Retail Leases Amendment Act 2019

Mr KENNEDY (Hawthorn) (15:40): In Hawthorn there are three strips of cafes, shops and what have you—Burke Road, Glenferrie Road and Burwood Road—and these are very lively, very engaging places and very, very popular. However, in Hawthorn and indeed in other parts not too far from Hawthorn there have been an increasing number of shops that have closed. One such example is the Crabapple Kitchen on Glenferrie Road opposite Glenferrie station, where I used to enjoy breakfast every Saturday morning and which suddenly disappeared two years ago—over two years ago in fact.When you ask about why this happened so suddenly or why it even happened at all, of course what you are told is, often, by the trader, ‘Well, the landlord for the next contract wanted more’. Basically it was saying that the productivity of the cafe, if you like, did not justify it. It was an issue hearing, for me anyway, ‘Well, we don’t make enough money to justify the increased rent that’s being asked’ and various other factors and so on. So I am interested in anything that this government can do to improve the relationship between landlord and trader.

This bill will do much to assist thousands of Victorian businesses and particularly the small and medium business sectors as we all work towards the rebuild of the Victorian economy. It is to be hoped that through these and other related measures supportive of business and employment growth Victoria can continue its enviable pre-COVID-19 growth rate of some 28 000 businesses annually. Certainly that is the policy of the Andrews government—that through genuine consultation with key stakeholders reforms such as those proposed in this bill can ease and simplify the regulatory obligations required to be met by Victorian business operators. The bill amends the Building Act 1993 and the Retail Leases Act 2003 and broadly has two parts. The first clarifies that landlords can continue to pass on the cost of repairs, maintenance or installation, if mutually agreed, of essential measures to retail tenants. Its main purpose is to enhance the certainty
and fairness of retail leasing arrangements between landlords and tenants and to improve the mechanisms available to resolve disputes concerning leases of retail premises.

The second provides for fairer retail leases for small businesses by requiring landlords to give more timely information to tenants. This includes setting a time limit for the returning of security deposits, a new early rent review process and setting a cooling-off period in some circumstances. By enacting these reforms the government is implementing two election commitments. The essential safety measures commitment followed an advisory opinion by VCAT in 2015, and the second delivers on a 2014 election commitment to increase fairness and reduce the regulatory burden on lease arrangements for small business owners to help address the imbalance of power between landlords and tenants. The bill’s reforms deal in real terms with several longstanding vexed issues, such as with leases and bonds, and addresses the legitimate concerns of the small business community and their landlords. The changes to improve fairness and certainty of retail leasing arrangements and fair dealing with any disputes which might emerge have resulted from close stakeholder consultation. This thorough consultation has included small businesses in Melbourne and regional cities, targeted engagement with the Small Business Ministerial Council and the Multicultural Business Ministerial Council and written submissions supplied by small businesses. Such a collaborative approach in dealing with difficult and potentially divisive issues is a hallmark of course of the Andrews Labor government.

In key amendments to the Retail Leases Act 2003 and to the Building Act 1993 the bill remedies uncertainty created in retail leasing industry practices by the contentious VCAT advisory opinion of
May 2015. The provisions relate to the capacity for landlords to pass on as outgoings maintenance and repair costs for essential safety measures (ESMs) to tenants where doing so is provided for in the lease—that is important I think. This key amendment essentially restores the pre-2015 advisory opinion status quo so that leases negotiated in good faith remain valid. The provisions are not
retrospective but into the future and provide for the parties to include ESM repairs and maintenance as outgoings should landlord and tenant agree in their lease to do so. The amendments provided as part 2 of the bill stem from the small business regulation review into the retail sector and the retail sector action statement. Importantly, the bill ensures a proper regime for the
return or otherwise of security deposits. It does this by setting a reasonable time limit for the return of security deposits and replaces the current security deposit return requirement from the frequently controversial ‘as soon as practicable’ to a maximum of within 30 days.

Many of us will know anecdotally of the present terms being open to abuse. The clarity of language within the bill operating with the new reasonable standard will provide greater transparency at that time of lease conclusion, resulting in a reduction in disputes between landlords and tenants. One notes also that the time frame within the bill conforms with times provided for in the Australian supplier payment code, to which the Victorian government is a signatory. Of course it is unlikely that all disputes can be avoided, and it is to be connoted that the landlord and tenant party to a retail lease will be obliged to attempt mediation with the Victorian Small Business Commission before instituting proceedings in a court or tribunal. Although disputing parties involved in non-retail leases are not obliged to mediate unless that be in the term of the lease, they are able to avail of the expert mediation service of the VSBC.

The second change arises from consultation undertaken as part of the small business regulation review. It allows for parties having more time to consider new leases, as the small business regulation review found that many small businesses’ leasing issues were caused by businesses not having taken enough time to consider their proposed lease prior to signing. The amendments will increase the minimum time for landlords to provide prospective tenants with a copy of the proposed lease and disclosure from seven to 14 days, which will allow small business owners adequate opportunity to consult expert advice on whether the lease terms proposed by the landlord are right for them. It can be reasonably anticipated that if this further time is taken in considering the proposed lease and for the gaining of advice the present rate of disputes will decline.

A further centrally important reform provided for by the bill is the requirement for more information to be provided to commercial tenants considering options to renew their lease. Currently tenants must make a decision to renew their lease without having key information, including what the future rent will be, which has resulted in some business owners only discovering their rent has increased after they have exercised the option to renew.

The changes in the legislation seek to ensure that tenants are informed of all key changes to the lease, not only the rate of rent. Consequently the bill will change the timing the landlords have to provide information to tenants from the recurrent requirement of six to 12 months before the option date to a minimum of three months before the option date. This ensures that tenants are in a better position to request information on the current market conditions before signing the lease. This element of unfairness remedied by the relevant amendments will introduce far more stability for small operators when the burden of an unexpected additional cost burden is eliminated. This change will be facilitated through the creation of a new rent review process, the same process used in section 37 of the current act.

I commend the bill to the house