Retail and Commercial Leases (Miscellaneous) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 5 July 2017.)

Ms CHAPMAN (Bragg—Deputy Leader of the Opposition) (15:54): I indicate that I will be the lead speaker in respect of the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017. Parliament would have noted that a number of parcels of amendments to this bill have been foreshadowed, but I propose to address the substantive bill in the first instance and hope to then explain the foreshadowed amendments in my name. They are in 220(1) and 220(4), as printed and tabled.

On 5 July this year the government introduced this bill to amend the Retail and Commercial Leases Act 1995, essentially to deal with recommendations arising out of a 2016 review of the operation of this act. On the same day the Hon. John Darley, in the other place, introduced a bill into the Legislative Council to deal with a matter arising out of a change of regulations to this act that were promulgated in 2010.

It is worth noting a brief history of the principal act to which we are referring. I think it is fair to say that prior to the passing of the principal act in 1995 the protection of lessees, particularly in retail shop premises, was then provided under the Landlord and Tenant Act 1936. There had been a long-held view by many small business operators that the rent—being a substantial financial outgoing—and the fair operation of the lease were critical to the success or failure of their business, and I do not think anything is changed in that regard.

However, it was also acknowledged that there was a significant imbalance of the commercial power between the lessee and the lessor which, in some circumstances, could leave the lessee at a significant disadvantage. So it is not new that we have, essentially, consumer protection law largely drafted to protect tenants in a commercial arrangement where, in some cases, there is a very significant imbalance between the power of the lessor and the lessee.

That is not universal by any means, but I suppose to a similar degree we have consumer-based protection in residential tenancy law in this state that has operated now for a number of decades, and which works on the presumption that it is likely the lessee is the one who is the most vulnerable in that relationship. That is the tenant in a residential arrangement.

Of course, in some instances the tenant can be articulate and educated and the lessor, the owner of the house, may be someone who has just one investment property that they do not reside in and that they hold on the understanding of a commercial arrangement, and they may be seen as quite inferior to the tenant. However, largely the development of laws in both these areas has been on the basis that the lessee is likely to be the more vulnerable, certainly less powerful, in a David and Goliath situation of power imbalance.

There have been a number of amendments, particularly in 1997 and 2002, to our Retail and Commercial Leases Act. Currently, the act provides for matters as follows:

it covers most non-residential landlord and tenant relationships;

it imposes mandatory disclosure requirements;

it prohibits certain conduct by landlords;

it deems certain provisions in leases to be void;

it provides tenant-friendly provisions (that is, the renewal of leases and security of tenure); and

it provides dispute resolution processes.

The act is supported by regulations promulgated in 2010. These are particularly important because the annual rent threshold, which attracted the application of the provision of the act, was increased from $250,000 to $400,000 and was effected on 4 April 2011. Frankly, that is when the disaster started in respect of the application of this act.

In December 2013, the state Labor government committed to a review of the act. The government appointed Mr Alan Moss, a retired District Court judge, to undertake the review. The review was handed down on 14 April 2016. That review was released for a three-month period of consultation and 37 submissions were received. The review was handed to the Small Business Commissioner, Mr John Chapman, then I think Mr Rau originally, but in any event the Minister for Small Business has the responsibility for the progress of the bill.

The government bill before us essentially claims to deal with matters recommended under the Moss review, accepting 16 of the 20 recommendations. Essentially, the bill provides for the following:

allowing retail shop leases to move into and out of the jurisdiction of the act;

an adjustment of the rent threshold that triggers the operation of the act and clarification that the figures used are exclusive of GST;

clarifying the provision of information to lessees at the time of entering into a lease broadly increasing, that is around 60 per cent, the maximum penalties by CPI since 1995;

providing maximum penalties of $8,000 for two new offences;

permitting the government to exclude certain classes of leases and licences; and

permitting the Small Business Commissioner to certify exclusionary causes and exempt leases and licences from the act.

Unsurprisingly, during the consultation the Small Business Commissioner has supported the bill and submissions have been received from the Law Society and the Property Council. Similarly, there is general acceptance. It is fair to say that the Property Council probably covers the interests of landlords, and of course must be therefore consulted largely in this space. It is fair to say that the Moss review was fairly mild in its recommendations to the extent of the breadth that is covered, and it is fair to say that from the submissions we received that broadly the reforms proposed are accepted. The opposition agrees with a number of those submissions.

What is the elephant in the room in this matter is the notable omission in the Moss review and in the government bill—namely, the issue that has been alive since the 2010 regulations and the identification of consequences of increasing the rent threshold of a number of transitional cases, that is, the tenancy arrangements entered into prior to 2011, which were substantially renewed, such as another five years after the change.

This aspect was very concerning to the Law Society. Obviously, it was not a process that came back before the parliament, but it was identified when the regulations rapidly increased the threshold from a $250,000 annual rent to a $400,000 rent. Perhaps inadvertently at that stage, but we will give the benefit of the doubt in that regard, it caused some severe financial impost on a number of transitional cases.

In the beginning, before the involvement of the current minister, there were requests submitted by the Law Society and, unsurprisingly, the financial and legal advisers of the landlords who were caught in this mess. Those requests were just completely ignored. Submissions were put to Mr Alan Moss and the Small Business Commissioner and, again, they were completely ignored, with no explanation or review as to why no action was being taken.

The government's published intention back in 2010 was that the new rent threshold would not apply to leases entered into prior to 4 April 2011 or renewals of leases or new leases entered into on right of renewal before that date. That is a clear commitment that was made at that time. Those who are now complaining about the adverse impact of these make it very clear that they had no reason to doubt the government's commitment in that regard, and if there was some corroboration, I suppose, of the concerns that were raised and the justification for those concerns being raised it was during the reign of minister Kenyon, who had responsibility in this matter shortly after this period.

One of the casualties in this action as a result of this threshold change related to a retail tenancy that was originally referred to minister Kenyon and then to the subsequent minister, minister Koutsantonis. In fact, I also wrote to the Attorney-General in May this year, but of course my responsibility on behalf of the opposition in relation to this area is relatively recent. In response to that correspondence to the Attorney-General, the current minister responded and advised that the matter was 'complex' and that after further correspondence he disclosed that it was a matter for parties entering into a lease to obtain their own independent legal advice. Notably, he also said:

With regard to the Moss review, the advice to the State Government was that this area needed to be clarified (i.e. leases may move in or out of the Act). It is the State Government's intention to reinforce this point in amendments to the Act which will be brought to the Parliament in due course.

Members should be aware that there are two important Supreme Court cases in respect of this issue; that is, firstly, the Buffalo Motor Inn case, WST v GRE Pty Ltd, and more recently, Diakou Nominees Pty Ltd v Gouger Nominees Pty Ltd. Both of these cases involve people who have been caught in the crossfire of the change of regulation. Both of these cases held that the new rent thresholds applied to existing leases; however, it should be noted that the Diakou case on appeal is still being considered by the plaintiffs in the Full Court.

You would think that, surely, in these circumstances, rather than the government saying, 'We're going to make some minor amendment which should resolve this in the future,' they would understand that there has been an utter stuff-up in respect of the modernising and updating of this legislation in which now seven years have passed and there has been no resolution for the people left in the crossfire. It is rather appalling conduct on the part of the government to have allowed this situation to go so long. That is the first thing.

Secondly, notwithstanding their original commitment, and notwithstanding correspondence that I have from the then minister Kenyon that this issue could be resolved and was expected to be resolved, it was not. I say shame on the government for just simply leaving these people in the lurch. As a result, unsurprisingly, the Hon. John Darley, at the introduction of this bill, moved a bill to try to resolve this issue on behalf of the people left in the middle.

That bill sought to remedy the inequalities consequential on changing the threshold in 2010 by regulation not protecting the interest of parties, particularly landlords, with pre-existing issues. The direct consequence of the effect of these changes relates to the liability to pay land tax. Now we get to the real issue of what is in question here, that is: who is going to pay the land tax?

The effect of this change, without there being any remedy to the people in the casualty list here, is that there is actually a transfer over from one to another. Section 30 of the act provides that lessees who have an annual rent higher than the threshold can have the land tax recovered from them by the owner. The threshold increase resulted in a situation where owners who had previously passed the land tax to their tenants would now be liable to pay it. This could be at a cost of tens of thousands of dollars, and clearly this was a matter taken into account when negotiating a lease before the 2010 threshold change by regulation.

Quite likely, in my view, the government has now seen that there is more political mileage in being the hero in providing relief to tenants rather than landlords. Again, I think that is shameful. They think, 'Well, look, bad luck. It's only a few whingeing landlords who are going to complain about this. We will be the heroes in the lead-up to the election. We will protect the interests of the tenants and they are going to now be relieved of very substantial bills of land tax.' Minister Koutsantonis, the Treasurer, will not give a toss who pays them; they are going to get the same money anyway. The conduct in doing this is utterly shameful. I think that it needed to be remedied and so did the Hon. John Darley. It needs to be resolved.

To simply turn a blind eye to it and say, 'We are going to go and contemporise the law generally and we are going to have Mr Moss look at it. We are going to consider whether we have different rules or different models of application of how we protect the parties in this space,' and ignore this elephant in the room I think is most unacceptable and certainly unbecoming conduct of a government that is supposed to be responsibly considering and protecting the interests of those who reasonably enter into commercial arrangements as per the law of the land of that day. That is what is reasonable.

As I have said, Mr Darley's bill then provided for statutory relief in view of the government's refusal to provide regulatory relief; specifically, that if a lease was entered into or renewed before 4 April 2011 and the rent at that time was more than $250,000, then the act will not apply. The effect will protect the existing rights and obligations of those owners and lessees. As I have pointed out, even with the passage of Mr Darley's bill, to do so would have no net effect on the total revenue because, from the Treasurer's point of view, they do not really care who pays as long as they get paid.

I noted with interest the Attorney-General's recent statement in this house when he was talking about residential parks. I remember a former treasurer of this parliament, the Hon. Kevin Foley, charging people land tax in residential parks. They had a right to space, actually, rather than land. It took a very long time to convince him that in fact he was charging people that he should not have been charging. It took lengthy submissions to remedy that situation. I noticed when we finally won that argument that he did not give any money back.

Nevertheless, these are the sorts of things that obviously as members of parliament we have to be vigilant about. Where we see some unfairness, we need to raise it with the government of the day and seek some appropriate relief. Sometimes that is statutory; in this case, the imposition of a regulation with promises to do A, which had the consequential effect of B, obviously to the detriment of the landlords in the transitional period, should have been dealt with by this government.

It had been honourably recognised by former ministers and now has been shoved under the carpet under the current regime. As shameful as that is, our remedy is to indicate that, whilst we support the substance of this bill, I will move amendments that are in my name, as per 221, and I will deal with the particulars of those when we get to them.

The Small Business Commissioner, Mr John Chapman, who I should state for the record is no relative of mine, provided us with a briefing and I thank him for that. Clearly, in the course of that briefing he was fully aware of the cases that tried to use the court process to get the protection that they thought they had of former ministers and to seek relief. However, it seems from those briefings, and I am sure the minister will correct me if I am wrong, that there are only a small number of cases that have at least been identified at this point where someone has come forward and said, 'Hang on a minute, we weren't supposed to be in this category.' As I said, because there is no net detriment to the financial receipts of the government then probably the question of how many cases is academic.

Unsurprisingly, the litigants in respect of the court cases had sought to put a submission to Mr Alan Moss. My understanding is that a request to meet with Alan Moss, the reviewer, was met with, 'His contract finished last year,' and therefore I was not, at least as a representative, to be afforded any further discussion with him. However, it could not have gone unnoticed by Mr Moss that this was a live and concerning issue. Nevertheless, the government terminated his contract. That is fair enough; he does not have to meet with me or do anything else. He was probably paid to do it, I suppose.

Again, this just smells of the approach that the government has had in what was quite a legitimate review with quite legitimate reforms raised in respect of legislation. But there has been a continued refusal by the last two ministers, at least since 2012, to deal with this matter in a manner that would provide some justice to the parties concerned. I will refer in detail to the amendments that deal with the transitional matters, if I can paraphrase them as that.

A further matter has been raised in respect of the circumstances of a new party being stuck paying land tax unexpectedly, and the Property Council suggests that to protect both parties the new provisions should only come into effect at the next market rent review under the lease. Both stakeholders have raised concern as to whether the act will apply and provide protection for all tenants of government-run entities. They assert that Renewal SA or government-owned properties may not be protected. Obviously, this can be clarified by the government and I seek that the minister do so in his response, unless he wants to wait until the committee stage.

Additionally, the Property Council recommended that the rent threshold review be in smaller increments in the future, which was the original recommendation of Mr Alan Moss. Notwithstanding this, by regulation the government increased the threshold from $250,000 to $400,000 in 2011, as I said. The Shopping Centre Council of Australia submitted that the criteria for application should be floorspace area rather than rental paid. As we know, Mr Alan Moss rejected that idea. We have accepted this in our previous indication of support of the bill generally.

The reviewer of the rent threshold is to be the Valuer-General every five years. The Valuation of Land Act 1971 provides no guidance on how this is to be carried out and they seek clarification, including stakeholders being consulted before any change. It is unusual to specify the particulars of a review, other than the time in which they should be undertaken or completed by statute, but I think questions need to be followed up in this regard with answers from the government.

In any event, the Shopping Centre Council of Australia also claimed the time line for the lessor to lodge a lease for registration is too strict. They say that it should be one month after the lease is returned to the lessor following the execution of the lease. They suggested an amendment to allow for one month, but with the capacity to extend that when the consent from the head lessor or mortgagee, or a requirement for a plan to be filed at the LTO, or other events beyond the control of the lessor, to be taken into account.

Accordingly, I indicate that we are persuaded that that is reasonable, and we would invite the government to consider the amendments foreshadowed in 220(4) standing in my name, to accommodate that request, which we consider reasonable in the circumstances. I think that covers the matter of giving notice to the government about our position on this matter. I invite the minister to respond to those matters, should he wish to do so, otherwise we will continue in committee.

Mr PEDERICK (Hammond) (16:21): I rise to make a contribution in regard to the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017. The government bill, which we are debating today, was introduced on 5 July 2017. It intends to amend the Retail and Commercial Leases Act 1995 and deal with recommendations arising out of the 2016 review. It is noted that a bill was introduced in the other place by the Hon. John Darley to deal with an issue arising from the change of regulations in 2010.

Prior to the act passing in 1995, the protection of lessees, particularly in retail shop premises, was provided under the Landlord and Tenant Act 1936. Accordingly, there has been a long held view by many small business operators that their rent is a substantial financial outgoing and that the fair operation of their lease is critical to the success or failure of their business. It is also acknowledged that the significant imbalance of commercial power between the lessee and lessor, can leave the lessee at a significant disadvantage.

There have been a number of amendments to the act, particularly in 1997 and 2002. As the act currently stands, it covers most non-residential landlord tenant relationships, it imposes mandatory disclosure requirements, it prohibits certain conduct by landlords, it deems certain provisions in leases as void and it provides tenant-friendly provisions re renewal of leases and security of tenure. It also provides dispute resolution procedures. The act is supported by the Retail and Commercial Leases Regulations 2010. These are particularly important because the annual rent threshold, which attracted the application of the provisions of the act, was increased from $250,000 to $400,000, which was made effective on 4 April 2011.

In December 2013, the state Labor government at the time committed to a review of the act. Alan Moss, a retired District Court judge, was appointed to undertake that review. The review was handed down on 14 April 2016. On 24 May 2016, the review was released for a three-month period of public consultation, and 37 submissions were received. Unusually, the review was handed to the Small Business Commissioner rather than to the relevant minister.

The government bill deals directly with the Moss review, and it accepts 16 of the 20 recommendations. Essentially, what the bill provides for is to allow retail shop leases to move into and out of jurisdiction of the act, adjustment of the rent threshold that triggers the operation of the act and clarification that the figures used are exclusive of GST. There is a clarifying provision of information to lessees at the time of entering into a lease. It is broadly increasing around the number of 60 per cent the maximum penalties by CPI since 1995, providing maximum penalties of $8,000 for two new offences, and also permitting the government to exclude certain classes of leases and licences.

What also happens is that it permits the Small Business Commissioner to certify exclusionary clauses and exempt leases and licences from the act. These amendments are supported by the Small Business Commissioner and have been supported by submissions from the Property Committee of the Law Society of South Australia. The Property Council provided a submission to the review. In the main, as has been indicated by the deputy leader, the provisions of the bill are uncontroversial.

However, there is a notable omission in the review and in the government bill, namely, an issue which has been alive since the 2010 regulations and the identification of consequences of increasing the rent threshold of a number of transitional cases—for example, tenancy arrangements entered into prior to 2011 which were subsequently renewed such as another five years after the change. This is particularly concerning given the Law Society and legal and financial advisors to the landlords in question have put these concerns to previous ministers seeking relief by way of amendments to the regulations.

It is to be noted that the government consistently ignored those requests. Submissions were put to Mr Moss and the Small Business Commissioner, and again they were ignored with no explanation in the review as to why no action is being taken. The government's clear published intention back in 2010 was that the new rent threshold would not apply to leases entered into prior to 4 April 2011 or renewals of new leases entered into on right of renewal before this date.

One of the casualties of this inaction resulted in a retail tenancy which was originally referred to minister Kenyon and then minister Koutsantonis. The shadow minister wrote to the Attorney-General in May 2017, and it is noted that the current minister, minister Hamilton-Smith, responded and advised that the matter was complex. After further correspondence, he disclosed it was a matter for parties entering into a lease to obtain their own independent legal advice. It is noted that he also said:

With regard to the Moss review, the advice to the State Government was that this area needed to be clarified (i.e. leases may move in or out of the Act). It is the State Government's intention to reinforce this point in amendments to the Act which will be brought to the Parliament in due course.

As has been noted by the deputy leader, there have been two significant Supreme Court cases on this issue. One of them was the Buffalo Motor Inn case and more recently Daikou Nominees Pty Ltd v Gouger Nominees. Both these cases have the new rent thresholds which apply to existing leases. It is noted that these are ongoing issues in the courts.

In regard to the bill that was introduced in the other place by the Hon. John Darley, this bill was brought into the other place to remedy inequities consequential on changing the threshold in 2010 by regulation and protecting the interests of parties, particularly landlords with pre-existing leases. A direct consequence of the effect of the changes relates to the liability to pay land tax.

Section 30 of the act provides that lessees who have an annual rent higher than the threshold can have land tax recovered from them by the owner. The threshold increase resulted in a situation where owners who had previously passed the land tax to their tenants would be liable to pay it. This could be at a cost of tens of thousands of dollars. Clearly, this was a matter taken into account when negotiating the lease before the 2010 threshold changed by regulation. The Hon. John Darley from the other place has confirmed that parties affected by this have approached his office for relief.

This bill specifically provides statutory relief in view of the government's refusal to provide regulatory relief: specifically, if a lease was entered into or renewed before 4 April 2011 and the rent at that time was more than $250,000, then the act will not apply. The effect of that will protect the existing rights and obligations of those owners and lessees. As the deputy leader has stated, there will not be any financial implications to the government because the Treasurer will get his land tax from someone, whether it is the lessee or the lessor; I do not think he cares which one it is.

It is noted that the Small Business Commissioner advised our party and confirmed that he had advised the government against providing regulatory or statutory relief to the cases trapped between 4 April 2011 and the passage of this bill. He also advised that, to his knowledge, there were three cases affected (two being the subject of proceedings as we discussed earlier). It is noted that if the provision of relief was made, it could mean an unidentified number of other cases would come forward.

It is obvious that the government have been entirely relaxed about this for six years; they have not taken any responsibility. It is noted that the deputy leader put in a request to meet with Alan Moss; however, that was met with a response that his contract had finished last year. It is concerning that submissions were put to this review to specifically address this anomaly but there is no reference to the basis on which any relief was rejected in the mind of the reviewer. In fact, the government's claim that the reviewer had considered the application of the act was to expressly provide that retail shop leases could 'move into and out of' jurisdiction of the act.

In their submission, the Law Society of South Australia had requested that the government deal with any anomalies by regulation in past submissions to the review and to the Small Business Commissioner. I think it is vital that we take into account the many thousands of leases that are undertaken across the state and throughout all our separate electorates, especially in retail, which has expanded quite heavily in my electorate, including Murray Bridge, which is my main centre. We have had a couple of new shopping centres built in the last five or six years.

Currently, we are running two Woolworths stores, two Coles stores, and we have a Big W and a couple of significant shopping centres with other shops. Target is a big lessee, as is Cheap as Chips, but there is a vast range of smaller operations that come and go. The deals they have made with the lessor and the profitability of how they run their business affect how they stand up financially into the long run. What we need to find in this legislation—and I note the amendments that we are going to move from this side—is equity for everyone involved so that there is no confusion, whether you are a lessor or a lessee, as to who is going to do what under the legislation when it goes through.

It is noted that, with the amendments that are going to be debated shortly, it is about time lines around lodging the lease being taken into account to protect the people involved in these arrangements. This is significant because it can mean a real issue around the land tax component and who pays it, and it could mean inequities from either end of the argument, whether you are the lessor or the lessee. As the jurisdiction state parliament looking after this, we need to make sure we get this right so that businesses can operate effectively and that lessors get a fair go as well.

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence and Space Industries, Minister for Health Industries, Minister for Veterans' Affairs) (16:35): I thank members for their contributions and for their general support for the bill. I note that amendments will be moved, and I look forward to dealing with them one by one. In the way of general comment to close the debate, in the first instance I commend Mr Alan Moss for his excellent report and, in particular, the recommendations that appear on page 41 of his report, having outlined at the beginning of his report the scope and context of his work. I note, and it is relevant to our consideration of amendments, that his recommendation (k) was that there should be no change to land tax provisions.

I also note that we have picked up the majority of his recommendations but that, as part of the consultation process with stakeholders, we intend to move amendments of our own. This signals that we have listened to stakeholders, that we have been consulting on this extensively and that we have certainly been prepared as a government to shift the initial position of the bill to hear those concerns. I look forward to the debate on the amendments proposed by those opposite.

I say in closing, and Moss acknowledges this in his report, that when it comes to lessees and lessors you are never going to come up with a set of arrangements that completely satisfy both parties. In fact, if both parties are not completely happy with what you have come up with, maybe you have it about right. We recognise that there are people who are not happy with the proposals who will be going to those opposite and Independents and making their point, as they have to us, which they are quite entitled to do. We look forward to debating those issues during the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clauses 1 to 3 passed.

Clause 4.

The Hon. M.L.J. HAMILTON-SMITH: I move:

Amendment No 1 [SmallBus–2]—

Page 3, after line 17—Insert:

(2a) Section 3(1)—after the definition of statutory rights of security of tenure insert:

subsidiary includes a subsidiary within the meaning of section 9 of the Corporations Act 2001 of the Commonwealth.

I apologise to the committee for the time it has taken for my side to be organised on this particular amendment. I am advised that this is a clause that deals with clarification of a subsidiary, and it is uncontroversial.

Ms CHAPMAN: I appreciate that it actually adds in a definition of 'subsidiary', but I am not quite sure why it has been omitted before or is necessary, so could we just have some explanation? It may be quite minor, but I do not understand why we have it.

The Hon. M.L.J. HAMILTON-SMITH: I am advised by the Small Business Commissioner that, on advice from parliamentary counsel, amendment No. 1 and amendment No. 2 that we are yet to arrive at, are to do with ensuring there is no confusion about bodies corporate that are overseas entities or local entities and that, therefore, a clarification of the term 'subsidiary' would remove any confusion.

Amendment carried.

Ms CHAPMAN: I move:

Amendment No 1 [Chapman–1]—

Page 3, lines 18 to 25 [clause 4(3)]—Delete subclause (3)

I propose to briefly address amendment No. 1 on the basis that this is the first amendment necessary to introduce the remedy in relation to the transitional cases. To do that, the amendments that are foreshadowed in my name in this parcel of amendments within 220(1) all relate to necessary amendments to accommodate the remedy of that.

Accordingly, the first thing to do is to delete subclause (3) of clause 4. I do not think I need to repeat why we are doing this. It is consistent with the Hon. John Darley's approach in the other place. It is to give some relief and remedy to those persons who we say have been caught up—we are prepared to give the benefit of the doubt of them being caught up inadvertently—but who the government have let dangle in the air for six years and undertake expensive court action to try to remedy it. We say that is unfair and unacceptable. Accordingly, I move amendment No. 1 standing in my name as part of a suite of amendments necessary to do that.

The Hon. M.L.J. HAMILTON-SMITH: Essentially, the amendment moved by the member for Bragg deals with land tax provisions which were brought to light by the Diakou Nominees Pty Ltd v Gouger Street Pty Ltd case. I just want to start by going back to the Moss review's recommendation (k) 'There should be no change to land tax provisions' and then perhaps provide some further explanation to the member about why the government feels we cannot support the amendment.

Essentially, the amendments proposed seek to legislate the unsuccessful Supreme Court case brought by Diakou Nominees against the lessees, and I will just elaborate further. This judgement, which went against Diakou Nominees, who have since appealed, would be heard by the Full Bench of the Supreme Court in the fullness of time. But at the current time the case represents the best jurisprudence available on these issues and, as such, the government is bound to give the judgement due consideration, as it has. That is all we have to work with at the moment.

In the Diakou Nominees case, the facts are that the lease for the Talbot Hotel was first entered into on 1 September 2006 for a term of five years, and there are various other details for that matter that have come to light in the case. The amendments proposed by the honourable member for Bragg effectively seek to legislate the case, as I mentioned, that Diakou have been unsuccessful in prosecuting in the court. If those amendments are legislated, they will simply enshrine in law propositions that Justice Stanley rejected outright. He said:

I do not accept Diakou Nominees' submission. The Act is drafted and is intended to be read and understood in the light of the Acts Interpretation Act. The Act and the AIA work together. The meaning of the Act is to be understood in the light of the AIA.

He goes on to make other observations, in particular:

The Act would operate prospectively in the sense that the Act would interfere with those 'rights' created by the lease from the date of the amendment and not before. On this interpretation, this Act operates to protect lessees from the superior bargaining power of lessors and regulates their relationship. It does so from the time the Act applies to the lease in accordance with the terms of section 4(2)(a).

Stanley J made some other observations. He said:

I do not consider that Parliament intended that in circumstances where the Act did not apply to a lease at the time it was entered into, because the annual rental exceeded the prescribed sum, the Act should never apply to the lease thereafter, notwithstanding that an amendment increasing the prescribed threshold resulted in the annual rent not exceeding that threshold.

He goes on to say:

The discrimen chosen by Parliament for carving out that exception to the application in the Act being the amount of the annual rental payable, I consider Parliament intended that, once the annual rental did not exceed the prescribed sum, the Act should apply.

As I have noted, the Diakou Nominees decision is the subject of an appeal and we will see how that appeal unfolds. Under the government's bill, there will be a period between 4 April 2011, when the threshold was increased from $250,000 to $400,000, and the date that the bill's amendments come into operation. During this intervening period, the arrangements between lessors and lessees will be interpreted by the courts; that is, governed by the outcome of Diakou Nominees and its subsequent appeal.

The government has not sought to retrospectively assert the rights of parties, such as Diakou Nominees, back to 4 April 2011 for the simple reason that it is not equitably possible to unscramble this egg. On the other hand, the amendments proposed by the member for Bragg, as I understand them, seek to legislate back to 4 April 2011—what the court in the Diakou Nominees case simply would not find. According to Justice Stanley, Diakou Nominees' argument at paragraph 45:

…supports a construction that would not exclude the application of the Act for all time to a lease on the basis that its 4(2)(a) operated at the time the lease was entered into to exclude its application. It also supports a construction that the Act would not apply where during the life of the lease the annual rental came to exceed the prescribed amount.

I could go on and give other extracts from Justice Stanley's findings, but the rationale advanced by Diakou Nominees that the original parties to the lease could 'contract out' of the application of the act for 20, 30, 50 or even 100 years is exactly the situation, as I am reading it, that the opposition's amendments would enshrine in legislation.

In other words, by Diakou Nominees settling the initial rent marginally above the threshold at the time the lease was first agreed to at $250,500, with the provision of rollovers for another 30 years, Diakou Nominees could 'anchor' its lease at a point in time never to be impacted by changes to the threshold of the act again. Justice Stanley found that to be 'a startling proposition' given that the annual rental commonly will be fixed by reference to market factors.

For all those reasons, the government feels that the proposed amendment ignores His Honour's construction and that is also supported by the authority of earlier decisions of the Supreme Court, which have also considered the construction of the act. We feel the amendments also ignore the statutory interpretation that his Honour so readily found, and that to be properly construed a lease must properly be read in conjunction with the Acts Interpretation Act.

For example, if a lessor and lessee have come to an arrangement whereby, rather than undertake expensive court proceedings, they agree to pay half the land tax bill each, what will the amendments proposed by the honourable member then do? Will the landlord, having received half the land tax that is in doubt, now be able to recover the rest? Or, worse still, would an unscrupulous landlord, the ones Mr Moss warns about in his report, now be able to fully recover the whole of the land tax again, or perhaps more?

This is what I mean about not being able to unscramble the egg. That is why the government's bill would only seek to impact on lessors and lessees prospectively from the date that the amendments take effect. It is the fairest way. In effect, we feel that the amendments put by the honourable member are retrospective. That is something that I know the member and many of us here have often railed against because, in effect, we are going back and recasting, retrospectively, a law and we feel that is never good lawmaking.

Ms CHAPMAN: Can I present this to the minister because I expect he has read out something that has been prepared by the government or their advisers, which is entirely consistent with the disgraceful conduct of the government in 2010 making amendments, to be effective in 2011, with scant regard for the consequences.

It became clear that there were perhaps unintended consequences, and I am giving the government the benefit of the doubt. The correspondence I have read between minister Kenyon and the complainants who were caught up in this at the time clearly indicates to me, and if the minister read them I think would indicate to him—especially the commitments that were made at the time when the government decided that it was going to crank it up from $250,000 to $400,000 and capture these people, or perhaps not check to see if it was going to capture these people—that they made a commitment.

When the government of the day completely bugger this up, throw the eggs in the bowl, scramble them up and say, 'We don't give a toss what the outcome is,' it is hardly a surprise to me that the minister stands up and reads out something that a bureaucrat has written. I have read the judgement of Justice Stanley. I am not an expert on landlord and tenant law, but it is quite likely that he is absolutely right. The interpretation of the law requires him to make a determination, 'Bad luck, these people have been caught in it.' That is the clear interpretation of what is in the letter of the law.

Notwithstanding the commitments that were made at the time, and notwithstanding what was identified as being a problem, the first minister who sought to fix it up did not last long. Another minister came in, and now you are the current minister and you are left with this mess. You are left with the explanation of coming in and saying, 'Strictly according to the law, this is what Justice Stanley said.' When this particular group went off to the Supreme Court to try to get some relief, of course Justice Stanley was left with the obligation to interpret the law as it stands. This is a mess that has gone on for six years. The initial indications of relief that were offered have now just been buried and these people have been cast aside.

Having read the judgement, and giving Justice Stanley the benefit of understanding that he is stuck with what he has got, I do not know whether these people will get any relief in the Full Court. I am no expert in this area, but I doubt that they will. That is why this matter needs statutory protection. This is not retrospective. This has been a live issue created by a government that decided to put in a regulation cranking up this threshold overnight by $150,000. That was irresponsible in itself. It is hardly surprising that Mr Alan Moss when he wrote his review said to the government, 'In future, just make these small increments, otherwise you are going to have this problem of capturing these people.'

Without reflecting on previous ministers on this matter, this minister has an understanding of business. I know that he has been in business and I know that he understands what is fair in that space. I do not know whether he has been a landlord or a tenant specifically in a commercial sense, but I make this point—

The CHAIR: Can I ask you to make that point in a moment? We need to report progress and move beyond 5 o'clock.

Progress reported; committee to sit again.

Sitting extended beyond 17:00 on motion of Hon. M.L.J. Hamilton-Smith

A quorum having been formed: