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Retail tenancy under scrutiny by the Productivity Commission

Concerns in the retail tenancy market applying to small and medium businesses are the focus of a new discussion paper “Issues Affecting the Retail Leasing Industry in NSW” released on 14 April by State Small Business Minister Joe Tripodi.

In releasing the report Mr Tripodi said that: “of particular concern is the imbalance between shopping centre landlords and their tenants”.

“Landlords control rents in shopping centres, and have the potential to exploit their negotiating power when dealing with tenants seeking lease renewals,” he said. “Tenants don’t have a lot of bargaining power when it comes to negotiating a new lease. Sometimes they face the choice of staying and paying an exorbitant rent, or losing their business.”

According to Mr Tripodi, “NSW has one  the best regulatory systems in Australia in resolving disputes when it comes to retail leases. About 80 per cent of disputes are resolved through mediation, with minimal cost to tenants and landlords”.

The Retail Leases Act 1994 (NSW) governs the relationship between tenants and landlords. The main objective of the Act is to ensure fair and efficient dealings between parties to retail leases. The NSW is cognisant of the power imbalance between small to medium businesses and landlords. However, the Act has undergone criticism from business concerns that it does not adequately address the volatile retail leasing market.

Since 2004, amendments have been made in the Act so as to:

* improve access to information;
* improve the effectiveness of rent review provisions;
* create a Retail Bond Scheme;
* streamline the process for assignment of a lease; and
* Increase the effectiveness of the dispute resolution provisions.

In 2007, the Productivity Commission released a Draft Report recommending that the Act gradually be eliminated on the basis that the industry is over-regulated. However, the NSW Government maintained the legislation was needed to provide clear guidelines for the conduct of parties to retail leasing matters and in dispute reduction.

The latest Discussion Paper outlines a number of issues facing the retail leasing industry including:

* remedies for non-disclosure or incomplete disclosure;
* mandatory education for retail tenants;
* statutory appointment of a Retail Advocate;
* the time period for bringing pre-lease misrepresentation claims;
* Registration of leases and lease documentation
* introduction of competition or change of tenancy mix in a shopping centre;
* the provision of disclosure statements when an agreement to lease has been entered into;
* landlord use of advertising or promotional funds contributed by tenants;
* strata schemes causing significant disturbances to a tenant’s business;
* failing businesses in statutory five year leases;
* bank guarantees;
* end of lease issues;
* unconscionable conduct and unfairness;
* the passing on of land tax to tenants;
* the conduct of parties in mediation; and
* The monetary jurisdictional limit of the Administrative Decisions Tribunal.

Among suggested amendments include a rent reduction for tenants facing economic uncertainty at the end of their lease.

“The proposed rent reduction would allow tenants to pay 90 per cent of their original rent during the period between a lease ending and a new lease being agreed to by both parties,” Mr Tripodi said.

The Productivity Commission seeks submissions from interested parties by 26th May 2008.


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