Terminating a lease – What not to do

IN BRIEF

A landlord communicating to a tenant a termination of a lease must be clear. This is evident from the decision in Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2010] NSWCA.

THE TERMS PROVIDE FOR THE RIGHT

A lease will generally provide for the circumstances where a landlord is entitled to exercise its contractual right to terminate a lease. The relevant termination may be by re-entry or notice of breach to the tenant of an essential term.

Except in the case of non payment of rent, the landlord must comply with the provisions of section 129 of the Conveyancing Act 1919 (NSW) in order for the termination to be effective.

COMPLIANCE

In order for a notice of termination of a lease to be valid, the notice must make a clear demand for possession. This means that the notice to terminate a lease must include an unequivocal act or statement that the landlord is treating the lease as at an end.

BAD EXAMPLE

The Dee-Tech case demonstrates a bad example of a notice to terminate.

In the Dee-Tech case, the agent for the landlord served on the tenant what was unsuccessfully argued as an effective notice to terminate the lease.

The right for the landlord to terminate the lease arose because the tenant did not maintain the relevant insurances under the lease and maintenance of insurance by the tenant was an essential term of the lease. A breach of this term of the  lease meant that the landlord could terminate the lease subject to the observance of section 129.

THE NOTICE

The notice headed “Notice to vacate the premises” in the Dee-Tech case included, amongst other things, that:

“You are in breach of your lease and we have been instructed to terminate this current lease… You are requested to vacate the premises”.

The Court of Appeal held that the notice was not an unequivocal statement to terminate the lease because:

• the heading failed to describe that the notice was a termination of breach of an essential term;
• the notice did not state that the lease was terminated;
• the notice did not state that the lease would be terminated at a certain time in the future; and
• the notice did not contain any demand for immediate possession of the premises.

In essence, the notice did not contain any demand at all that the tenant yield up possession of the premises. It simply confirmed the “request”.

BE CAUTIOUS

If the intention of a landlord is to terminate a lease, the lease should be terminated effectively with clear and direct language.

Alternatively, a tenant should not take a notice to terminate given by the landlord on face value and should consider whether the notice actually serves the purpose for which it was given.

In the Dee-Tech case, in the end, because the lease was not validly terminated unbeknown to the landlord, in the same and small window of opportunity, the tenant effectively exercised its option for a further term and the relationship between the landlord and the tenant continued.

Cvetanka Trpeski, Senior Associate

For more information about property law, please see Swaab Attorneys or contact Cvetanka Trpeski on +61 2 9233 5544.

New tenants equal a new lease on life for retail?

Non-food retailers in mature markets with growth in their sights have recently pinned their hopes on three key elements; factory outlet locations, e-commerce and expansion into emerging markets, with many press reports of high profile retailers expanding abroad.

A key trend in the retail market looks in fact to be the reverse – many Asian retailers are looking to establish themselves into Western markets. Watch for a steady stream of fashion, health and beauty brands to come knocking on the door in mature markets such as Australia in the years to come.

Are there positive implications for shopping centres and other retail distribution channels in Australia? The answer is a qualified “yes.” With regards to the benefits to shopping centres, much depends on whether incoming brands take the flagship plus e-commerce road, or decide to establish full blown store networks.

Drawn from “Asian retailers see Western goldmine” by Michael Baker. Full article at Michael’s excellent blog here.

Tips to Create a Great Tenancy Mix

When it comes to investing in commercial real estate and most particularly shopping centres, the tenancy mix for the property is the key to a good return. A great property manager can add value to the property for the landlord through good lease and tenancy mix management.

The tenancy mix for a retail shopping centre takes into account a number of key factors such as:

• The expiry profile for each and every lease
• The options strategy relating to extra lease terms
• The rent review profiles and timing
• Existing or soon to be vacant tenancies
• The existing customer profile for the property
• The clustering factors applying to other tenancies nearby
• The existing levels of sales within the property and with each tenancy
• The anchor tenant lease and location to support other tenants

Given these complex facts, it is easy to see why the landlord should select a good retail property manager. The choice of manager should be based on their skills, rather than the cheapest fees, as sometimes is the case. When it comes to investment property performance, cheap does not always produce the best financial performance for the property. We advise you to consult with the agency with the most effective property management systems before you make your final choice.

Article courtesy of John Highman – Specialist Writer & Trainer, Commercial and Retail Real Estate

Room for growth around Northbridge Plaza Shopping Centre

New Sydney CBD Retail Offering

Clearpoint is pleased to offer for lease a limited selection of new retail shops at 827-839 George Street, Sydney.

This new development is the undertaking of TAFE NSW Sydney Institute and will offer a good retail tenancy mix of food use and retail spaces, in the company of pre-commitments from a large gallery café plus a beauty salon. The property has five remaining retail shops for lease ranging from 21.5 sqm to 74.5 sqm.

The site is centrally located below TAFE NSW Sydney Institute on George Street, in one of Sydney’s busiest pedestrian hubs and moments from Central Railway and bus interchange. This new retail hub offers a range of opportunities to retailers drawing on a captive audience of students, commercial offices and a dense surrounding residential population.

For details on remaining opportunities or to arrange a viewing please call Clearpoint on 1300 325 327 or click here for property details.

Government giving a hand to landlords and retailers?

Australia is still facing a retail recession, and at least one government is trying to help.

The Victorian government is trying to relax the zoning rules governing bulky goods, enabling an extended list of retail categories to operate, and also reducing the store size limit.

This begs the question, why are there bulky goods zones and bulky goods centres in the first place? Would it not be a more sensible approach to zone all retail equally and allow retailers to lease any retail space anywhere in Australia as the market governs? This works fine in countries like the US, allowing all centres and all retail space to be zoned the same.

One country serving its consumers the worst, with typically poor quality shopping centres, is India, where foreign direct investment (FDI) laws restrict retailers from setting up. Multi-brand foreign retailers are not allowed at all.

As in Australia, government interference restricts competition and limits the pool of available retailers. Removing these constraints, much like those set by our bulky goods zonings, would likely raise the quality of retailing therefore the consumer experience.

Something to aim for.

Drawn from “Australia and India have more in common than you think” by Michael Baker.

Full article at Michael’s excellent blog:
http://www.mbaker-retail.com/1/post/2012/01/shopping-centers-that-bring-the-world-home.html

Mobile Phones and Property

realestateVIEW.com.au recently conducted research into mobile usage for property searches.
More than 2000 people participated. The research showed 40 per cent of people used their mobile as a primary or secondary device to search for property.
The most important thing consumers wanted was easy access to an agent’s contact details.

Market Update Feb 2012

Time to re-think the retail mould?

Flexibility in retail layouts is the key to a successful retailer growth strategy, especially in a mature market like Australia.

Where growth is no longer driven by rapid development of new shopping centres, growth may only be possible by breaking the mould and looking at previously ignored real estate opportunities like factory outlet centres, mixed use developments, university campuses, and urban in-fills.

There are many examples of retailers that have become good at adopting flexible formats to suit local sites and conditions, such as US department stores Bloomingdale’s and Walmart.

Walmart has developed a slew of customised formats for every occasion, from 18,000 sqm freestanding supercentres at one end to 1,000 sqm edited food stores at the other. This year it also came up with a 325 sqm concept for university campuses which includes a pharmacy and licensed apparel.

For small retailers in Australia who are frozen out of shopping centres, opportunities exist for expansion both at home and overseas.

Food for thought when seeking your next investment opportunity or setting up a new retail outlet.

Drawn from “Formats Outside the Comfort Zone” by Michael Baker. Full article at Michael’s excellent blog HERE.

Cutting edge Internet Property Marketing

Clearpoint proves again to be at the cutting edge of Internet Property Marketing with front page Google search results for key search term “retail for lease”.

Clearpoint utilises several “feeder” blog sites such as retail-space-for-lease.com.au to drive enquiry to property listings on our main website clearpoint.com.au .

To find a tenant for your shop for rent or office space, or create renewed interest in an already vacant shop, call Clearpoint today on 1300 325 327.

New lessor disclosure statements and amendments to retail leasing legislation

Article by Mary Digiglio, Swaab Attorneys

Retail landlords now have new disclosure obligations and also need to be aware of proposed changes under the Retail Leases Amendment Bill (2011).

New disclosure obligations for retail landlords

As from 1 January 2011, a new form of landlord disclosure statement was introduced across the eastern seaboard states. This new form of disclosure statement must now be provided for all retail leases entered into on or after 1 January 2011. It requires landlords to include more detailed information not previously required. A template of the new form of landlord disclosure statement can be downloaded from the website of NSW Fair Trading.

Retail Leases Amendment Bill 2011

On 10 January 2011, the NSW Government released an exposure draft of the Retail Leases Amendment Bill 2011. If enacted in its current form, it would result in a number of significant changes to landlords’ responsibilities in retail lease matters. The Bill is intended to address a number of criticisms of the Retail Leases Act 1994 (NSW) and correct what is perceived as a power imbalance between larger landlords and small retail tenants.

A summary of the key proposed changes is set out below.

Further disclosure requirements for the landlord (s11)

The tenant may require the landlord to provide an updated disclosure statement before the tenant exercises an option for a further term.

Undisclosed outgoings (s12)

The tenant will not be required to contribute to outgoings that are not disclosed in the disclosure statement. This poses a challenge for landlords of new shopping centres, who may not be aware of all of the outgoings likely to be incurred over the life of the lease at the time of issuing the disclosure statement.

Mandatory registration of retail shop lease (s15)

Retail leases of three years or more will be required to be registered on the title of the premises or building in which the premises are located. A summary statement will need to be prepared and included. This is intended to make comparable lease information publicly available to tenants, who will then be able to obtain details of other registered leases.

Claiming on bank guarantees (s16)

The Director General will be entitled to publish guidelines in relation to the claiming on bank guarantees held by the landlord as security for the tenant complying with its obligations under the lease.

Prohibition of passing land tax on to tenants (s26)

To bring NSW in line with the retail provisions in relation to land tax in Victoria and Queensland, the landlord will be prohibited from passing on land tax to the tenant as a recoverable outgoing.

Increased notice period (s33)

The current requirement for the landlord to give the tenant two months’ notice of any alteration or refurbishment that may adversely affect the tenant’s business will be increased to six months.

Relocation of the tenant (s34A)

In the event that the landlord invokes the relocation clause, alternative premises which are offered to the tenant must be of reasonable comparable commercial value to the existing premises leased by the tenant. If the landlord does not offer appropriate premises and the tenant terminates the lease, the tenant is entitled to claim depreciated fit out costs from the landlord as compensation.

Demolition (s35)

The landlord cannot require a tenant to make any repairs or improvements after the landlord has given the tenant a notice of termination on grounds of demolition.

Promotion levy (s56)

The tenant is entitled to a refund of contributions towards shopping centre advertising and promotion that remains unspent at the end of the lease.

Administrative Decisions Tribunal (ADT, s73)

The monetary limit of the ADT will increase to $750,000 (from $400,000).

Summary – Future of the Retail Leases Amendment Bill is currently unclear

The Bill is only in draft form and significant amendments could be made to it before it is enacted. It is also possible that opposition to the Bill will prevent it from being enacted altogether.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.