Beware Retail Lease Dis­close Statements

Before a retail lease is entered into, the Retail Leas­es Act 1994 (NSW) (the RL Act) requires a land­lord to give a signed Lessor’s Dis­clo­sure State­ment (Dis­clo­sure State­ment) to the ten­ant. The Dis­clo­sure State­ment con­tains impor­tant infor­ma­tion about the premis­es and the com­mer­cial terms of the lease — such as the per­mit­ted use, the rent and the ten­an­t’s con­tri­bu­tions to out­go­ings (if applicable). 

When a land­lord wants to rent out their prop­er­ty, it is impor­tant that they first­ly con­sid­er if the premis­es are com­mer­cial or retail premis­es as this will deter­mine the type of lease to be entered into. Sec­tion 4 and Sched­ule 1 of the Retail Leas­es Reg­u­la­tions 2022 (the RL Reg­u­la­tions) define what type of busi­ness­es are deter­mined to be a retail shop busi­ness and are thus cov­ered by the RL Act. If the premis­es are deter­mined to be a retail shop, the RL Act requires the land­lord to pro­vide to the ten­ant a Dis­clo­sure State­ment at least 7 days before the lease is entered into. If the land­lord fails to pro­vide a Dis­clo­sure State­ment to the ten­ant or the Dis­clo­sure State­ment that was giv­en was incom­plete or con­tained infor­ma­tion that was false or mis­lead­ing, the ten­ant may ter­mi­nate the lease with­in 6 months of the lease being entered into. 

How­ev­er, what hap­pens when a land­lord allows a ten­ant to pre­pare the Dis­clo­sure State­ment, or issues an incor­rect or incom­plete Dis­clo­sure State­ment to the tenant?

The Hum Group Pty Ltd v Deep Blue No. 11 Enter­pris­es Pty Ltd [2023] NSW­CATCD is an exam­ple of a recent Tri­bunal deci­sion that con­tem­plates this question. 

At first instance, the land­lord in this case received incor­rect advice that the prop­er­ty to be rent­ed was com­mer­cial premis­es. A com­mer­cial lease was pre­pared and issued to the prospec­tive ten­ant. The ten­ant dis­put­ed that the premis­es were com­mer­cial, as the per­mit­ted use was a café, being a retail shop under the RL Act. The land­lord refused to pro­vide the ten­ant with a Dis­clo­sure State­ment. The ten­ant then pre­pared the Dis­clo­sure State­ment and sub­mit­ted it to the land­lord for its approval and sign­ing. The land­lord signed the Dis­clo­sure State­ment and the lease was entered into by the par­ties. When sign­ing the Dis­clo­sure State­ment the land­lord failed to notice that the ten­ant had not pre­pared it in accor­dance with the terms of the lease, as the rent was inclu­sive of out­go­ings rather than exclu­sive of out­go­ings as agreed.

The land­lord issued the ten­ant with invoic­es for the out­go­ings, which the ten­ant ini­tial­ly paid. After some time the ten­ant stopped pay­ing the out­go­ings and the land­lord issued a ter­mi­na­tion notice to the ten­ant. As the ten­ant was in breach of the lease for non-pay­ment of the out­go­ings, the land­lord re-entered the premis­es and changed the locks.

The ten­ant brought a claim against the land­lord in the NSW Civ­il and Admin­is­tra­tive Tri­bunal (NCAT) and amongst oth­er things claimed that the ten­ant was not liable to pay out­go­ings under the lease pur­suant to sec­tion 12A of the RL Act. As such, the ten­ant argued that the ter­mi­na­tion of the lease by the land­lord was invalid.

NCAT Senior Tri­bunal Mem­ber, G Blake AM SC held that ​“the dis­clo­sure state­ment on its prop­er con­struc­tion records that the amount payable for out­go­ings was includ­ed in the rent to be paid under the lease and does not dis­close any amount for out­go­ings payable in addi­tion to the rent. It fol­lows that the [ten­ant] has not been liable to pay any amount to [the land­lord] for out­go­ings pur­suant to sec­tion 12A(1) of the RL Act and is enti­tled to recov­er the amount paid to the land­lord [for out­go­ings]… and that the ter­mi­na­tion notice was invalid”. 

This deci­sion high­lights the impor­tance of mak­ing sure that the Dis­clo­sure State­ment has been pre­pared in accor­dance with the agreed com­mer­cial terms of the lease, and accu­rate­ly sets out the ten­an­t’s oblig­a­tions on whether they are required to pay outgoings.

There­fore, if you are con­tem­plat­ing enter­ing into a lease either as a land­lord or a ten­ant, it is rec­om­mend­ed that you obtain prop­er advice from a rep­utable solic­i­tor who has expe­ri­ence in all aspects of leas­ing. The solic­i­tor can first­ly assist you to cor­rect­ly iden­ti­fy the type of lease that needs to be pre­pared for the rel­e­vant premis­es. Sec­ond­ly, they can pre­pare or check the Dis­clo­sure State­ment to ensure that the cor­rect infor­ma­tion is pro­vid­ed to the prospec­tive ten­ant and avoid any pit­falls and poten­tial claims to NCAT, which may be costly.