Retail and Commercial Leases (Miscellaneous) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 3 July 2019.)

The Hon. S.C. MULLIGHAN (Lee) (11:11): I indicate that I am the lead speaker, and possibly the only speaker, and I rise to speak on the Retail and Commercial Leases Amendment Bill 2019. As we have already heard from the Deputy Premier in her contribution, this is a bill some time in the making. The Retail and Commercial Leases Act 1995 was introduced and enacted by the parliament to provide greater protections for people involved in retail and commercial leasing agreements, in particular tenants, but also to provide some rights to landlords.

Principally, but not solely, the concern with the operation of the act since 1995 was that it established a threshold for leases, and underneath that rental threshold of $250,000 a year leases and lease arrangements between landlords and their tenants would be covered by the provisions of the act. Of course, over time rents grow, economic conditions develop and lease arrangements are entered into between landlords and tenants at higher amounts, so that original threshold of $250,000 a year quickly became outdated.

In 2013, the former Labor government and the then Liberal opposition were keen to review the operation of the act and for a series of recommendations to be arrived at that could inform a new bill to update many of the provisions of the act. Indeed, just before the last election in 2017, a bill to effect those changes was introduced into the house and passed. Of course, with the ensuing election that matter lapsed before any further progress could be made.

We now find ourselves with a revived bill under the auspices of the new government and the superintendence of the Attorney-General to continue the parliament's efforts to update this act. Largely, the opposition is supportive of updating the act and, in particular, paying perhaps what some would consider long-overdue attention to that principle of the threshold, increasing it from the former $250,000 a year level to a new threshold of $400,000 a year.

On the face of it, it seems very simple, but I was advised, and it was well articulated in the briefing that I received from the Small Business Commissioner and the Attorney-General's office, that there have been some difficulties between the operation of the act and what was actually occurring in the agreements being reached between landlords and tenants about how that threshold should operate. Indeed, it was the subject of a Supreme Court ruling by Justice Stanley to provide some better clarity. That, amongst other things, I understand is being updated and dealt with in this bill.

Hopefully, that will provide much greater certainty going forward to both landlords and tenants who are likely to be covered by the act. It is an important act because, of course, there are many thousands of tenants who are the subject of lease agreements with landlords, particularly below a threshold of either $250,000 a year or even the new one to be implemented on the passage of this bill of $400,000 a year.

Certainly in my electorate there are many retail premises in particular that find themselves subject to such agreements. In fact, I have quite a large retail centre in my electorate, namely, the Westfield West Lakes premises now operated by Scentre Group. It is very common to see some of my constituents operating shops at West Lakes or, indeed, to see many children of constituents who are getting their first jobs working in those shops, often as casual retail assistants. It goes to show how these sorts of agreements, even though you might think that you are walking past a large corporate retail outlet, are indeed operated often as franchises by local members of the community. Providing adequate protections and provisions for both tenants and landlords through this sort of legislation is important.

A thorough review was conducted by Alan Moss, and then of course there was a review by government agencies and a period of consultation, so the changes that the bill contemplates are numerous. I will not go through all of them, but I do want to draw attention to some of them, beyond the one that needed to be clarified by Justice Stanley in his ruling and that we are also paying attention to, and that is the way in which that threshold operates. There is now also a provision to periodically revise that threshold, and I am sure that that will be welcomed and perhaps also mean that the parliament will not need to periodically review the legislation if there is an ability to review the prescribed threshold.

That is being done by the Valuer-General, who is, of course, responsible for assessing both land and improved property valuations—at the moment, it is a topic of some interest to the community for other reasons—and it will be done within two years of the commencement of the provision, as I understand it, and then on a five-yearly basis beyond that. That is not an unreasonable set of time frames suggested by the government.

There are also some continuations of protections for lessees, making sure that they are furnished with appropriate copies of information and copies of leases and so on; the requirement to provide disclosure statements where applicable to lessees as well by their landlords; and an increase to the existing penalties within the act, which I think are not only long overdue but will be welcomed, particularly by tenants who might feel that their landlord has not behaved appropriately or in accordance with the law. The maximum penalty is being increased significantly in terms of the increase as it relates to CPI.

Overall, I think an argument could be made that the overall maximum penalties still are not particularly significant, given the size of the lease agreements in terms of the annual rental that is required to be paid; nonetheless, there is an increase and an improvement and hence perhaps an increased deterrence from poor or illegal behaviour under the new provisions in this bill.

A change that certainly the opposition has raised its eyebrows at has been the increase in the security bond to an amount not exceeding three months' rental. It is acknowledged that this was a recommendation of the Moss review, but it is a significant increase nonetheless. Going from a one-month rental-equivalent security bond in a bill that has an operational limit of $250,000 to a three-month bond in a bill that has a $400,000 operational limit is a significant increase in the size of that bond—a very significant increase. Indeed, for a lease agreement that might be a dollar or two per annum below that $400,000 threshold, a three-month bond more or less equates to about $100,000.

If you equate that to the experience of some of my constituents who might be conducting a retail business from a premises, say at a large shopping centre like a Westfield at West Lakes, not only are they faced with the annual rental payments and with what can be quite extraordinary fit-out payments and requirements in an effort to gain a lease in the centre but now they can be faced with a very significant bond approaching $100,000. I am a little concerned about this provision of the bill.

I would be interested in hearing from the government, if they care to comment on this matter, about how important they feel this particular provision of the bill is, because it is concerning that it makes it financially quite onerous for a lessee if the provisions in this bill are exercised to their full extent over a new tenant by a landlord.

I realise that that improves some of the circumstances and allays some of the fears that some landlords and premises owners put to the Moss review and also provided in response to broader government consultation on the bill, which occurred before the last version of the bill was brought into the parliament. The Deputy Premier may correct me if I am wrong here, but I think it was indeed also a provision of the 2017 bill. I may have to check that. Nonetheless, I think the issue remains that it is a very significant increase in the size of a bond that can be demanded from a tenant.

The other area that I was concerned about in the course of the briefing was the capacity for a lease to be registered by the landlord with the Small Business Commissioner on the basis that, if a lease agreement is entered into, say with an annual rental amount slightly above the $400,000 operational limit of this bill, it can be registered, as I understand it, with the commissioner. This means that in the future, say after the first review of the rental threshold in this act, after two years, if that threshold is increased from, say, $400,000 to perhaps $425,00 or $450,000 or something similar, the lease that fell outside the remit of the operation of the act would not, in effect, catch up with it and make that lease agreement subject to the act.

On the face of it, there is not much particularly wrong with that, except that if a landlord exercises their ability to register a lease with the Small Business Commissioner there are no commensurate requirements on that landlord to inform their tenant that they have registered the lease. That may be a relatively small oversight, perhaps by the review or by parliamentary counsel in drafting the bill, but I would think that if you are in a lease agreement with a landlord and they choose to register a lease so that in the future it would be prevented from falling within the remit of an act designed to provide greater protections for tenants and landlords, it is reasonable to require that. We will be considering that when the debate on this bill enters the committee stage.

I think that accurately summarises the extent of the opposition's concerns. Pending the discussion and potential resolution of those issues, we look forward to seeing this bill progress. I understand that the government is looking at potentially entering into the committee stage but adjourning it so that we have some time down the track to perhaps canvass these issues. I thank the government and the Deputy Premier for bringing this bill to the house, and thank you, sir, for the opportunity to speak on it.

Mr PEDERICK (Hammond) (11:26): I rise today to support the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019. As a bit of background, the purpose of the Retail and Commercial Leases Act 1995 is to protect lessees of retail shops who pay rent below a specified threshold (which is obviously a small business or small businesses).

In April 2011, the regulations were amended to significantly increase the threshold from $250,000 to $400,000. The then state government and opposition committed to undertake a review of the act to assess the effectiveness of its provisions and suggest amendments to improve its operation. Former District Court judge Mr Alan Moss was appointed to conduct a formal review, which was handed down in April 2016 with 20 recommendations.

Once the Marshall Liberal government was in office, we undertook further consultation on this issue, particularly in light of a 2017 Supreme Court decision concerning the scope of the act. This bill implements the recommendations of the Moss review, along with additional amendments arising from the Marshall government's consultation process. We are doing this because it is obvious that this state's retail and commercial leasing sector is dominated by small businesses; in fact, there are hundreds of thousands of small businesses throughout the state.

The Marshall Liberal government is committed to helping small businesses get ahead and create more jobs. For many small businesses, rent is or will be the biggest financial outgoing, so the affordability and fair operation of their lease will be critical to their success. The act seeks to address the imbalance in bargaining power that often exists between lessor and lessee.

This bill promises a number of changes to the act, including issues around the application of the act's threshold. As such, there are provisions around ensuring that the act will not apply to a retail shop lease at any time the rent payable exceeds the prescribed threshold. This implements a recommendation of the Moss review that leases should be able to move in and out of the act's operation—for example, as a result of a change in the amount of rent payable, or if the prescribed threshold is increased. This will also help ensure fairness and that the act continues to provide protections to the most appropriate group of lessees.

The Valuer-General will be involved in this to review the prescribed threshold. In that regard, the Moss review recommended that the Small Business Commissioner be given responsibility to monitor the marketplace and recommend appropriate increases—for example, modest—to the threshold every two years. It is proposed that the Valuer-General conduct a review within two years of the commencement of the provision and every five years after that. The Small Business Commissioner advised that the Valuer-General would be better qualified to undertake this review, given their wide access to property data.

In regard to issues around the GST, there are amendments to clarify that the threshold amount does not include goods and services tax, which reflects commercial practice. In regard to public charitable companies, the bill introduces an exemption where a company is limited by guarantee and registered with the Australian Charities and Not-for-profits Commission. This will ensure that these types of charitable companies are still afforded the consumer protections under the act.

In regard to foreign companies, there are provisions that exclude companies that are listed on an overseas stock exchange from coverage of the act. This implements a recommendation from the Small Business Commissioner following consultation with stakeholders on this issue. In regard to registration of leases, there are provisions making it express that a registered lease which at the time of registration falls outside the rental threshold shall remain outside the scope of the act despite any future increase to the threshold. This addresses an historic issue that occurred when the threshold was increased by regulation in 2010.

The act provides that lessees who pay an annual rent that is higher than the threshold can be liable to pay land tax to the owner. When the threshold was increased, owners who had previously passed the land tax to their tenants were liable to pay it, despite it being a matter taken into account before negotiating the lease. This also relates to a 2017 Supreme Court decision that found that, once the annual rent did not exceed the prescribed sum, the act should apply.

In their 16 years, the former Labor government failed to remedy the inequities that flowed from increasing the threshold, failing to protect landlords with pre-existing leases. The Marshall Liberal government has finally taken action to resolve this issue. With regard to the provision of a lease to a prospective lessee, this bill will make clear the lessor's obligations to provide the prospective lessee a copy of the draft lease at commencement of negotiations and increase the penalty for failing to comply.

An additional requirement has been included requiring the lessor to provide the prospective lessee with a copy of the information brochure about retail and commercial leases, published by the commissioner. In regard to the provision of a disclosure statement, this bill makes it absolutely clear that a disclosure statement must be provided before any binding agreement can be made, but the requirement to provide a disclosure statement for lease renewals has been removed. A new penalty has been added for failing to comply. There has been an increase to existing penalties within the act. In that regard, the Moss review found that the penalties for offences and misbehaviour under the act are clearly outdated and in serious need of being increased due to the effluxion of time.

The bill will increase the maximum penalties by CPI, except for the offence of failing to provide the prospective lessee with a copy of the lease at the pre-negation stage. In regard to the security bond, the Moss review found that the current requirement for the one-month rental bond has resulted in landlords acting too quickly to terminate the lease of a slow-paying tenant. To provide additional protection to tenants, amendments will increase the security bond to an amount not exceeding three months' rent.

In regard to the time frame for repayment of that security bond, the Small Business Commissioner is required to deposit and hold all security bond moneys held in trust for lessees in the Retail Shop Leases Fund. Once an application for repayment is lodged, the commissioner must inform the respondent that they have seven days from the time they receive notice to lodge a dispute. Given that the ordinary mail is now taking up to six days to be delivered, the bill proposes to increase this time frame to 14 days.

In regard to bank guarantees under the bill, the Small Business Commissioner advised that some lessors are withholding bank guarantees for an unreasonable amount of time after the lease has been terminated. To remedy this, a penalty is being introduced for landlords who fail to return a bank guarantee within 60 days after the tenant has fulfilled any obligations required at the end of the lease to remedy this.

For some clarification of holding over, the bill will make clear that a lease for a term of five years will not arise when a tenant holds over after the expiration of an earlier lease. This implements a recommendation from the Moss review that there is no good reason why holding over should imply a new five-year term.

In regard to consultation on the bill, there has been extensive consultation undertaken with a range of government departments and key industry groups, individuals and organisations. The Small Business Commissioner also provided input into common issues arising in cases and disputes handled by his office. This is reflected in the government's bill.

This bill seeks to increase the effectiveness of the act while also striking a fair balance between the interests of lessees and the property sector. It represents another way that this Marshall Liberal government is backing small business to build our economy. That is why I think it is absolutely important that we do get these measures through. I will be interested in the debate around clauses in the bill when it gets into committee. We need to make sure we get the right outcome for the many hundreds of thousands of small businesses that are the engine room of the economy in this state, but we also need to make sure we get the right outcome for landlords as well.

For these businesses, in the main—obviously, some people own their facilities—a lot of them are in rented or leased facilities. Multiple parties are involved to make sure that we keep this vital engine room to the state's economy operating to its full extent, and we should do all we can to pursue that end. In closing, I certainly endorse this legislation and wish its speedy passage through the house.

Ms BEDFORD (Florey) (11:38): I apologise that I have not had a chance to speak to the Attorney directly, but I have passed on my concerns to her office this morning. People in my electorate have been in touch with me about this bill—again, small traders who are renting premises in shopping centres. I just want to bring to your attention the remarks of one of them in particular. He is a little bit concerned about clause 5 of the bill, if he understands it correctly. He writes:

Basically for those on the borderline of the threshold and say sign up (and have lease registers, usually as per bank requirements) within let's say 1 year before the 5 year review of threshold is undertaken by the Value General that may increase the threshold, or a retailer whom is struggling manages to re-negotiate a lesser rent that falls below the threshold, then one would NOT be covered by this act.

Why do we need this section at all? the rules are clear if you fall below the threshold of $400,000 plus gst your covered by the act, there is no ambiguity to parties, the $ amount is the determinant, why would you exclude the protection if the lease was registered at the time? Is it not about protecting the smaller player, this empowers the landlord to enjoy the luxury of non-application of the act even though circumstanced have now changed.

[There are] so many adverse impacts on decisions made by local and state governments, such as rezoning of land that now increase[s] the retail space and introduction of cashed up international retailers, those that influenced with the lure of short-term $, when the retailer may have signed the lease it was based on the current state of play and retail space. It's unfair not to provide protection for retailers if circumstances change beyond their control.

So this section, he feels, should be removed altogether. He continues:

The whole purpose of determining current market rent is to help ensure that all parties are being treated fairly and no one is being [disadvantaged].

This gentleman has also suggested that it would be worthwhile looking at increasing the penalties, which is what, I think, the shadow attorney was speaking about earlier. He feels it is way too soft and that perhaps we should add a zero to the actual penalty. He says:

…basically threats are made all the time, especially over the phone, it's illegal [for people] to record [these threats] without one being accepted by the other party. When you're dealing with say $400,000 in rent what is a $15,000 fine when you're applying unlawful threats [to your tenants]...(it should be legal to record someone when they make unlawful threats…

That is an interesting comment made by this gentleman, who has obviously experienced this. If it is rent of $14,000 or more it is 'well worth the risk. Low…penalties encourage the other party to try their luck'. He continues:

Also the penalty for non-conforming to the lessor providing an auditor's report on outgoings? Nor pressure on the landlord undertaking a current market review as per their lease, especially when it's of no benefit to them (may decrease rent) what are the repercussions [there]?

This bill [also] looks to have been watered down to cater for developer and larger property owners who may be providing pushback.

If [the government really wants] to help the retailers and developers and voting public…then get rid of the Land tax changes, this will have a flow on impact onto the consumer who else will pay in the long run?

That is a very fresh opinion from a local trader this morning. Unfortunately, I have also had to witness traders going to the wall, or almost to the wall, when shopping centres undertake major redevelopments, meaning that shopping centres are basically empty for long periods of time with no remittance at all and little to no trade. After these redevelopments are finished, again there are no shoppers in the centre, so how they are they going to make any money?

It is very, very difficult for a small mum-and-dad retailer. As I said, I have seen these people lose their house in such situations. I understand that developers have problems, too, but you cannot pay rent if you are not getting any turnover in the shop. I hope the Attorney will be able to have a look at some of the information forwarded her office this morning and we can talk more about it later on in the bill.

The Hon. V.A. CHAPMAN (Bragg—Deputy Premier, Attorney-General) (11:42): I would like to thank the representative of the opposition as well as the members for Florey and Hammond for their contributions.

In respect of the matters raised by the member for Florey and the question of the constituent's concern about section 5, and I tried to note it as quickly as I could, it sounds remarkably like a matter that was raised with me in consultation. There is an answer in relation to that, and I will make sure that is provided to the house, as it has been raised in the house, but also to the member for Florey. If there is ancillary documentation around this submission by the constituent, if it has been sent to my office this morning, then I am happy to have a look at it.

Thresholds, whatever they are, and rules around who is in and who is out are significant, and I am mindful—because I know this aspect has been raised, and I think it is in relation to a similar matter that the member for Florey is raising—if the rent is agreed to be reduced below that threshold, which can occur. My recollection, in short, is that there is no change as result of that voluntary reduction in rent, but I will make sure that information is made available.

As to the increase in penalties, which has been raised by the member for Florey and I think echoed in some commentary by the opposition spokesperson on this matter, I think it is fair to say that these are matters which have been comprehensively considered by all the stakeholders, including, of course, Mr Alan Moss, who conducted the review on this matter. We have listened to them. We are acting on them in this bill, as was proposed by the previous government, in relation to the bill that lapsed as a result of the proroguing of parliament prior to the last election.

It is important, obviously, whatever the penalties, that they be contemporary, that they be effective. They are designed to act as a deterrent in relation to any penalties. The financial penalties that apply to these contractual arrangements are significant. Whether they should be higher I suppose does remove from it the fact that there are significant commercial arrangements between the parties in these cases. Very often, we are not talking about two small businesses being involved in both landlord ownership and tenancy; sometimes, we have very significant players in both categories.

I have always thought it rather unusual in these types of cases that we always talk about very large national companies which own shopping centres and the small tenant who occupies them, who is not Coles or Woolworths, to be fair, but a smaller unfranchised operation. We do not often talk about the power imbalance that might exist between the Coles or Woolworths—this is no reflection on them personally, but they are national, well-known tenants—and a Mr and Mrs Teague, or someone we might pluck out, who might be the owner of the particular strip shopping centre who is not, I think I will use for this example, a multinational.

Mr and Mrs Teague happily live in the Adelaide Hills and they might have invested their life savings into a shopping centre, and along come Coles and say, 'We are very happy to be your anchor tenant,' and Mr and Mrs Teague think this is a wonderful idea and they are happy to pay more than $400,000. Where is the power imbalance there? I do not think it is, as we would expect, the purpose of this legislation, so we do need to think about all the parties that are likely to be affected by this legislation and perhaps not always look through the prism of a large multinational landlord and an impecunious, vulnerable tenant.

I appreciate that is the whole purpose of the general legislation, to provide a regime of protection and clear understanding on behalf of the landlords, but really this legislation is about protecting potentially vulnerable tenants in commercial and retail arrangements. I do not doubt for one moment that there is a very significant portion of those who are positively affected by the protections of this type of legislation that we are upgrading, but there is also a cohort who get the benefit.

I think we need to place this on the record. Given that the member for Florey's constituent has raised the question of land tax, I am not sure whether or not he or she presented their argument to the member for Florey before he or she read this morning's paper, but if they had then he or she would have had a wide smile on his face when he or she read The Advertiser this morning because they would have, I am sure, welcomed the announcement of the government to put out for consultation a comprehensive reform in relation to land tax for consideration in a bill which will be welcome relief to many of the parties who are affected by this legislation.

These are landlords and tenants. Let's be frank here: this act, and in particular the threshold, is very much about who pays the land tax. One of the threshold benefits is that with those tenancy arrangements below the $400,000 the tenant does not pay the land tax. I do not know still to this day why the former government increased the threshold from $250,000 to $400,000 overnight. That is still a mystery to me.

At first blush, you would have to say that surely they would have considered the massive number of arrangements in retail and commercial leases that would have been captured by this change and been suddenly forced to pay land tax or relieved of land tax. We are not talking here about tiny amounts of land tax. The new government is proposing significant relief. However, land tax at 3.7 per cent, at the highest rate, in the leasing arrangement contracts that we are talking about here is very substantial—tens of thousands of dollars, millions of dollars. Who has to pay these things? I am still at a loss.

I can recall matters being raised in this chamber by parties who ultimately went to the Supreme Court. We have heard about the Diakou Nominees case and the judgement of Justice Stanley, which I do not reflect on in any way. However, I make the point that there were consequences when the previous government of the day ratcheted up the threshold from $250,000 to $400,000 overnight. There were consequences for people's livelihoods. Landlords, who would have to pick up these massive land tax bills, were immediately impacted. Hopefully, with the passage of this legislation in due course, we will be implementing a mechanism by which that will not happen again.

There will be a Valuer-General's assessment and review and an independent process of ensuring that we keep our laws contemporary in this regard and account for the fact that there is a movement in the value of the assets we are talking about, which have become the subject of these leases. What the previous government did must never be repeated. It is fair to say that even when it was brought to their attention, they refused to fix it.

They had an opportunity to fix it. I recall the former member for Newland, when he was minister, publicly raised his concerns regarding the issue of who was trapped as a result of this decision—this stroke of the former government's pen to raise the threshold from $250,000 to $400,000—and I commend him for doing that. Clearly, he was overruled by the cabinet of the day and no action was taken to remedy that.

The bill in its previous form under the previous government came before the parliament circa 2016-17—as we know, it died as a result of the parliament being prorogued—and was under the responsibility of the then minister who was the member for Waite. He also is no longer in the parliament. These issues were raised with him and he did not do anything about it. He was supposed to be an independent member of the then Labor cabinet of South Australia. He did not do anything about it.

There is no question that we have some people who, as a result of the government's action, have been trapped in a twilight zone, and what we have done is try to continue to work with how we manage this bill to ensure that that situation does not happen again. We cannot go and fix up all the mess of the former government administration, but we have acted to try to ensure that we do not have this situation arise again under a future irresponsible government.

I make the point that, whilst we will get particulars back to the members for issues raised, we are proud to progress this legislation and provide the protections for those who are within the ambit of this act. We are going to cut out the weakness to ensure that ministers do not come in and with the stroke of a pen decide who is going to pay land tax and who is not. We are going to fix that for the future.

I wish to place on record my appreciation for the advice of the Small Business Commissioner in relation to the development of this legislation under our former minister, the Minister for Innovation and Skills, who has progressed the matter to date—it has now been committed to me for the purposes of its passage through the parliament—and also for ultimately managing the small business commission as an agency within the Attorney-General's Department. I am proud to do that.

As I say, in relation to land tax generally, I am very proud to be a member of a government that has announced a model today that has gone out for consultation to try to give South Australians relief overall: 92 per cent of individuals who pay land tax are going to get relief. What a great day for South Australians!

With those few words, I thank members for their contributions. I acknowledge to the parliament that we are not able to progress to committee stage on this matter at this stage. I am advised that the Small Business Commissioner, who has the responsibility for this legislation, is not available today, and so it is the government's intention to propose to the parliament that we move to adjourn at clause 1 so that we can make him available as the specialist adviser in this field. It will give us an opportunity to clarify the specific matters that have been raised by the member for Florey, and I thank her for raising them. I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Progress reported; committee to sit again.