms (renewals)
Where a lease contains an option for a further term, s.28 of the Act requires that the landlord must, at least 3 months before the deadline for exercising the option to renew the lease, provide to the tenant a written notice setting out the following information:
- the date by which the tenant must exercise the option to renew the lease; and
- the rent payable for the first 12 months under any renewed term of the lease; and
- the availability of an early rent review under section 28A; and
- the availability of a cooling off period under section 28B; and
- any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.
Retail tenants are now permitted to request an early market rent review
A further change is the introduction of s.28A which applies to leases which include a market review mechanism. The tenant may request an early review of the current market rent by giving the landlord written notice of such request within 28 days of receiving the landlord’s renewal notice as described above.
Retail tenants have a 14 day cooling off period on options for renewal
If a tenant has exercised its option to renew its lease, but has not requested an early rent review, new s.28B provides the tenant a 14 day cooling off period (after the option is exercised) within which the tenant can give the landlord written notice that the tenant does not wish to renew the lease.
The abovementioned changes are advantageous to retail tenants by:
- providing more transparency regarding the proposed rent for the first 12 months of the further term;
- enabling early review of the market rent to account for current market conditions (particularly if there is a downturn in commercial rent); and
- allowing the flexibility of a 14 day cooling off period regarding options to renew leases.
NOTE: This article is not a summary of all recent changes to the Retail Leases Act 2003 (Vic).
If you have any queries regarding leasing matters, we are happy to assist you.