More Retail Leasing Changes – Landlords Beware, Tenants Rejoice!

A tenant is holding over after the expiry of a fixed term for a retail shop. Negotiations are taking place for a new short-term lease for the tenant, since the landlord wishes to redevelop the premises soon. The landlord writes to the tenant to set out the proposed terms of the short-term lease and invoices the tenant for the same rent as was payable under the expired lease. The tenant writes back to accept the landlord’s lease terms. One may think there is no lease, least of all because the landlord took the trouble to make it clear when writing to the tenant that the parties would not be bound until a formal lease was executed. The NSW Supreme Court has decided differently. That is despite there being no formal entry into possession, the tenant being a sitting tenant and there was no increase in the rent being paid. A “notional entry into possession” arose and that was enough for the Retail Leases Act to apply. The landlord’s qualification that negotiations were subject to a formal lease was unhelpful.

Because the Act applied, the tenant in that case enjoyed the benefit of a five-year lease. To add insult to injury (as far as landlords are concerned), the Act provides that where a tenant is in possession or is entitled to possession for a continuous period exceeding 12 months for leases commencing after 1 January 2006, then the Act automatically applies from the day that the 12-month period expires. The tenant may then elect to have the lease term extended to five years.

We act for many retail shop landlords and also tenants. We count shopping centre owners amongst our clients. Regardless of whether you are the one favoured or the one not favoured by the Act, we are ideally placed to assist you.