Bills

Retail and Commercial Leases (Miscellaneous) Amendment Bill

Introduction and First Reading

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence Industries, Minister for Veterans' Affairs) (12:00): Obtained leave and introduced a bill for an act to amend the Retail and Commercial Leases Act 1995 and to make related amendments to the Landlord and Tenant Act 1936.

Second Reading

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence Industries, Minister for Veterans' Affairs) (12:01): I move:

That this bill be now read a second time.

I seek leave to have the second reading speech inserted in Hansard without my reading it.

Leave granted.

The Retail and Commercial Leases Act 1995 is legislation that regulates 'retail shop leases', principally by protecting the interests of lessees.

For example, it requires lessors to provide certain information to lessees, it regulates certain costs that can be imposed upon lessees and inserts certain terms and warranties into retail and commercial leases.

Importantly, section 5 provides that 'a provision of a lease or a collateral agreement is void to the extent that the provision is inconsistent with this Act.'

So it can readily be seen that from the perspective of lessees (who most often are the least powerful party in such arrangements), the Act is a type of 'consumer' protection—from lessors (or Landlords) who are usually the more powerful party to any lease agreement.

Barring some changes to the regulations however, the Act has not been varied since its inception in 1995. Accordingly, it is highly appropriate for a measured and sensible review of this important piece of legislation.

Pursuant to section 7 of the Act, the Small Business Commissioner is responsible for the administration of the Act.

I am now able to advise the government has, through the Office of the Small Business Commissioner, undertaken a review that consisted of 2 tranches of extensive industry and stakeholder consultation.

Following this lengthy consultation and review process, the government is determined to improve this legislation by broadly improving transparency for lessees and lessors alike and wherever possible, removing ambiguity relating to the processes under the legislation.

I expect the amendments within this bill to contribute to improved operation and efficacy of the updated legislation, in line with the extensive consultation that has occurred, and broadly in line with industry's expectations.

A number of the proposals within the bill simply make common sense. For example, the proposed changes that clarify the operation of 'rent threshold' have been described by the Law Society of SA as 'long overdue'.

I will now briefly outline to the House, the review process that has been undertaken:

In December 2013, the State Government committed to undertake a review of the Retail and Commercial Leases Act 1995 (the Act).

In December 2014, a formal review process was initiated by the Small Business Commissioner (the Commissioner) on behalf of the (former) Minister for Small Business.

The Commissioner initially published an Issues Paper in December 2014 seeking public comment on various issues relating to the Act. Advertisements were placed in The Advertiser on 20 December 2014 and 10 January 2015.

On 13 February 2015, submissions to the Issues Paper closed with 37 submissions received from a broad range of organisations, industry groups and individuals. Some submissions raised a number of complex issues.

The submissions made to the Issues Paper went on to inform (retired District Court Judge), Mr Alan Moss, as he formulated the Moss Review on 14 April 2016. The Small Business Commissioner released the Moss Review for the 2nd tranche of public consultation on 24 May 2016.

The Moss Review made 20 recommendations on a wide range of issues relating to the Act.

Out of that broad industry consultation, the amendments in this bill will seek to give effect to 16 proposed changes to the Act and its regulations. These amendments aim to build further on the existing protective measures for lessees within the legislation, including:

clarifying important aspects of the legislation, such as making it express that retail shop leases can 'move into' and 'out of' the jurisdiction of the Act; the means of adjusting the 'rent threshold' (that triggers the operation of the Act); and making certain that various sums such as the rent threshold and security bonds are clearly understood to be exclusive of GST;

clarifying arrangements for the provision of information to lessees entering into leases such as draft leases and Disclosure Statements, as well as clarifying various terms and definitions to improve certainty, and removing redundant terms;

broadly increasing (by around 60%—roughly the rate of CPI from 1995 to 2015), the various maximum penalties within the Act by CPI since 1995.

These maximum penalties have not been reviewed since 1995 and the submission proposes an increase of 60% which is broadly in line with the 68% movement in the CPI over the 20 year period from 1995 to 2015. Further, maximum penalties of $8,000 have been proposed for two new offences under the legislation;

permitting the Government to exclude certain 'classes' of leases and licences from the coverage of the Act; and also

permitting the Small Business Commissioner to certify Exclusionary Clauses, and to exempt leases and licences from the Act.

I also note that regulation 14(1)(b) will also need to be amended to remedy a mismatch in the regulations regarding the 'rent payable' threshold:

Section 69(1) of the Act properly states that the 'rent payable' threshold is $100,000. However, regulation 14(1)(b) states that that same threshold to be $40,000 – which is an error. The two should be the same.

Accordingly, the regulation needs to be varied such that the threshold is the same amount as that set out in the Act—i.e. $100,000.

Having now contributed significant resources into the two tranches of consultation, the retail and commercial leasing sector arguably has a legitimate expectation of the legislation being amended and thereby improved.

I commend this bill to the House and seek leave to have the explanation of clauses inserted in Hansard without my reading it.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of Retail and Commercial Leases Act 1995

4—Amendment of section 3—Interpretation

This clause inserts definitions of GST and GST law which are consequential on the amendments to the Act in relation to rent and rent threshold. A definition of public company (a term is used in section 4 of the Act) is also added, to have the same meaning as in the Corporations Act 2001 of the Commonwealth. This clause also inserts a new subsection setting out the meaning of prescribed threshold in relation to the rent payable under a retail shop lease. The prescribed threshold of rent is for the purposes of section 4 of the Act, being the amount of rent that will determine whether or not the Act will apply to a particular retail shop lease. The threshold of rent is defined to mean the amount of $400,000 per annum or such greater amount that may be prescribed by the regulations. The amount of $400,000 is the same amount as is currently prescribed by the regulations for the purposes of section 4. The definition also clarifies that the threshold amount does not include GST.

5—Amendment of section 4—Application of Act

The amendments to section 4 are to clarify (as from the commencement of the provision) the manner in which the prescribed threshold of rent is intended to operate to determine whether or not the Act applies to a particular retail shop lease. As is currently the case, the Act does not apply to a retail shop lease if the rent payable under the lease exceeds the prescribed threshold (that is, $400,000 per annum). The amendment clarifies that the prescribed threshold will operate to exclude the operation of the Act at any point the rent under a lease exceeds the threshold, regardless of whether or not, at the time the lease was entered into or renewed, the Act applied to the lease (by virtue of the amount of the rent payable). This means that the Act may apply or cease to apply to a particular lease during the term of the lease, either as a result of a change in the amount of rent that may be payable (for example, as a result of a rent review), or as a result of any increase in the amount of the prescribed threshold (by way of a regulation under the Act). The provision also sets out some examples in order to illustrate the manner in which the 'rent threshold' provision is intended to operate.

6—Insertion of section 6A

This clause inserts a new section.

6A—Valuer-General to review prescribed threshold

The proposed new section provides for the Valuer-General to conduct a review of the amount of the prescribed threshold for the purposes of section 4 of the Act (and thus the threshold amount of rent at which the Act will cease to apply to a particular lease). On completing a review, the Valuer-General is to provide a report to the Minister on whether an increase in the prescribed threshold is recommended. The first review is to be conducted within 2 years of the commencement of this provision and every 5 years after that. The regulations may (but need not) specify requirements in relation to the review regarding such things as matters to be considered by the Valuer-General, or consultation to be undertaken.

7—Amendment of section 9—Commissioner's functions

This amendment is consequential on the amendments to sections 20K and 77(2) of the Act by this measure, and reflects the fact that the Act assigns other functions to the Small Business Commissioner in addition to those set out in section 9.

8—Substitution of section 11

This clause substitutes a new section 11.

11—Copy of lease to be provided to prospective lessee

This clause provides that a lessor who offers, or invites an offer, to enter into a retail shop lease, or advertises that a retail shop is for lease, must provide a prospective lessee with a written copy of the proposed lease as soon negotiations are entered into. Under current section 11, a copy of the lease need only be made available to the lessee for inspection. As is the case for the current section 11, the copy of the proposed lease need not include the particulars as to the lessee, rent or term of the lease. In addition, the lessee must provide the lessee with a copy of the information brochure published by the Small Business Commissioner.

9—Amendment of section 12—Lessee to be given disclosure statement

This clause amends section 12 to provide that a lessor must, before entering into a retail shop lease, serve on the lessee a signed disclosure statement in duplicate. The lessee must then sign both copies of the statement and return 1 copy to the lessor within 14 days.

10—Amendment of section 14—Lease preparation costs

This amendment deletes the reference to stamping and stamp duty in relation to the lease, as this is no longer payable.

11—Amendment of section 15—Premium prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with the granting of a retail shop lease from $10,000 to $15,000.

12—Substitution of section 16

This clause substitutes a new section 16.

16—Lease documentation

This section, which sets out the requirements for the provision of an executed copy of a lease to the lessee, has been rewritten to remove the references to stamp duty, as this is no longer payable on a retail shop lease. If a lease is not to be registered, the lessor is required to provide a copy of the executed lease within 1 month after it has been returned to the lessor following its execution by the lessee. In the case of a lease that is to be registered, the lessor must lodge the lease for registration within 1 month of its execution and return by the lessee, and a copy of the executed, registered lease must be given to the lessee within 1 month of the lease being returned to the lessor following its registration.

13—Amendment of section 19—Security bond

The amendments to this section are to clarify that the reference to a maximum bond of 4 weeks' rent does not include GST. The clause also increases the penalty for failing to provide a receipt for payment of a bond or failing to pay the bond to the Commissioner from $1,000 to $1,500.

14—Amendment of section 20—Repayment of security

This clause increases the time in which a written notice of dispute as to repayment of a bond must be lodged with the Commissioner under subsection (4) from 7 days to 14 days, and makes a consequential amendment to subsection (5).

15—Insertion of section 20AA

This amendment inserts a new section 20AA.

20AA—Return of bank guarantees

The proposed clause requires a lessor who has received a bank guarantee to return it to the lessee within 2 months of completing the performance of the obligations under the lease for which it was provided as security, unless the guarantee has expired or been cancelled, or for such time as there are court proceedings in relation to the guarantee. A consent or release necessary to have the bank guarantee cancelled may be provided instead if a lessor is unable to return the original guarantee. A lessor may be liable to pay a lessee compensation for any loss or damage suffered as a result of failing to return a bank guarantee, as well as any reasonable costs incurred by the lessee in connection with cancelling the guarantee. This provision will apply to a bank guarantee given in relation to a lease whether entered into before or after the commencement of this provision.

16—Amendment of section 20B—Minimum 5 year term

This clause amends section 20B by removing the reference to a period of holding over exceeding 6 months. This is to make it clear that a period of holding over after the termination of an earlier lease greater than 6 months, does not imply a new 5 year term of the lease.

17—Amendment of section 20K—Certified exclusionary clause

This clause amends section 20K to include the ability for the Commissioner, in addition to an independent lawyer, to sign a certificate in relation to a certified exclusionary clause. The Commissioner may require payment of a prescribed fee for providing such a certificate.

18—Amendment of section 20L—Premium for renewal or extension prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with the renewal or extension of a retail shop lease from $10,000 to $15,000.

19—Amendment of section 20M—Unlawful threats

This clause increases the penalty for the offence of making threats to dissuade a lessee from exercising a right or option to renew or extend a retail shop lease or exercising the lessee's rights under Part 4A of the Act from $10,000 to $15,000.

20—Amendment of section 24—Turnover rent

This amendment increases the penalty from $1,000 to $1,500 for the offence of a lessor requiring a lessee to provide information about the lessee's turnover when the lease does not provide for rent or a component of the rent to be determined by reference to turnover.

21—Amendment of section 44—Premium on assignment prohibited

This clause increases the penalty for the offence of seeking or accepting a premium in connection with consenting to the assignment of a retail shop lease from $10,000 to $15,000.

22—Amendment of section 51—Confidentiality of turnover information

The amendment to this section increases the penalty for the offence of divulging or communicating confidential information about the turnover of a lessee's business from $10,000 to $15,000.

23—Amendment of section 75—Vexatious acts

This clause increases the penalty for the offence of parties to a lease engaging in vexatious conduct in connection with the exercise of a right or power under the Act or a lease from $10,000 to $15,000.

24—Amendment of section 77—Exemptions

This amendment provides that, in addition to the Magistrates Court, the Commissioner may grant an exemption from all or any provision of this Act, on the application of an interested person, in relation to a particular retail shop lease (or proposed lease) or a particular retail shop (or proposed shop). The clause also increases the penalty for contravening a condition of an exemption granted under section 77 from $500 to $800.

25—Substitution of section 80

This clause substitutes a new provision setting out the regulation making powers under the Act.

80—Regulations

The proposed new section 80 sets out the regulation making powers under the Act to include those provisions now more commonly included. It provides that any regulations made may be of general or limited application and may confer powers or impose duties in connection with the regulations on the Minister or the Commissioner. As is currently the case, it also allows for regulations to prescribe codes of practice to be complied with by lessees and lessors and to impose maximum penalties of $2,000 for contravention of a regulation. The regulations may also make provision of a saving or transitional nature and make different provision according to the classes of persons or matters to which they are expressed to apply, fix fees and make exemptions.

Part 3—Amendment of Landlord and Tenant Act 1936

26—Insertion of section 13A

This clause inserts a new section.

13A—Jurisdiction of the Magistrates Court

Proposed new section 13A clarifies that the Magistrates Court has jurisdiction to hear and determine applications and proceedings under Part 2 in relation to distress for rent. If the jurisdictional monetary or property value limits of the Magistrates Court are exceeded, the proceedings are to be referred to the District Court.

27—Amendment of section 24—Adverse claims

This amendment is consequential on the insertion of new section 13A.

Debate adjourned on motion of Mr Pederick.