Retail Lease Renewals

UNDERSTANDING A LANDLORD’S RIGHTS AND RESPONSIBILITIES WHEN IT COMES TO RETAIL LEASE RENEWALS

WARNING TO PRACTITIONERS:

• Each of the above sections requires the landlord to give notice to the tenant in a timely manner.

• The consequences of non-compliance may be harsh including the tenant being able to vacate the premises with minimal notice.

SECTION 28

If a lease provides an option to renew for a further term, at least three months before the last date that the option may be exercised, namely, at least six months before the term of the lease ends, the landlord must give the tenant written notice under s28 of the Retail Leases Act 2003 (“Act”) setting out:

• the date by which the option may be exercised

• the rent payable for the first 12 months under the renewed term

• the availability of an early rent review

• the availability of a cooling off period

• any changes to the most recent disclosure statement (other than a change in rent).

This guarantees that the tenant who receives this notice has three months to decide whether to exercise the option provided to renew the lease for a further term at the rent proposed by the landlord. It should be noted that the exercise of an option cannot be conditional. If the tenant’s response is “I will renew the lease if the rent is 10 per cent less”, the tenant has not exercised the option. This does not stop the parties from negotiating the rent provided the parties agree to an amount prior to the last date.

There is no longer the earliest date to provide the notice. Based on previous revisions of the Act, practitioners are cautioned not to send it earlier than nine months before the lease term ends.

FAILURE TO PROVIDE AN S28 NOTICE

The landlord’s failure to provide an s28 notice allows the tenant to remain in possession on the current terms and conditions indefinitely. A landlord has failed to comply with s28 if the landlord does not provide all the required information or if all the required information is not provided within the specified period.

NOTICE PROVIDED OUT OF TIME

Late notice changes the date after which the option is no longer exercisable to a date that is three months after the notice is received. Note: If the date after which the option is no longer exercisable is extended beyond the end of the lease, the lease continues on the same terms and conditions until that date (unless the landlord and tenant otherwise agree). But, in such circumstances, if the tenant exercises its option to renew for a further term, the further term commences on the expiry of the previous lease.

COOLING OFF PERIOD

Having exercised an option to renew a retail lease for a further term, provided a tenant has not requested an early rent review, it may, within 14 days from the date of that exercise, give the landlord written notice that it no longer wishes to renew the lease. The lease is deemed not to have been renewed, the tenant is not able to exercise an option to renew and the term of the lease is extended by 14 days.

EARLY RENT REVIEWS

If rent is to be reviewed to market, a tenant may request that the review occur early. The request must be in writing and must be made within 28 days of the landlord’s written notice. The tenant must also notify the landlord in writing within the prescribed period above, whether it exercises its option to lease for a further term. If the determination of a specialist valuer is not revealed to the tenant earlier than 14 days before the date of the option to renew may be exercised, that date is extended to 14 days after the date on which the tenant is notified. Unless the landlord or tenant otherwise agree, the term of the lease is also extended by 14 days.

Once the determination is provided to the tenant, the tenant must, within 14 days,

(i) exercise the option to renew the lease for a further term;

(ii) elect not to exercise this option.

If the market rent is less than the current rent, the market rent applies to any extended term.

An expert determination is relatively expensive and the cost must be shared equally by landlord and tenant. A landlord may be peeved paying 50 per cent of this cost only to have the tenant vacate. This may encourage a landlord to elect a market rent review after a year that is not the last year of the lease. Alternatively, landlords my decide to not offer options and avoid market reviews entirely by offering fixed reviews or CPI adjustments.

SECTION 64

If a lease does not provide an option to renew for a further term, at least six months before the lease term ends, but no longer than 12 months, the landlord must offer the tenant a renewal of lease, or no renewal.

The offer is a notice under s64 of the Act.

If a renewal is offered, it must contain the essential terms and conditions of the new lease including the rent payable. The landlord cannot revoke that offer for 60 days without the tenant’s consent.

FAILURE TO PROVIDE AN S64 NOTICE

A failure to provide this notice allows the tenant to remain in

possession indefinitely on the current terms and conditions

until an offer for a new lease is received or the landlord informs the tenant in writing that the lease will not be renewed,

and the notice specifies a day when the term of the lease ends; this must be at least six months after the notice is given.

Section 64 allows the tenant to provide written notice to the landlord terminating the lease from a day that is not earlier than the day on which the term of the lease expires. This could be as late as one day prior to vacation despite any clause in the lease requiring a specified period of notice to vacate.

TENANT’S RIGHTS ON RECEIPT OF AN S64

Once the notice is provided, the tenant has two choices:

(i) it may remain in possession for at most a further six months until the specified date on the same terms and conditions and vacate at a time of its choosing by giving the landlord written notice of its intention to vacate and terminate the lease from a day that is not earlier than the day on which the original term of the lease expires; or

(ii) Unless the landlord’s offer is withdrawn, it may elect to remain in possession for a further six months on the same terms and conditions and at any time in that six-month period, it may accept an offer to lease for a further term at the end of that six-month period.