What is The Retail Leases Act (VIC) 2003 and how does it effect landlords?

Commercial,Property ManagementThursday 25 August 2016

Posted by Ingrid Filmer, Burgess Rawson Melbourne

For property investors in Victoria, the NOT so well known restrictions of The Retail Leases Act VIC 2003 have far reaching implications for a Landlord. These should factor as a serious investment consideration.

A Lease covered by The Retail Leases Act (VIC) 2003, places numerous restrictions on a landlord in regards to recoveries, repair obligations and landlord rights, both at commencement and expiry of the Lease Agreement.

So what does this all mean for investors?

The following questions will assist a landlord to ascertain which lease agreements are covered by the Retail Leases Act:

1. Does the tenant sell or hire goods to the public, or provide retail services?

2. Are the total occupancy costs below $1,000,000?

3. Are the premises located on one, or more of the first three levels?

4. Is the lease less than 15 years?

If the answer to all five questions is YES, the property comes under The Retail Leases Act (VIC) 2003. With exceptions; listed corporations and subsidiaries are excluded. If, at the commencement of the lease the tenant was a listed corporation, and assigns the lease, the lease remains outside the Act, until the first further term. The reverse also applies in so far as a listed corporation can take over a retail lease, and it will remain protected by the Act until the expiry of the term.

Should compliance with the Act be required, the onus is on the landlord to understand the prevailing responsibilities, such as Essential Safety Measures. Landlords must, at their cost, maintain and repair all Essential Safety Measures in the building and on the premises. Additionally there are fixed notification periods, and requirements of disclosure, to be considered.

By purchasing a freestanding building, many investors seek leases outside the Act, to bypass these restrictions.

Properties affording such investment opportunities can include Childcare facilities, Petrol stations, Supermarkets, and some bulky good retailers.

Burgess Rawson is currently marketing six United Petrol stations. All have rare 20 year, triple net return leases. The lease agreements for two of the properties located in Melbourne are a good example of how the exemption can apply.

As a non-listed tenant these properties would usually fall under the Act. The properties are an exception however, as United Petrol has entered into the 20 year, triple net leases. Triple net means that the tenant will maintain, at their cost, all structural and capital replacement.

These properties represent excellent opportunities for well informed investors to purchase key retail property outside the Retail Leases Act, at affordable entry prices. Being informed and knowledgeable is essential to avoid costly mistakes!