2 min read
30 May 2023
The Victorian Retail Leases Act 2003 (RLA) is the legal framework which regulates the leasing of retail premises in Victoria. “Retail premises” means premises used wholly or predominantly for the sale or hire of goods by “retail”, or the “retail” sale of services. There are, however, certain premises which are exempt from being considered retail premises.
“Retail” means the sale of goods, or the provision of services to the public or end user, as opposed to a wholesaler.
The RLA seeks to provide tenants with a level of security of tenure, which is particularly important in the retail industry, where businesses may take time to establish and build a customer base.
Sections 28, 28A and 28B of the RLA deal with the process of tenant’s exercising an option to renew a retail lease, in circumstances where a tenant has an option in its lease.
Understanding the procedure and timeframes for exercising an option under a retail lease is essential for both landlords and tenants.
Section 28 of the RLA applies if a retail premises lease contains an option to renew the lease for a further term.
The process for exercising an option to renew a lease under Section 28 of the RLA is relatively straightforward but key elements are often missed.
Firstly, the landlord must give written notice to the tenant that an option to renew the lease may be exercised by the tenant. This notice must be given to the tenant at least 3 months before the last date on which the tenant can exercise the option. The notice must set out the following information:
The consequences of landlords and commercial leasing agents failing to provide written notice to the tenant as detailed above is as follows:
A Tenant may either:
If a tenant exercises its option without requesting an early rent review, a new legally binding lease is deemed to come into effect between the landlord and the tenant notwithstanding that a new lease or a deed of renewal of lease has not yet been signed by the landlord and tenant. Subject to a rent adjustment, the renewed lease is usually on the same terms and conditions as the expired lease, unless the landlord and tenant agree otherwise.
Within 28 days of the landlord providing the tenant with a written notice under section 28 of RLA advising it of the last date on which it can exercise its option and that it may request an early rent review, the tenant may request an early rent review by providing the landlord with written notice to that effect.
An early rent review involves the determination of the market rent payable for the premises on the commencement date of the new lease term. This can either be negotiated and agreed between the landlord and tenant, or it can be determined by an independent specialist valuer who is usually appointed by the Victorian Small Business Commission or the Real Estate Institute of Victoria depending on what the lease specifies.
If a tenant elects an early rent review, the last date on which the tenant can exercise its option is extended to the date which is 14 days after the date on which the tenant is notified of the new market rent by the independent specialist valuer. In this way, the tenant can assess whether the new rent is affordable, particularly in markets like today where inflation and rents are increasing at more than usual rates.
If a tenant exercises its option to renew its lease but has not requested an early rent review, the tenant may, during the cooling off period, give the landlord a written notice stating that the tenant no longer wishes to exercise its option to renew the lease.
The “cooling off period” is 14 days after the day on which the tenant exercises its option to renew the lease.
Navigating the law in this area can be hard for tenants as it is nuanced. If you are seeking to exercise an option and your landlord is trying to circumvent the law or given you notice to vacate it is important to seek advice on your legal position and options.
The law is quite specific when it comes to retail leases and tenants are well protected.
Other issues associated with exercising an option is the increase of rent and market rent reviews. Under the RLA there are well defined steps and timeframes that apply. We can also help explain the process of, and resolve disputes about, rent increases.
It is important for both landlords and tenants to understand their rights and obligations under the RLA to ensure their respective best outcomes.
If you need assistance in exercising your options to renew a lease or any associated lease dispute, we have extensive experience and are able to assist. Our leasing lawyers are well versed in the commercial issues and the RLA and have helped negotiate positive outcomes for our clients, whether they are landlords or tenants.
We have expertise in helping clients from shopping centre owners to small retailers. Our advice is of the highest quality and commercially sound.
Call on of our leasing team today to discuss how we can assist with your leasing matter.
Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of PCL Lawyers and belong solely to the author of the content. © PCL Lawyers Pty Ltd.
If you require legal advice specific to your situation please speak to one of our team members today.
Chris is an Accredited Commercial Law Specialist and a Partner at PCL Lawyers. Chris has approximately 30 years’ experience in commercial and property law. Chris has extensive expertise in complex...
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