Issues paper on the Business Tenancies (Fair Dealings) Act (the Act).
The Society has conducted consultations with its Commercial Law Committee in developing this response to the issues paper, the committee represents 176 of experience in commercial law practice.
Executive Summary
This primary submission of the Society is that people should have clarity about when a lease will be covered by the Act and when it will not. The Society submits that there is significant confusion created by the use of ?retail shop? and other like phrases in the Act. In the Society?s view the preferable position is an Act with broad application and explicit exceptions.
The submission deals with the specific questions raised in the issues paper.
1. Should the Act or Regulations be amended to prescribe further methods of rent review?
In the Society?s view the term ?rent review? is not entirely accurate particularly when referring to fixed percentage and fixed annual increases, these are in fact expressions of rent rather than a review.
Additionally the methods particularised in the Act are probably more prescriptive than necessary and the Society?s preference would be for something similar to Section 18(3) of the Retail Leases Act (NSW). The Act or Regulations should not be amended to prescribe further methods of rent review.
2. [no question 2]
3. Is it a problem that service businesses come under the Act?
No. It is the Society?s submission that it is not a problem that service businesses come under the Act and they should remain covered. In the view of the Society small service businesses are exposed to similar risks and do benefit from the protections in the Act.
The Society reports that difficulties arise from the use of the words ?retail? occurring 419 times in the Act and ?shop? occurring 295 times in the Act. Importantly these words along with ?retail shop lease? and ?retail shop? are used as all-encompassing terms throughout the Act. On their ordinary meanings these would not include services businesses and a person could be excused from assuming that services businesses were excluded, but for the definitions of these terms in the Act. It is apparent from these definitions that the Act intends to cover small business operations including service businesses.
It is the Society?s submission that where the terms are a general reference ?business,? ?business lease?, and business premises? should be used to avoid confusion.
4. Should the Act exclude from its operation any premises in an office tower that forms part of a retail shopping centre?
As discussed above small business benefit from the protections in the Act. The definition of retail shopping centre is aimed at premises used for the sale and hire of goods. In the Society?s view offices above a retail shopping centre ought to be excluded from being within a retail shopping centre and the high level of regulation (in Part 9) that goes with that status. It is the Society?s recommendation that an office tower above a shopping centre should be treated the same as any other office tower under the Act.
5. Should the Act define ?retail shop? by way of a list of prescribed retail businesses?
No. The Society notes that a difficult arises with the use of the phrase ?retail shop? throughout the Act discussed above. The Society accepts that the Act applies broadly despite the use of ?retail shop?. In the Society?s view further definition of this clause is not helpful. The Society supports the replacement of the phrase retail shop with ?business tenancy?.
Additionally the Society does not support using a list of prescribed businesses, as this would only further expand the confusion, and result in anomalies.
The Society further submits that if further businesses are to be excluded other than those already expressly excluded in the Act then a prescribed list would be appropriate.
6. Part 6 of the Act requires the landlords consent to transfer to be subject to defaults being remedied ? is this a real issue or just a perceived one?
The Society questions whether s53 of the Act is being observed. In any event the Society submits that forcing the landlord to assignment of the lease without rectification of defects (particularly rent) would be unfair to both landlord and assignee. The Society would support amendment of the Act to clearly state that assignment need not be consented to if there is breach. This would reflect current practice.
7. Provision of guarantees on assignment is this a real problem or just a perceived one?
Yes in the Society?s view s.58 is a problem which needs to be fixed. In the Society?s submission the landlord ought to be entitled to insist on guarantees from the assignee when considering assignment and failing their provision be entitled to either refuse the assignment (or rely upon the original guarantees).
8. Should the mere fact that 5 or more shops are held under a common unit title be sufficient to make them a ?retail shopping centre??
The problem is that under the current Act, a strata titled shopping centre falls within the definition of a ?retail shopping centre? because the various units ?all comprise lots within a single units plan under the Unit Titles Act or within a single unit title scheme under the Unit Title Schemes Act.?
The Society seeks the deletion of subparagraph (b) (iii) from the definition. It is the Society?s submission that a single landlord (i.e. common ownership) should be the determining factor, not the fact that the premises are all in the same strata titled building or are on the same strata title lot.
In the Society?s view these are separately held titles and their individual owners have no power to manage these collectively.
9. Is this an actual problem or merely a perceived one?
Reference to ?retail shop? is confusing (see discussion above).
10. Should the Act be amended to clarify this exemption?
The Society is aware that the minority view is that the calculation of lettable area is limited to the shop floor where in the experience of the Committee any calculation has included the total lettable area (e.g. car-parks, storage sheds). Despite the Society being unaware of any difficulties arising from this confusion the Society accepts that a simple amendment could clarify the exemption. The Society sees no hardship arising from the calculation including the total lettable area.
11. Should Part 13 be removed from the Act or reformed?
The Society is in favour of amendment of Part 13 rather than the more complex processes under other Acts. As discussed above the Act should have broad application with explicit exclusions. There should be no overlap with the Law of Property Act.
In the Society?s submission Part 13 should apply to all business tenancies. In addition the Society would recommend that Part 13 also apply to Government tenancies
12. Should the certificate system be reformed and is it working well? (Question amended to reflect issues papers discussion.)
The Society accepts that there certificate system provided by S.26 has been the subject of criticism however when balancing the consumer protection against the desire to minimise red-tap the Society is in favour of retaining the requirement.
13. Is there a need to exclude Government tenancies from the operation of the Act?
In the Society?s view there is a need to exclude Government tenancies from the operation of the Act except from part 13.