GAMING & LEISURE Alert: Retail Lease Reforms – changes for club catering and other agreements

Mar 7 2017

Publications

The NSW Parliament recently passed the Retail Leases Amendment (Review) Bill 2016 (Bill) which was assented to on 1 March 2017, which aims to improve transparency, and simplify legal procedures, and better balance the position of landlords and tenants under the Retail Leases Act 1994 (Act).  It is likely to take effect soon, and will ultimately introduce reforms that will impact on Clubs.

The amendments will affect  a wide range of Club contracts, as the Act applies to most club catering agreements and golf pro agreements (if there is a golf pro shop).  It can also cover a broader range of retail facilities now seen in many Clubs, such as barbers and hairdressers, beauty therapists, and travel agencies.  This can even be the case even if the agreement would not usually be considered to be a ‘lease’ (e.g. a non-exclusive licence agreement or even a verbal arrangement for a retail shop business).

This article uses the term ‘retail shop agreements‘ to cover the full scope of arrangements to which the Act applies.

What’s in it for Clubs?

The Bill introduces wide ranging reforms, and some key issues for Clubs to keep in mind when negotiating agreements under the new regime will include:

 

No minimum 5 year term The current minimum 5 year term will not apply to retail shop agreements entered into after the reforms commence.  This will give Clubs greater flexibility to negotiate this for themselves, and will avoid the risk of a minimum term being imposed by law even when not intended by the parties.
 
Legal Tip!  The minimum term requirement under the current Act will still apply to agreements that are entered into before the reforms commence.
Compensation for inadequate disclosure The Act already requires the Club to give a proposed new tenant a Disclosure Statement setting out certain information about the premises at least 7 days before a retail shop agreement is entered into.  If the Club fails to do so, the tenant may have the right to terminate within the first 6 months.
 
Under the new regime, the tenant will also be given an express right to claim compensation from the Club for costs reasonably incurred in entering into the retail shop agreement in the first place (including for any fitout paid for by the tenant).
Outgoings The Bill introduces new rules for transparency around disclosing the likely outgoings.  If a tenant is required to contribute to the Club’s outgoings (e.g. maintenance/repair costs and rates), those outgoings must be set out in the Disclosure Statement. If the Club fails to do this, then the tenant will not be liable to pay for any undisclosed outgoing.
 
If the Disclosure Statement includes an estimate which turns out to be less than the actual cost, then the tenant’s liability to pay will be reduced accordingly unless the Club can show the original estimate was given on a reasonable basis.
 
Legal Tip!  Clubs will need to ensure all outgoings are carefully assessed and included in the Disclosure Statement and be able to justify the basis on which the assessment was done.
Calculating turnover rent If the tenant will pay rent calculated by reference to turnover, then under the new regime the revenue from online transactions cannot be taken into account unless the relevant good/services are delivered or provided from the relevant retail shop itself, or where the transaction takes place while the customer is actually in the shop.
Consent to assignment If a Club enters into a retail shop agreement as a result of a public tender, and the tenant then wants to assign to a third party during the term, then under the new regime the Club can refuse consent if the proposed assignee fails to meet any criteria of the original tender.
Registration required for term over 3 years The reforms will introduce a new requirement for a retail shop agreement of more than 3 years (including any option for the tenant to renew) to be registered on title, within 3 months after the Club receives it back signed from the tenant (subject to any delays in getting consent from a head lessor or mortgagee).
 
Legal Tips!
 
1. Only a lease which is in the prescribed form can be registered on title.
 
2. The Liquor Act 2007 prohibits a Club from granting a lease or sub-lease over gaming areas or any part of its licensed premises where liquor is ordinarily sold/supplied for on-premises consumption. It can only grant leases over other parts of the licensed premises with the consent of the Independent Liquor & Gaming Authority.
 
3. Clubs should consider whether the area to which a retail shop agreement relates is ‘core property’ of the Club under the Registered Clubs Act 1976.
 
4. Clubs should check if there are additional restrictions on leasing in the Constitution.

Planning for the future!

Clubs that enter into agreements for retail purposes after the Bill takes effect, will need to ensure that all their documents are up to date and comply with the reforms.  As the Act also applies to an agreement to enter into a retail shop agreement (such as an agreement to lease), we recommend Clubs obtain advice early, and certainly before they enter into any arrangement which gives a third party the right to occupy any of the Club’s property for a retail purpose.

There can be substantial financial consequences for Clubs if they fail to meet the requirements of the Act.  For example, failure to provide the proper Disclosure Statement on time would be a breach carrying a maximum penalty of $5,500.  Additionally, the tenant may have the right to terminate within the first 6 months and claim compensation under the new regime for the costs of entering into the retail shop agreement.

Forward planning is the best way for Clubs to get the benefit of the reforms to the Act, and to avoid the pitfalls of any inadvertent breach of the new regime once it comes into effect.

For more information please contact:

Brett Boon | Partner | +61 2 8248 5832 | bboon@tglaw.com.au 
Vivienne Young | Senior Associate | +61 2 8248 5838 | vyoung@tglaw.com.au 
Arj Puveendran | Lawyer | +61 2 8248 3494 | apuveendran@tglaw.com.au