Legislation Update: Impact of new Retail Leases Amendment (Review) Act on Franchising Relationships

On 1 March 2017, the Retail Leases Amendment (Review) Act 2017 was approved by Parliament. The Act provides a legislation update to the Retail Leases Act 1994, based on recommendations informed by stakeholder consultation. The Retail Leases Act 1994 applies to businesses conducted in premises located in a retail shopping centre, other than those covered by the exceptions listed in section 5 of the Act. The aim of the amended legislation is to create stronger and fairer relationships between tenants and landlords, through increased transparency and additional statutory protections.

Key Amendments

The Key Amendments include:

  • Removal of the five-year minimum term required for retail shop leases;
  • Addition of a requirement for landlords to provide full disclosure in the disclosure statement of any contribution which the tenant will need to make in outgoings;
  • Addition of the right to compensation for a tenant who terminates a lease in the first six months if they weren’t provided a disclosure document;
  • Addition of requirement for landlords to return any bank guarantee within 2 months after the tenant completes performance of its obligations under the new lease;
  • Addition of compulsory requirement for leases to be lodged for registration within 3 months;
  • Creation of an online rental bond service.

Impact on Franchising

As most franchised businesses involve the lease of premises, the introduction of the Retail Leases Amendment (Review) Act 2017 will have a significant impact on the franchising process. This will have both positive and negative implications for those involved in this process.

Positive Impacts

  • Franchisors are protected by the removal of the requirement to pay any outgoings which aren’t disclosed in the disclosure statement.
  • More liabilities for landlords resulting in protection for tenants/franchisors, such as the requirement for landlords to pay the tenant/franchisor compensation if they terminate the lease within the first six months if they weren’t provided a disclosure document.
  • Landlords can’t require the tenant/franchisor to provide turnover rent calculations for online sale revenue which weren’t delivered from the lease premises. This results in a smaller turnover rate which will need to be disclosed to the landlord, thus increasing profits.

Negative Impacts

  • Loss of security for franchisors and franchisees due to the removal of the minimum five year term when entering a lease.
  • Increased cost for franchisees due to the inclusion of ‘management, operation or repair of the retail shop building or land’ in the calculations of franchisors’ outgoings.

Tips for franchisors/franchisees

  • Check to see if your lease is covered by the Act;
  • If so, be aware of the legislation update to ensure that you are complying with the new amendments;
  • If in doubt, seek professional legal advice from a solicitor.

Want to know from a Solicitor more about how this legislation update could impact your business? Please don’t hesitate to contact Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website. We have experience in advising Newcastle and Sydney based businesses.