Outgoings and the amendments to the Retail Leases Act (NSW)
Summary
How do the recent changes to the Retail Leases Act 1994 (NSW) affect landlords and tenants with respect to outgoings. Estimates need to be accurate as these new sections give a tenant the right to only pay the estimate if the actual outgoing is higher than the estimate. [Read more]….
Introduction
The Retail Leases Act 1994 (NSW) (RLA), effective 1 July 2017, was amended by the Retail Leases Amendment (Review) Act 2017 (RLARA). The RLARA introduced substantial changes to the RLA however, for the purposes of this article, only the amendment to “outgoings” will be dealt with. The amendment provides some clarity to tenants which will assist them in understanding what they are committing to before being legally bound to a lease. An inability for tenant to plan their businesses and manage cash flows greatly increases the chance or failure, particularly for small businesses. Incomplete or inaccurate disclosure is a source of a substantial number of disputes.
Outgoings, as defined in s3A(1) of the RLA, are landlord expenses attributable to the management, operation, maintenance or repair of a retail shop building. Outgoings also include the landlord’s rates, taxes, levies, premiums or charges payable by the landlord as owner of the retail shop building. Also fees charged by a landlord for services provided by the landlord in connection with the management, operation, maintenance or repair of the retail shop.
The changes mean the tenant will only be liable for outgoings if they are disclosed in the landlords Disclosure Statement (s12A(1) of the RLA). Lessor Disclosure Statements were briefly discussed in our February Newsletter. A landlord Disclosure Statement must be provided at least 7 days before a new retail shop lease being entered into and must contain the landlord’s outgoings for which the tenant will be liable to pay (s22 of the RLA). The tenant may withhold payment of these contributions if the landlord has failed for 10 business days to give the tenant the estimate or outgoings statement after being requested. The tenant must then pay up within 28 days of being given said statement (s28A of the RLA).
The estimate must be given to the tenant in respect of each accounting period of the landlord during the term of the lease and must be given before the lease is entered into and thereafter, during the term of the lease, at least one (1) month prior to the commencement of the accounting period (s27(b) of the RLA).
In relation to shopping centre leases, the estimate of outgoings should include a broken down statement of management fees, cleaning costs and other particulars prescribed by the Regulations (s27(c) of the RLA).
If the landlord’s Disclosure Statement provides an estimate of the amount of any outgoing and the estimated amount is less than the actual amount then if there was no reasonable basis for the estimate when the landlord’s Disclosure Statement was given, the tenant’s liability will be determined on the estimated amount rather than the actual amount. The relevant section of the RLA states:
12A Lessee not required to pay undisclosed outgoings
(1) The tenant under a retail shop lease is not liable to pay any amount to the landlord in respect of any outgoings unless the liability to pay the amount was disclosed in the landlord’s disclosure statement for the lease.
(2) If the landlord’s disclosure statement provided an estimate of the amount of any outgoing and the estimated amount is less than the actual amount, the following provisions apply:
(a) if there was no reasonable basis for the estimate when the landlord’s disclosure statement was given, the tenant’s liability for any payment in respect of the outgoing is to be determined on the basis of the amount estimated (instead of the actual amount) and is to be reduced accordingly,
(b) if the tenant’s liability to pay an amount (the “actual amount”) in respect of an outgoing is reduced because there was no reasonable basis for an estimate of the outgoing, any liability of the tenant in respect of any subsequent increase in the outgoing is to be reduced in the same proportion as the actual amount was reduced.
(3) This section does not apply to an outgoing in the nature of a tax, rate or levy that is imposed by or under an Act after the landlord’s disclosure statement is given and that was not an outgoing of the landlord when the landlord’s disclosure statement was given.
(4) A tenant is entitled to recover from the landlord any amount paid to the landlord that the tenant was not liable to pay because of this section.
(5) Costs associated with the advertising or promotion of a retail shop or retail shopping centre, or of any business carried on there, are not outgoings for the purposes of this section.
It is not clear how “reasonable basis for an estimate of the outgoing” will be determined by the Tribunal – we will keep a lookout for decisions.
Any adjustment for actual outgoings must be made within one (1) month after an outgoings statement is issued to the tenant and must take place in any event within four (4) months after the end of that period (s29(a) of the RLA).
Conclusion
A landlord must ensure the outgoings listed in their Disclosure Statement are as accurate as possible. The lease must specify the outgoings that are to be regarded as recoverable and how the amount of those outgoings will be determined and apportioned to the tenant. A tenant under a retail shop lease in New South Wales is not liable to pay any amount to the landlord in respect of any outgoings unless the liability to pay the amount was disclosed in the landlord’s Disclosure Statement. The tenant is entitled to recover from the landlord any amount paid that the tenant was not liable to pay (s12A(4) of the RLA).
Gillian Kirwan, Lawyer
Paul Carroll, Partner