Review of the Business Tenancies (Fair Dealings) Act

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In developing this response the Society has conducted consultations with its Commercial Law Committee which brings together many decades of experience in commercial law practice in the Territory.

The Society agrees that it is timely to review the Act as the Legislation could benefit from some improvements now that the Act has been operating for some time.

The Society believes there is value in a legislative framework overall to assist with the regulation of business tenancies in NT. This is despite the Society acknowledging that it may be the case, as suggested in the discussion paper, that some small business landlords and tenants may not always perceive value in the framework in respect of their arrangements.

The Society has largely confined its comments on the Act to the suggested legislative amendments at 3.2 of the discussion paper and in summary its views in relation to those suggestions are as follows:

1. No - rent reviews
2. Agree - any ambiguity needs clarification
3. No - a carve out from the definition of retail shopping centre is suggested
4. Agree ? withholding consent assignment
5. Agree
6. Agree
7. Agree
8. Agree - Property Act amendment
9. Agree - Commonwealth and NT tenancies excluded
10. Agree - removal of 5 year term
11. Agree - limiting termination period
12. Agree - National Disclosure Statement
13. Agree - to sub metering
14. Agree - section 62
15. No - environmental upgrade charges
16. Agree - removal of criminal sanctions
17. No ? Tenant?s Disclosure Statement should be retained

In respect of the Other Issues at 3.3 of the discussion paper:

1. Yes, dispute resolution clauses are important and provide structure and greater immediacy to the resolution of disputes
2. Yes, exemption concerning airports should be included
3. The Act should apply to franchises
4. Criminal offence should be replaced with civil outcomes.
5. Yes ? on line sales
6. No ? the existing unconscionable conduct test is adequate

DICUSSSION

1. Lease provisions concerning rental calculations form essential terms of a lease and the requirement for structure around such a term is likely to reduce the risk of the lease being void for uncertainty. The Society supports parties to a tenancy agreement having the discretion to choose how rent will be calculated upon a rental review. The Society believes however some legislative parameters are worthwhile to ensure rental formulas in leases do not become overly complex or convoluted. The Society prefers that the Act continue to list options for the calculation of rent, rather than allowing the parties to formulate any method at all as proposed in the issues paper.

The only change suggested by the Society to the existing section 28(2) of the Act is that the parties be provided with the ability to agree to a combination rent methodology, that is, for the parties to have the ability to choose more than one of the rent review methods listed in section 28(2).

2. The Society agrees the Act should continue to cover service businesses, such as medical and legal practices etc. The needs of a tenant operating a service business are not dissimilar to the needs of tenants operating businesses concerning the sale of goods, and as such the Society believes tenants who provide services should be equally protected by the Act.

The use of prescribed lists in legislation tends to be effective when referring to specific exclusions, rather than as a means of defining broad categories. Thus the Society does not agree to an amendment of the definition of ?retail shop? limiting it to those which are prescribed by regulation. The Society is concerned an amendment such as this is likely to increase the prevailing confusion. Prescribed lists are not preferred when the object is to capture a wide group of business types, because it is very difficult to create an exhaustive list to give full effect to an intention to be inclusive.

3. The Act treats tenancies that would otherwise be defined as a ?retail shop? as part of a ?retail shopping centre? when that tenancy is located in an ?office tower? that also accommodates a shopping centre. In the Society?s experience a tenancy meeting the ?retail shop? requirement can operate in complete isolation of the activities of the shopping centre located elsewhere in the same office tower. The Society views the assumptions in the Act concerning retail shops located in the same office tower as a shopping centre, as not always reflecting the experience of retail shops.

The Society is aware the Act contains additional disclosure requirements on a tenancy subject to the ?retail shopping centre? and which are not required of tenancies defined as a ?retail shop?. Additional obligations should be imposed where they are warranted, that is where the tenancy is actually a part of the shopping centre complex. As discussed above small businesses benefit from protection of the Act. The additional regulatory burden however applicable to retail shopping centres is not warranted where the retail shop operates in complete isolation of a shopping center that is co-located in the same office tower. The Society proposes a better method of resolution of the issue would be to amend the definition of 'retail shopping centre' rather than 'retail shop'.

4. Yes, it is reasonable in the Society?s view that the landlord has the right to withhold consent to an assignment in the event the tenant is in breach of the lease.

5. Yes it is reasonable in the Society?s view that a landlord has the right to insist on guarantees from assignees, or be able to rely on the original guarantee.

6. The Society agrees that it should not be relevant for determining whether the premises is or is not a ?retail shopping centre? for the purposes of the Act, for the premises in question to be a single unit plan under the Unit Titles Act or within a single unit title scheme under the Unit Title Schemes Act. The Society reiterates its support for the repeal of this subsection.

7. Yes the current exclusion of 1000 square metres is reasonable and should be retained.

8. Yes, the Society reiterates its desire for Part 13 of the Act to be retained and for section 114 of the Law of Property Act to be amended so that it refers to a defined term under the Business Tenancies (Fair Dealings) Act, instead of the existing reference to leases within the meaning of the Act.

9. The Society has no objections to the Act, not applying to the Northern Territory of Australia and the Commonwealth of Australia, provided that Part 13 continues to apply.

10. The Society is not comfortable with the minimum 5 year term under section 26. If this requirement is removed from the Act, the Society would go one step further and question the continued need for a statutory declaration from the tenant to the effect that the tenant is aware of the term of the lease negotiated. The Society is not aware of matters in which a tenant had not clearly understood the term of their lease prior to production of a certificate and as such suggests the production of a statutory declaration may also have limited utility. The Society supports measures that assist parties understand the terms they have negotiated, but recognises the importance of minimising the number of documents which form a part of the contract or which may affect the interpretation of the written lease terms (this could occur where a mistake is entered on to the certificate or statutory declaration).

11. The Society agrees with the suggested amendment of limiting the opportunities for a tenant to terminate a lease under the Act to two weeks from date the disclosure statement was provided, instead of the current period of 6 months. The Society believes this limitation is reasonable and does not unfairly restrict tenant?s rights. The Society agrees with retaining the outer limit of 6 months concerning the provision of the disclosure statement. The Society also has no concerns with a provision enabling the parties to agree that a disclosure statement is not required.

12. The Society agrees with the concept of a national disclosure document, but notes at present there is no such document. The Society is interested in the form of the national disclosure document and to this end the Society requests that it be included in its development and/or it has an opportunity to meaningfully comment on this document prior to it being agreed by the NT.

13. The Society agrees landlords and tenants should have the benefit of sub metering, as this would more accurately reflect actual consumption on the premises and as such the Act should allow for this to occur.

14. The Society agrees section 62 should be retained in the Act.

15. The Society appreciates that environmental sustainability measures are becoming a more prevalent feature in the management of tenanted properties and there is a need for landlords to meet the costs of these measures. The concept however of a tenant being required to pay additional amounts for capital improvements above the rental amount, could significantly and unfairly disadvantage tenants. The Society therefore would be concerned if an amendment was effected to allow an environmental upgrade cost to be charged under a tenancy.

The Society is mindful of the importance and the need for preservation of the notion that capital costs should be borne by the landlord and cautions watering down this concept by making available to the landlord a new category of charges that include payments for upgrades that are of a capital nature. The Society is concerned such a provision may be used by landlords to require a tenant to subsidise their own desires to increase the value of their property through additional improvements.

It is not clear to the Society what may constitute an environmental upgrade for the purposes of this proposed amendment, but it is clear that it is intended to include capital improvements. Not all capital improvements that may be desired by a landlord will necessarily be of benefit to the tenants and their tenancies and in such a situation it would be unfair to require the tenant to subsidise the landlord?s upgrades.

There are a number of other ways a landlord can recoup the costs of their improvements, without the need to amend the Act to include a new category of charges. For example, landlords could adjust the rent upwards at the end of a tenancy to account for their investment, they could utilise the rent review mechanisms in the lease or negotiate directly with the tenant to make a voluntary contribution, which could be achieved if the landlord can demonstrate such improvements will translate into financial savings for the tenant or other material benefits, which is possible in the context of long term tenancies.

The other concern is the likelihood that charging under such a category could be used by landlords to collect payments for upgrades that are not actually undertaken during the term of the tenant?s tenancy, or not undertaken at all. Additional charges also open the possibility for abuse.

16. The Society agrees criminal sanctions under section 17 do not belong in the Act.

17. The Society believes there is value in retaining the requirements under section 21 concerning the tenant's disclosure statement. The value in retaining such requirements exceeds the burden of red tape this section may present, in the view of the Society.

Other Issues

1. The dispute resolution provisions under Part 11 of the Act are viewed by the Society as useful and necessary and should not be reduced in scope.

2. The Society is not aware of any reasons why the exemption concerning airport leases should not be clarified, and if necessary extended and broadened to include the airports at Alice Springs and Tennant Creek. Whether this is done by amendment of the Act or regulations is of no concern to the Society.

3. The Society is of the view that business leases in the context of franchise arrangements should be subject to the Act, and is not clear as to the reasons why franchisees should not be afforded the same protections that are afforded to other business owners. If this requires clarification by amendment, then the Society endorses that proposal.

4. The Society believes it is not appropriate for the Act to create a criminal offence in the event of a breach and that such provisions should be limited to civil consequence.

5. Yes online sales should be included in the definition of sales if the premises are being used in any way in the conduct of those sales.

6. The unconscionable conduct test should be retained at this stage and not replaced with an unfair conduct test.

A matter raised in previous submissions but not included in the discussion paper as a recommended amendment is the one month time limit for lodging of the lease for registration under section 25(1)(b)(i). It seems this has been confused with the requirement to provide the tenant with a copy of the lease after registration (section 25(1)(b)(ii)). There is no issue with the one month limit post registration, but practitioners are of the view that the timeframe of one month for registration of the lease is unachievable in practice, given the inordinate delay experienced by practitioners in having financiers consent to lease documents to enable them to be registered. Whilst section 25((1)(c) allows the time to be extended for such delays, the Society is of the view that as one month is virtually never achieved in practice where properties are subject to mortgages, it would be a better reflection of reality for the time frame set out in section 25(1)(b)(i) to be three months. The Society notes even though a failure to meet the one month timeframe does not constitute a breach of the section, it is nevertheless preferred that this section be amended from one month to three months.

We look forward to contributing further to this process.