The Renewal of Retail Leases gets more complex

Property Law: 29 November 2022

Renewing a Retail Lease is not always as easy as one would hope, especially with leases that have increases tied to CPI or other marketing forces.

Section 28 of the Retail Leases Act 2003 requires that Notices must be issued covering:

• the date by which an option may be exercised
• the amount of rent
• the entitlement to call for an early review of the rent market
• a cooling off entitlement, and
• any changes to the most recent disclosure statement.

See Page 67 of the May 2021 Law Institute Journal for more information.

Comment has also previously been made about the duplication involved with the requirement in section 26 to also issue a Disclosure Statement containing much of the same information.

One practical matter which has not been addressed is, "What should a landlord do if the tenant exercises an option before being given a section 28 Notice or section 26 Disclosure Statement?€

Section 28 is mandatory, and the landlord 'must' give the notice at least 3 months before the last date for the exercise of the option. If notice is not given, the time for exercise of the option is extended, sometimes even beyond the end of the existing lease term.

On its face, s.28(2)(c) permits the tenant to give a notice ending the lease at any time before the end of that extended option exercise period, even if the tenant has previously exercised the option. Section 28B, however, seems to limit a tenant's right to revoke a decision to exercise an option. Section 28B, instead, provides a cooling-off period of 14 days after the tenant exercises the option to renew.

Section 26 is also mandatory. It requires the landlord to give a Disclosure Statement at least 21 days before the end of the lease term. However, where the parties 'enter into an agreement to renew a lease' the Disclosure Statement must be sent no later than 14 days after entering into the agreement. Presumably, a purported exercise of an option falls within the meaning of 'an agreement to renew a lease'.

If a Disclosure Statement is not given:

• rent might be withheld - s.26(4)(a)
• rent can be not payable - s.26(4)(b), and
• the tenant can end the lease at any time before the end of 7 days after the Disclosure Statement is given (although the landlord might be entitled to relief under s.18).

Therefore, if an option has already been exercised, a Notice under s.28 is not required. However, a Disclosure Statement under s.26 is always necessary.

Our Commercial and Retail Tenancy team can guide you through the process.