Retail and Commercial Leases (Miscellaneous) Amendment Bill

Committee Stage

In committee.

(Continued from 10 September 2019.)

Clause 1.

The Hon. V.A. CHAPMAN: I speak on clause 1 to indicate my response to a number of matters that were raised in the debate. Firstly, I thank representatives from the opposition and the member for Florey in relation to these aspects. In relation to the increased penalties under the act, as members were made aware, these are consistent with the recommendations of the Moss review and, in particular, that penalties be increased. The shadow treasurer indicated his concern that that was not sufficiently high enough, and I think the member for Florey also commented on this.

The Department of Treasury and Finance have advised that the consumer price index between 1995 and 2015 was 68.4 per cent. The penalties under the act have been increased in line with CPI and in consultation with parliamentary counsel. Accordingly, the proposed increased penalties are consistent with that, and the government's view is that those proposed increases are adequate.

The question of an increase in the security bond for an amount not exceeding one month's rental to an amount not exceeding three months' rental was introduced in light of recommendation 55(l) of the Moss review and stakeholder feedback during the extensive consultation process. While it is recognised that the increase in the security bond will create an extra cost, it will provide greater protection to tenants by preventing a landlord from terminating the lease of a slow-paying tenant.

The government accepts the point raised by the opposition that a landlord should be required to inform their tenant that they have registered the lease, and an amendment has been prepared to accommodate this suggestion. I thank the member for Lee again for raising this issue. The member for Florey outlined the concerns of one of her constituents in relation to the application of the act. The constituent suggests that the provisions relating to the registration of a lease under proposed section 4(3) should be removed. He is of the view that these provisions fail to protect the small player by permitting a lease to remain outside the scope of the act for the term of the lease because the lease has been registered in accordance with proposed section 4(3).

I am advised, and it is my understanding, that both parties to the lease would negotiate whether or not the lease would be registered to ensure that the protections of the act did not apply before execution and registration of the lease occurred. It would therefore be open to the tenant to refuse registration of the lease as part of the negotiations, which addresses the concerns raised by the member for Florey's constituent. It should also be noted that one of the benefits of lease registration is that it protects the lessee's leasehold interest in the property if the premises are sold.

In short, I can say, firstly, that the negotiated terms between the tenant and the landlord are something that we are not interfering with. This is a whole set of law that is there to protect people under a certain threshold with statutory protection, but the lease procedure—that is, having one—and the registration procedure have benefits for both parties. Each can make the decision or receive advice in relation to whether it is either necessary or appropriate in their circumstances. It is part of the commercial arrangements that go with that. I hope that further information provides some assistance to members who are following this debate.

The Hon. S.C. MULLIGHAN: I thank the Attorney for those comments and also for her willingness to take on board the concerns that I raised and that the member for Florey raised. Furthermore, I thank her for being willing to have an amendment drafted and to contemplate an amendment to provide some greater certainty, if not transparency, for the lessee about a lessor's registration of a lease. I will talk briefly about that now, rather than go to it in detail when we get to clause 5.

I was thankful for the Office of the Small Business Commissioner and, indeed, the Attorney's office for furnishing me with a copy of the amendment she had drafted, which was similar in terms to inquiries I had made with parliamentary counsel for that. On thinking on it after I received it yesterday, I did wonder whether there was one further element of fine-tuning that might be beneficial for particularly the prospective lessee in their impending relationship with their landlord, and that is whether at the outset there should be a requirement for a landlord to notify a lessee of the intention to register a lease before the lease is entered into.

My understanding—and I am happy to be corrected—is that, despite the amendment the Attorney has provided, and despite the issue I raised before the house last time we were discussing this bill, it still may be that although an amended bill, as the Attorney intends, might provide some certainty and transparency about the registration of the lease after the fact, should it not be a requirement of a landlord to be up-front with a prospective tenant about the proposed registration of that lease? I would be pleased, either now or at the juncture of clause 5, to have that discussion with the Attorney.

Aside from that further relatively minor fine-tuning, I am very grateful to the Attorney for being willing to draft the amendment and move the amendment she has placed on file with regard to the registration of a lease. The registration of a lease, of course, is important not just because it provides some comfort to the lessee, as the Attorney has just advised us, in the event, for example, that a premises is sold. Having that lease formally registered also provides some protections for the lessee, as well as lets the prospective property purchaser know what they are in for in terms of having a tenant at the outset.

Of course, there are also some benefits for the landlord in the registration of a lease, particularly in the event that the lease is registered in such a way that it avoids the land tax provisions of the Retail and Commercial Leases Act; that is, registering a lease in some instances will enable the land tax to be specifically passed on to the tenant in those instances. In the current climate, where we are potentially discussing a very significant increase in land tax imposts to some landlords, that becomes a material consideration for us.

Having a further fine-tuning of that registration of leases element, where in setting out to negotiate a lease with a prospective tenant a landlord must formally advise them of the intention to register the lease, would provide that further element of transparency and certainty to the tenant. I realise that, as they often are, parliamentary counsel have been put to some pains to hastily concoct an amendment that would further supplement the amendment that the Attorney is putting on my behalf. Hopefully, that has landed; if it has not, we will just have to move on with the Attorney's amendment.

Mr Pederick: Yes, it has.

The Hon. S.C. MULLIGHAN: It has landed? That is very good news. That would be my intention. It is not that I feel that the Attorney's efforts are not appreciated or not without merit, but on receiving them and thinking it through subsequent to that additional protection, that additional protection is something I intend to seek. Of course, it will be within the Attorney's purview as to whether to accept that or not.

With regard to the penalty, I also propose to increase the relevant penalty from $8,000 to a maximum penalty of $15,000. I believe that it would be a good strengthening of the act. I accept the very logical and credible argument from the Attorney that the increase to $8,000 accurately reflects the CPI climb since these penalties were last set, and there is no real fault in that logic at all. However, given the possible amounts that we will be legislating around, $8,000 in the scheme of things may or may not be such a significant penalty for some landlords, so I foreshadow my intention to run up the flagpole a further strengthening, if you will, of a maximum penalty of $15,000, rather than the $8,000.

On that bond matter, once again—you will be checking Hansard, Chair, to see if what I am saying is accurate, such is the extent to which I am agreeing with the Attorney in debate—I accept the argument that she puts forward and also the recommendation of the Moss review itself, which identified an opportunity to strengthen some tenant protections by increasing a bond level from one month to three months.

I accept the argument that if a tenant has had to place a bond of up to three months' rent with the commissioner, if a tenant starts falling into arrears perhaps by a week, two weeks, four weeks or maybe even a little more, then there is some buffer that provides more comfort to the landlord. They do not need to be quite so hasty in seeking to boot that tenant from not meeting their rental obligations. I accept that argument.

However, I still am concerned that, with a newly legislated rental threshold of $400,000 per year, a bond of three months (being a quarter of that yearly rent) or $100,000 is a very significant impost. I realise that not all rents are going to be at that top end of close to $100,000, but I certainly feel that there are likely to be several tenancies—in my electorate, for example, and I gave the example of the regional retail centre of Westfield at West Lakes—where many small business operators are operating a retail lease where the rent is conceivably in the area of perhaps between $20,000 and $30,000-odd a month, which places them otherwise within the purview of the act.

With the requirements that those sorts of shopping centre operators put those tenants to—not only to come in and sign a lease but also to be responsible for what needs to be a fairly extensive, eye-catching fit-out of a retail premises in order to contribute to the customer attraction efforts of the entire centre—coming up with a bond on top of that can be quite significant.

I think it is instructive in that regard to also remember what Alan Moss said in his review when trying to describe some of the circumstances that new tenants find themselves in. They might choose to start a small business because, for example, they might be in receipt of a reasonably sized redundancy payment from whatever their former course of employment was and they are choosing to reinvest that in a new venture and start their own small business.

In the scenario that I paint, where perhaps you have a landlord who owns a number of shops in addition to the premises a prospective lessee is seeking to rent, the prospective lessee not only has to come up with the fit-out, the initial purchase of stock and all the other start-up expenses of a small business, but then has to come up with a bond of that amount, and I am still finding that difficult to reconcile.

I realise that, for the committee, I may be making this point screaming into the wind, given that we have a recommendation from a review done by an eminent person which sought and received submissions and which led that reviewer to the conclusion that it should be three months' rent and not one month rent. However, nonetheless, I feel for those people, particularly those who have made representations to me about their retail experience, and I foreshadow that, when it comes to it, I will move that amendment to maintain it at one month rather than three months.

I will basically leave my contribution there, and I am happy to proceed pretty quickly with the small number of amendments collectively we have.

The Hon. V.A. CHAPMAN: I thank the member for Lee for indicating some other areas of reform that he now seeks. Obviously, we will have a look at those amendments and we will deal with them relative to the clauses as they come up.

In relation to the notice of intention by a landlord to a tenant—at the outset, as the member suggests—of the prospective intention for them to want to have a lease registered, firstly, the negotiations between a landlord and tenant and the commencement date of those may well be hard to even identify. It may not be the intention of a landlord at the commencement of negotiations that they will be seeking to have the lease registered.

It may not be the intention of the lessee that they would seek the security of registration as part of their terms of the negotiations. Identifying that either way I think is problematic, but in any event it is fair to say that we would raise the question of who should be notifying whom and at which time the intention crystallised. Whilst I appreciate the member is foreshadowing a further amendment to require this of the landlord, I think there needs to be consideration in those circumstances of what obligation there should be of the tenant. I think the whole of this idea is potentially problematic in identifying and defining the crystallising moment at which that intention is formed.

The retail and commercial leases regime in this legislation to be amended is one which is currently in some ways regulated by section 16 of the Retail and Commercial Leases Act 1995 and which is proposed to be amended under clause 12 of this bill. I am advised that, in looking at each of these, the replacing or substituting clause 12—that is, substitution of section 16—is largely the same, except that it removes reference to the stamp duty circumstances, because the current section 16 refers to a stamped lease and the proposed clause refers to a lease.

As the member would be aware, no stamp duty is payable in relation to commercial properties now, so my understanding is that this substitute is there to be able to accommodate that new circumstance, but otherwise it remains the same. What is important to appreciate is that, under 16(a), if a lease is not to be registered, the lessor must provide the lessee with an executed copy of the stamped lease within one month after the lease is returned to the lessee for the lessor or the lessor's lawyer or agent, following payment of stamp duty on the lease.

Firstly, we have a circumstance where, if they have signed a lease and it is not intended to be registered, a copy of that lease has to come back in certain time frames and, secondly, if the lease is to be registered, the lessor must lodge the lease for registration within one month after the lease is returned to the lessor or the lessor's lawyer or agent following payment of stamp duty on the lease, and the lessor must provide the lessee with an executed copy of the stamped and registered lease within one month after the lease is returned to the lessor or the lessor's lawyer or agent following registration of the lease.

In either circumstance there are obligations to provide a copy of what is currently described as the stamped lease, if the amending bill goes through. Under clause 12, that will change to the lease. It sets out a very clear regime as to what must occur in relation to lease documentation and the obligations of the landlord in that instance to make sure a copy of that is provided within a time frame specified.

That is part, I suppose, of all the regime of this legislation, which, as we know, is largely designed to regulate and have statutory obligations in relation to leases which are at $400,000 or less. Obviously, that threshold can vary—and it has monumentally, of course, under the previous government, from $250,000 to $400,000 with the stroke of a pen—but we need to recognise that this is legislation which already sets out a very strict regime and which I would hope the member for Lee appreciates would give some comfort.

Remember that we are talking about leases that relate to negotiated arrangements over $400,000 in annual rental, which, to be honest, is not the local fish and chip shop. We are talking about a significant tenancy arrangement with expected fairly sophisticated capacity as both landlord and tenant. I think I mentioned in the general debate on this matter that it would not be unusual, in fact, to have a situation where the balance of power, the level of operation as a business, might be quite reversed as to what we are expecting to protect under this legislation; that is, where Mr and Mrs Chapman, for example, might own the shopping centre and Coles, Woolworths or the like might be the tenant.

With due respect to the Mr and Mrs Chapman of the day and whatever other enterprises they might have, if we assume for the moment that this is their life savings investment into a shopping centre at Mount Barker then, as big an investment as it might be, to try to compare the negotiating strength and/or any imbalance in relation to each army of lawyers or advice or expertise that they may have may be very different from what this legislation was actually set up to do, which was largely to regulate for the protection of significant power imbalances in the reverse, that is, a vulnerable tenant relative to the position of the landlord.

We do not need to relitigate the merits of having this type of legislation. We have a 1995 act and, for all intents and purposes, no-one is disagreeing that a regime such as this should continue. We are simply trying to update it to be consistent with what Mr Moss presented in his 20 recommendations. Mr Moss is a retired District Court judge who comprehensively undertook a review of this matter in 2016. Except for a minor amendment on lease documentation, he did not recommend any other change. We are following that and so a notice of intent would be difficult.

The second area is the question of penalty raising, which is foreshadowed at $8,000 to $15,000. I appreciate that the member for Lee accepts the argument that there is a CPI adjustment and that that might be reasonable in the circumstances, if I could paraphrase his contribution on this, but, notwithstanding that, he still has the view that it should be nearly double.

There does not seem to be any basis upon which there would be a transformation on behalf of the member for Lee from 2017 to 2019 as to why this should suddenly be necessary. We have a report by Mr Moss. He has made recommendations. They have been implemented. This is the regime that was proposed by the previous government in which the member for Lee was a member of the cabinet and presumably the caucus that made the decision that this was a proper process.

I do not know what transformation of thought the member for Lee has had on this since he has been relieved of the shackles of cabinet solidarity, but I make the point that, if there had been a major increase in relation to conduct in breach of this, or there was some other basis upon which on the assessment of penalty there needed to be a review of this, then the government will certainly have a look at it, but to simply wake up today and come to the parliament and say, 'I think these penalties are too light as well and therefore we should go to $15,000,' frankly, I do not see as justifiable.

The government is happy to look at any important amendment. I think we have demonstrated our position in relation to a most helpful suggestion—namely, giving notice in relation to the lodgement of the lease—which has been foreshadowed in an amendment. We are happy to look at measures that will improve things, but to simply say that this is now not good enough suggests to me that it is really just opportunistic lawmaking.

The third area is in relation to the bond. Again, the member for Lee indicates that he is foreshadowing an amendment that raises some objection to there being a provision of up to three months' rent. For an annual rent of $400,000, that could be up to $100,000—up to $100,000. It might only be $10,000, it might be $15,000, it might be half that or it may be the whole $100,000. If it a $12,000 annual rent, of course, it would be up to $3,000.

Again, Mr Moss has looked at this matter and seen, I think, the benefit and merit in both dealing with the tenant who might get a bit behind with their rent, which is actually a good reason for doing this, and looking at the landlord's capacity to be able to have some protections. Mr Moss has given due consideration to this and consulted with stakeholders. If there are people who have now gone to the member for Lee suggesting that they are at some disadvantage as a result of this proposal that we do not know about, then again I would invite him to present it. It does seem to me to be without merit. I remind the member that we are talking about up to this amount as distinct from it having to be for three months.

Secondly, I think it is still important to remember here that we are talking about tenants and landlords who will continue to have the commercial negotiation opportunity. When the lease concludes or in the last three months when it is coming to a conclusion and they start to renegotiate or give notice that they want to continue and/or renegotiate the terms of the next lease, again that will come to fruition.

It may be at a landlord's request that two months' rent be paid in advance as part of the bond over the lifetime of, say, a 10-year lease, during which there has been goodwill, good payment and good conduct on behalf of a tenant, that the tenant, as part of that negotiation for the extension of those lease arrangements or the occupancy arrangements under a new lease, will say, 'I actually want relief from the amount I have paid on the bond. In fact, I think you should only have two weeks' worth of rent. I have demonstrated my area of responsibility here.' Again, that will become a matter of negotiation between these two parties.

These are commercial arrangements and, in the absence of the member for Lee identifying where there has been some unfair bargaining position or exploitation of a tenant in this regard, the government would have difficulty in accepting such an amendment. I invite him to make provision for that. I hope that allays some concerns of the member and if it does not, I invite him to present the evidence to support them in due course when we come to the clauses.

Clause passed.

Clauses 2 to 4 passed.

Clause 5.

The CHAIR: Before the member for Lee speaks, I might make a short statement here in relation to clause 5. Both the Attorney-General and the member for Lee have proposed amendments to clause 5. To enable both members and the house to consider which amendment to accept or reject, I propose to move the member for Lee's amendment insofar as it tests the will of the house.

I will therefore put that the words in clause 5, lines 24 to 25 stand as printed. Those in support of the member for Lee's amendment will vote against the question. If the words are struck out, I propose to ask the member for Lee to move the balance of his amendment; if the words are retained, I will invite the Attorney-General to move her two amendments. I hope that is clear to everyone, but I will ask the member for Lee to speak.

The Hon. S.C. MULLIGHAN: I indicated that I would be brief, and I will be. I appreciate the arguments that the Deputy Premier made about the further protections, which her amendments place in here, the result of which will be some fairly thorough protections or at least some fairly thorough requirements for the furnishing of the details of a registered lease to the tenant but after the execution of the lease. Really, my amendment seeks to not only do that but also, at least two weeks prior to the execution of the lease, ensure that the prospective tenant, before signing that lease, is told of the intention to register.

The Hon. V.A. CHAPMAN: I will not dwell on and repeat the matters that have been said but, having now viewed the amendment, I note that there is a time frame placed on there as two weeks prior. It only relates to the lessor advising of the lessee. It fails to deal with the crystallising otherwise of intent and, quite frankly, if it is the intention of either party to propose a registration of the lease, then the earlier the better that that should be disclosed. I do not see any reason why the current commercial arrangements and negotiations would not cover that. I think it is fair to say and at least place on the record that frequently the terms of occupancy between landlord and tenant in a commercial arrangement are prepared and crystallised in a document drawn up as a lease in registrable form.

There are a number of reasons for that, not the least of which is that it has been a time-honoured way of securing over property the rights of each of the landlord and tenant. Regarding the opportunities and protections that registration grants, it is frequently a situation where the parties are interested in having it in registrable form but they have no intention of spending the money to actually register it. It may be that in the past things such as stamp duty payable on it and the like may have had some effect, although a document is stampable irrespective of whether it is registered. However, I think the law still is that, if you do want to register it, you are not allowed to register a document unless it has been stamped.

Except for correspondence with your mother, just about everything is stampable according to the value as disclosed in the consideration in the document, but I make the point that the process here of extracting or plucking out a period and then identifying intention according to a two-week period does not do justice to the fact that we are still going to have a problem with the crystallising of intent, and it fails to deal with both sides. For those reasons, the government will not be accepting the amendment.

The CHAIR: As Chair, I now put the question that the words in clause 5, lines 24 to 26 stand as printed. I correct my earlier indication: I mentioned lines 24 to 25 but it is actually lines 24 to 26. Those in support of the member for Lee's amendment will vote against the question.

The committee divided on the question:

Ayes 22

Noes 19

Majority 3

Progress reported; committee to sit again.

Sitting suspended from 12:59 to 14:00.