Retail and Commercial Leases (Miscellaneous) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 31 October 2019.)

The Hon. J.A. DARLEY (16:50): I rise to speak on the second reading of the Retail and Commercial Leases (Miscellaneous) Amendment Bill. I understand that this act was first introduced in 1995 to provide protections for small businesses. The parliament at the time thought that small businesses need specific provisions to assist them and passed a bill to regulate retail and commercial leases, with a focus on small business. I understand that this bill will be the first time the act has been changed significantly since it was introduced almost 25 years ago. The changes came about as a result of a review of the legislation by retired District Court judge, Alan Moss, who consulted broadly about the act before making a number of recommendations.

The bill makes a number of changes to provide better protections and modernise the regulation of retail and commercial leases. It makes it clear that certain information must be provided to the new lessee including a copy of the prospective lease and a disclosure statement. Whilst the act currently requires for these documents to be provided, the bill increases and introduces the penalties respectively. These are sensible amendments and I support these changes.

The matter that I have had most contact about is with regard to the threshold outlined in the act. The act only applies to those leases where the rent is under the threshold. I understand that the thought is that those with a lease over the prescribed threshold rent are big and ugly enough to fend for themselves without the protections of the act.

I understand that, initially, the act was drafted in a way in which it was always expected that leases would fall in and out of the act, as it was always anticipated that the threshold would change. However, in reality up until a few years ago the threshold had not changed at all since the act was first introduced in 1995. When the threshold was suddenly changed from $250,000 to $400,000, it caused problems for tenants, landlords and agents alike, who were suddenly faced with shifting responsibilities and outgoings as longstanding leases that were not covered by the act were suddenly covered and vice versa.

The government proposed to tackle this by outlining in the bill that, if the lease is registered, whatever the threshold is at the time of signing the lease then this is what the threshold will remain for the life of the lease, regardless of any external changes to the threshold. If a lease is not registered, then the lease is subject to coming in and out of the act, depending on changes to the threshold and the rent.

I do not support leases coming in and out of the act. As I said before, I have been contacted by many constituents who have been confused and aggrieved by this mechanism, and believe it would be much better if there was certainty rather than a moving target. As such, I will be filing amendments to make it clear that, if you are in at the time of signing the lease then you are in; if you are out then you are out.

The bill also provides that the threshold should be reviewed by the Valuer-General on a five-yearly basis. Given my experience as a former valuer-general, I was very curious about this provision, and have been advised by the minister that the Valuer-General anticipates that they will be able to undertake this task by liaising with industry to determine whether rents have gone up or down and then adjusting the threshold accordingly.

I believe that this is a long-winded and resource-intensive method to have the thresholds reviewed and adjusted, especially as I understand that rents usually increase by the consumer price index, or thereabouts, annually anyway, other than when rents are revised at market levels. As such, I have drafted amendments to take this burden away from the Valuer-General and instead have the threshold adjusted by CPI annually. If the CPI goes down, then the threshold will stay the same as the previous year, rather than going down.

Finally, I flag that I will be filing amendments to allow land tax to be passed on at a single-holding rate to those with leases under the threshold for new leases from the commencement of that provision. Currently, the act states that, if the rent is under the threshold, then land tax can be taken into consideration in determining the rent but it cannot be explicitly passed on to the tenant. This is what happens for leases where the rent is over the threshold.

I believe it is ambiguous that land tax can be taken into account when determining the rent and that it would be much more transparent to allow landlords to pass on land tax on a single-holding basis. That is to say that the tenant would only be required to pay land tax calculated on the site value of the land that their lease relates to, rather than having to pay a portion of the landlord's land tax, which may be much higher due to the landlord's other land holdings.

I will speak more to my amendments during the committee stage. However, I wanted to put on the record that I support the bill and the second reading.

The Hon. C.M. SCRIVEN (16:56): I rise to speak as the lead speaker for the opposition on this bill. The opposition does broadly support the bill; however, we think there are some changes flagged by the government which are, quite frankly, anti small business. In 2013, the former Labor government, and then opposition, committed to undertake a review of the Retail and Commercial Leases Act 1995.

A formal independent review process was initiated by the Small Business Commissioner, with public consultation carried out by way of an issues paper published by the commissioner. I understand there were 37 submissions received from a broad range of organisations. Retired District Court judge, Mr Alan Moss, considered these responses in preparation for his review, known as the Moss review, which was tabled in parliament on 24 May 2016.

The feedback and comments provided in the extensive consultation conducted during this process and the recommendations of the Moss review formed part of the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017, which was passed in the House of Assembly. However, it lapsed here in the Legislative Council. The Attorney-General in the other place has claimed that the government has accepted the amendments put forward in the lapsed bill as the basis for this current bill.

In regard to some of those changes, the first being the increase in rental threshold, the opposition is supportive of inserting the increase in threshold to $400,000 into the act after it was increased from $250,000 to $400,000 by the Retail and Commercial Leases Variation Regulations 2010, which came into force on 4 April 2011. There has been some legislative uncertainty, I understand, regarding the application of the act since the increase in threshold between 4 April 2011 and the dates on which the proposed amendments will commence.

However, I note with particular disappointment the amendment of the lapsed bill in respect of increasing bonds from four weeks' rent to three months' rent. In some cases, this is the difference between a $33,000 bond and close to a $100,000 bond. I understand there may be amendments looking at that, but what we really need to remember is the importance of small business to our economy. Increasing the bond that a small business has to pay not only hurts their ability to grow by hitting their equity but also would make many potential small businesses reconsider whether they can in fact establish such a business. I understand that this was a recommendation of the Moss review. However, governments must make their own decisions.

A review may suggest something or Treasury may suggest something to implement a policy regarding, one might say, land tax aggregation for example, but the government must do the work independently of what is suggested to determine what is the right thing to do. I suggest that that is also applicable to this bill. The Moss review claimed that one-month rental bonds are resulting in landlords acting too quickly to terminate the lease of a slow paying tenant. It is certainly admirable that we attempt to address that issue, and I have heard of cases of tenants being terminated very quickly without the opportunity—at least not a suitable opportunity—to be able to negotiate if they are indeed paying their rent on time.

Whilst that may appear in some cases, we need to ask whether this is the appropriate fix. Is this the appropriate fix, to increase the impost on small businesses by dramatically increasing the bond they have to pay to three months' rent? We will certainly look carefully at any amendments that address that.

That impost is exactly why the former Labor government did not incorporate increasing the bond into the lapsed bill, because it would create that huge impost on small businesses. We need to ensure that we are protecting small businesses over landlords. We do not want to be increasing the costs of doing business in South Australia. In fact, those on the Liberal backbench no doubt think that is what they signed up for when they signed up to the Liberal Party. The bill also seeks to make it express for a new section 4(3) that a registered lease which, at the time of registration, falls outside of the rental threshold shall remain outside of the act regardless of any increase to the threshold which would bring the lease within the scope of the act.

Justice Stanley, in Diakou Nominees Pty Ltd v Gouger Street Pty Ltd and Ors in 2017, found that parliament intended that once the annual rent did not increase the prescribed sum, the act should apply. The practical effect of this meant that a lease could move in and out of the act, depending on whether the threshold was raised. However, this amendment appears to attempt to clarify the intention of parliament to allow a party to stay out of the act regardless of whether they exceed the prescribed sum. The government claims that this is necessary to cater for long-term leases, such as hotels and motels.

The bill also seeks to exempt companies listed on the overseas stock exchange from being covered by the act, so it provides that the terms 'public company' and' subsidiary' in the act will have the same meaning as defined in the Corporations Act 2001 (that is the commonwealth act) and will have the effect that the act will not apply to companies or subsidiaries of companies listed on a stock exchange outside of Australia.

There was much debate on the former bill as to whether overseas companies and their subsidiaries should be exempted from the protections of the act. The Attorney-General in the other place has assured that house that the amendment would operate so that the act may or may not apply to the lease, depending on whether the lessee at any given time is or is not a foreign company within the meaning of the act. However, if at any time during the term of the lease the lessee ceased to be a foreign company, the lessee would then be afforded the protections of the act. I note a number of amendments and look forward to further debate during the committee stage.

Debate adjourned on motion of Hon. D.G.E. Hood.