Understanding Retail Leases in NSW

A retail lease is a contract between a landlord, who usually owns the property, and a tenant, who has the right to occupy the property and sell goods or provide retail services. The term ‘retail’ implies a sale to the public and excludes wholesale transactions. This article covers the important aspects of a Retail Lease that landlords and tenants should be aware of.

Types of retail leases

In New South Wales, retail leases are governed by the Retail Leases Act 1994 (NSW) (‘the Act’). Subject to certain special exclusions, the Act applies to two essential types of retail leases.

The first type is when a tenant rents a premises to run a business prescribed the Act and its regulations. You can check Schedule 1 of the Act to confirm whether your business is covered. Examples include books and toy shops, barbers and art galleries.

The second type is when a tenant rents a premises in a retail shopping centre (for whatever business unless excluded by the Act).

Documents that must be provided before signing a retail lease

Before any retail lease is signed, the landlord must share three documents with the tenant:

a completed lessor’s disclosure statement;

a draft copy of the Lease; and

a copy of the NSW Retail Tenancy Guide.

Lessor’s disclosure statement

The purpose of a lessor’s disclosure statement is to enhance transparency between the landlord (also known as a lessor) and the tenant (also known as a lessee), and reduce the risk of dispute in the future. Under the Act, the landlord is required to answer all questions in this document and pass it to the tenant at least seven days before the Lease begins. Inside, there are important information about the shop, the Lease, estimates of outgoings and the tenant’s financial obligations.

The Lease

Below are the key aspects that you should be familiar with:

‘Term’ is another word for length of the Lease with the start and end dates. The Act will only apply to your shop if the term is between 6 months and 25 years.

‘Rent’ is a key term in a Lease. When the Lease is signed, the tenant agrees to pay the rent for the full term of the Lease. If the tenant is late with rent, the landlord has the right to take possession of the shop and lock the tenant out.

‘Outgoing’s are expenses related to the shop that the tenant has agreed to pay on top of the rent. They include council rates, water rates, land tax and public liability insurance.

A ‘bond’ is a fixed amount of money given to the landlord at the beginning of the Lease. It is financial security for the landlord if the tenant fails to meet its lease obligation.

Costs for preparing a Lease

Under the Act, the landlord is responsible for the cost of drafting the lease and the mortgagee consent fee (if any). On the other hand, the tenant would need to pay their own legal costs for reviewing the lease and usually the costs of registering it. If the term of the Lease is 3 years or more, it must be registered at the NSW Land Registry.

Dispute resolution

If one side failed to meet its lease obligation such as failure to pay rent or failure to return the bond, the other side can try mediation or seek orders from the NSW Civil and Administrative Appeals Tribunal (NCAT).

Conclusion

Leases and lessor’s disclosure statements should be carefully reviewed before signing. Before you sign a lease, revisit your business plan and make sure it is realistic and covers all contingencies. You should also consult our experienced legal team before you sign the lease, which may save you a lot of time and money in the long-term.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Common pitfalls in a commercial lease

A commercial lease is a contract between a landlord and a tenant, who has the right to occupy the property like an office or a warehouse. Commercial leases differ from retail leases because they have different regulatory frameworks. Unlike retail leases, commercial leases are not as tightly regulated which means that parties of a commercial leases have more flexibility to negotiate terms. The legal jargon used in commercial leases can be difficult to understand and there are a few terms that often trigger disputes between landlords and tenants. This article will cover clauses on option to renew, rent review and repair and maintenance.

Option to renew

After you determine the term of the lease, the starting date and the terminating date, you may want to consider the ‘option to renew’ clause. The option is the tenant’s right to demand another fixed term of the lease on the same terms as the existing lease (except for the rent and duration). For example, a five-year lease may have a five-year option, making the total duration ten years if the tenant chooses to exercise the option.

Without an option to renew, the landlord has two options at the end of the term: either offer the premises to the same tenant on different terms and conditions or offer the premises to a different tenant.

It is often in the interests of both parties to include this term if they want to maintain a long-term commercial relationship. The landlord will have more financial security and a more valuable property. Conversely, the tenant benefits from building a strong reputation and goodwill by maintaining the same location for their business.

If an option to renew clause is inserted, the duration of the new terms should be sufficiently long and the preconditions of an option for renewal should be clearly outlined. Examples of preconditions include: ‘that the tenant must have punctually paid rent throughout the lease term’, and ‘that there is no subsisting breach of any lease covenants by the tenant at the date of serving notice of exercise of the option’.

Rent review

The next term that all landlords and tenants should consider is the rent review clause. There are various ways to review rent such as by a fixed percentage, by movements in the Consumer Price Index (CPI) and by market rent. Landlords and tenants should be aware of any ‘ratchet’ clause in the lease as it can give rise to considerable problems in lease drafting and litigation. A ratchet clause prevents the rent to reduce after market rent review. Hence, inserting a ratchet clause is in the landlord’s interest.

Repairs and maintenance

Clauses pertaining to repairs and maintenance are often disputed because parties do not clearly specify who is responsible for repairing or maintaining certain items in the premises. The exact obligations for repairs will usually differ with each lease. Generally, if the damage to the property is beyond fair wear and tear, the tenant has the responsibility pay for the cost of repairs. A large hole in the wall is an example of beyond fair wear and tear. The landlord is normally responsible for repairing the roof, the ceiling, the external walls and the floors of the property.

Conclusion

Therefore, landlords and tenants need to be alert to certain terms in a commercial lease otherwise costly disputes can arise. If you want to enter into a commercial lease, get in touch with our experienced legal team so that we can review your lease and protect your interests.

Legal Protections for off-the-plan property purchasers – Sunset Clause

We note that the NSW Government passed the Conveyancing Amendment (Sunset Clauses) Act 2015 on 17 November 2015 and that this act grants further protections for off the plan purchasers.

This act is now found in Division 10 of the Conveyancing Act 1919 and is titled, ‘off-the-plan contracts’. Division 10 of this act raises apprehension about the fact that some developers use the ‘sunset clause’ in order to terminate an off-the-plan contract and thereby gain financial benefits from such termination. As addressed in the government bill, some are concerned that developers take advantage of the sunset clause by intentionally delaying a building project. When this occurs, essentially, the purchaser receives their deposit back but will not be able to recover their legal fees; this may leave them out of pocket and unable to purchase a replacement property.

The purpose of an off-the-plan contract is to sell vacant land or strata property before it is actually built. Therefore, these contracts do not allocate separate titles at the time they are entered into but rather, on completion of the building; lots will be identified for each prospective purchaser. Off-the-plan contracts are conditional contracts and must ensure there is a clause catering to a scenario where for whatever reason, the development does not reach completion. The clause delivering such protection is referred to as the ‘sunset clause’.

The sunset clause provides for rescission of the contract if the lot has not been completed and built by the sunset date as per the contract. The sunset date is the last date on which the lot can be completed and have its own title allocated to it. The sunset clause will allow either party to rescind the contract if the development is not completed within the final contract date.

As we have noted above, Division 10 of the Conveyancing Act 1919 inhibits developers from unfairly calling of the off the plan contracts for residential property. Residential property has the same meaning within the act and covers, a parcel of land (less than 2.5 hectares) on which no more than two dwellings exist (or are undergoing construction), vacant land on which construction of one place of residence is not prohibited by law, a lot or lots (including proposed and not yet developed lots) and a lot or more than one lot (including proposed lots once again) under the strata schemes development legislation intended to be utilized as a single place of residence.

Under the new protective laws, vendors intending to rescind an off-the-plan contract must give each purchaser, being a party to that contract, 28 days written notice prior to rescinding the contract and thereby exercising the sunset clause. The notice is required to outline why the vendor wishes to rescind and the notice must also give reasons for the delay.

In order for the vendor to successfully rescind under a sunset clause, we note that the lot must have not yet been created and the vendor can only rescind if the purchasers give written consent to the vendor’s rescission, or the rescission is permitted by reason of regulations (this is yet to be seen as no regulations have been developed) or the vendor obtains an order from the Supreme Court allowing the rescission.

Whether or not the Supreme Court will be inclined to allow the vendor to rescind the contract depends on a variety of considerations. These considerations include but are not limited to:

  • Terms of the Contract;
  • Whether or not the vendor has acted unreasonably or in bad faith;
  • The reasons for the delay;
  • Whether the lot subject to the contract under proposed rescission has increased in value;
  • Any other matter the court considers as being relevant.

As a general rule, the vendor will be liable to pay the purchaser’s costs of any application made to the Supreme Court, unless there is evidence to show that the purchaser was unreasonable in refusing to consent to the rescission.

We note, the above new laws and protective provisions apply to any proposed rescissions taking place on or after 2 November 2015.

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Vendor Statement and Breach of Section 32 of the Sale of Land

Here, at Legal Point Lawyers & Attorneys, we place great emphasis on conducting a thorough conveyancing process from beginning to end, whether we are acting for the vendor or purchaser whether located within or outside New South Wales.

Taking an example from Victoria, we focus on Section 32 of the Sale of Land Act that has received recognition Australia wide. Section 32 of the Sale of Land Act requires the vendor to provide a ‘vendor statement’ disclosing particular items of information in relation to the property they are selling. This in turn protects the purchaser from any unforeseen surprises in relation to their purchase.

Many cases now refer to Section 32 of the Sale of Land Act and a case of great relevance to this section is that of Nicolacopoulos v Khoury [2010] VCC 1576.

In this case, the conveyancer for the vendor, in preparing a ‘vendor’s statement’ failed to attach to it an Owners Corporation Certificate issued per Section 151 of the Owners Corporations Act 2006. The reason for this being that the conveyancer was of the opinion that the property was not affected by an owners corporation as they believed that there was no common property. This view was formed in reference to the fact that the subdivision was divided by separate road access. However, the property was on a subdivided plan and the Court found it to be affected by the Owners Corporation. Accordingly, per Section 32(5) of the Sale of Land Act, failure to attach the Owners Corporation Certificate allowed the purchaser to rescind the contract pursuant to Section 32(5). There was found to be a breach of Section 32(3A) and a right to rescind following from such breach, once again, per Section 32(5).

The vendor, in rebuttal, argued that Section 32(7) was to apply. In order for the vendor to argue this, effectively, the vendor had to prove that;

  • That the vendor had acted “reasonably” and
  • That the purchaser was “substantially in as good a position as if all the relevant provisions had been complied with”.

The first issue being point (a), raised the question whether or not the vendor was liable in relation to statements within the vendor statement. This issue has been subject to great debate over the years. Cases such as Payne v Morrison [1991] V ConvR 54-428 held the vendor to be vicariously liable for negligent conduct of their lawyer or conveyancer. One the reverse side, Paterson v Batrouney [2000] VSC 313 held that vicarious liability would not apply; rather the court held that personal liability was attributable.

There have been other cases addressing the issue without coming to a decisive view on the matter. Similarly in this case, the judge found that vicarious liability was not of issue and accordingly did not need to form an opinion. Instead, the judge found the vendor liable for personal negligence. The case turned here as the vendor should have been aware of the owners corporation and therefore should have disclosed so to the purchaser. The outcome in this case may differ to other cases as in determining vendor liability as courts consider what the vendor ought to have reasonably known and thus disclosed to the purchaser. It appears as though, if a fact or feature is so plain, fundamental or obvious to the vendor, there is no reason for failing to provide adequate disclosure, even if the error was made by the vendor’s representative, whomever that may be.

The second issue being point (b) addresses the effect of a vendor breaching the disclosure requirements and ultimately considers where it leaves the purchaser. Here the vendor argued that no misrepresentations were made under the ‘vendor statement’ and that the purchaser had not been affected adversely in any way. However, lawyers acting for the purchaser argued that the purchaser was interested in the property because the sale brochure stated, “say good-bye to the body corporate”. At the time of the proceedings, the purchaser had owned a strata property (subject to an owners corporation) and the purchaser did not want her new property to be also subject to an owners corporation. The vendor argued that the purchaser liked the brochure as a whole and that it would not have made a difference to the purchaser.

The vendor also argued that the owners corporation was dormant or inactive. The vendor gave evidence to the effect that the owners corporation had never convened meetings and that it had not issued any levies. However, the court was quick to dismiss this argument and held that just because the owners corporation had been inactive, that did not give sufficient rise to the assumption that it would never be active in the future. The owners corporation was held to be in existence.

Upon considering all the evidence, the Court held that if all the required information had been included as required by Sub-section 3(A) in the Vendor Statement, then there was a strong possibility that the purchaser would have not purchased the property. Accordingly, in this case the purchaser was able to establish that the breach occurred under Sub-section 3A.

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Building Quality Defects in Off-the-Plan Purchase

The quality defects issue appears more often in an off-the-plan purchase.

A central issue surrounding quality defects is one where the purchaser is unhappy with the final product as built by the developer. Generally, the purchaser envisions the development to turn out as commercially advertised, but in reality, the development may not live up to its lavish advertising.

Reasons for difference in final product vs product as advertising

On the one hand, the purchaser is attracted to advertising surrounding the development and the lifestyle associated with buying into such a development. Conversely, the developer is busy working on a structured blueprint design of the building and is also working towards a strict budget. Therefore, often there is a discrepancy between what the purchaser envisioned and what the developer was able to provide.

How the developer may deal with the purchaser’s disappointment in regards to the final product of development.

In their contracts for sale, developers often insert an ‘entire contract’ special condition. This special condition operates to protect the developers from unreasonable purchaser expectations. The ‘entire contract’ condition does this by noting that any marketing tools surrounding the development may not exactly reflect the final product.

Nifsan Developments P/L v Buskey

In Nifsan Developments P/L v Buskey [2011] QSC 314, the purchaser addressed the marketing publications and stated that although the developer asked for payment to be made by the following week, the finished product was nothing like what the purchaser expected it to be. The developer had promised panoramic views but did not deliver. Another complaint of the purchaser was in relation to the size of the development being smaller than agreed. Here, the court acknowledged the ‘entire contract’ special condition but noted that it may not always be effective in protecting the developer. One can imagine a reason for this is that the ‘entire contract’ condition is overreaching and can potentially operate to protect the developer even where the developer’s final product has deterred greatly from the original advertised development.

A key issue with final developments: The actual size of the building

This is one of the key disappointments that purchaser’s face. Often, the final development built is much smaller than what the purchaser had originally agreed to. However, this can be as a result of architectural and structural issues arising during the construction process. It is to be noted that there are approximately three methods of measuring the area of a building. Usually, the developer opts to measure the area of a building according to the ‘external walls’ method. The purchaser will opt to utilize the ‘internal walls’ method, allowing for more space. Lastly, the purchaser’s financier will adopt the ‘minimalist’ method, which centres around useable space.

Birch v Robek Aust

In Birch v Robek Aust P/L [2014] VCC 68 the purchaser successfully avoided a contract where the building was much smaller than originally anticipated. In this case, the vendors were engaged in trade and commerce, therefore, the Australian Consumer Law was applicable. The Australian Consumer Law provides the purchaser with a list of rights reaching far beyond any rights under common law. In this case, the court applied the Australian Consumer Law and held that the architectural plans (with dimensions of the apartment) entitled the purchaser to expect that the final development would be reflective of those exact plans.

When calculating dimensions, it was shown that in one method, there was a deficiency of 16%, on another the deficiency was at 12% and on the developer’s calculation, there was a deficiency of only 2%. The court considered that the discrepancy exceeded 5% and thus applied the principle founded in Flight v Booth (1834) 131 ER 1160 in order to reach a decision favourable to the purchaser.

It was also noted by the court that the developer may have intended the measurements shown on the plans to be external, whereas the purchaser may have expected them to be internal dimensions. Nevertheless, the court concluded that intention as to external and internal dimensions was irrelevant in this case, as the end product, with its dimensions, was substantially less than what the plans had shown.

It is important to note that sometimes courts may hold opposing views on the issue of dimension measurement. For example, in the case of Sivakriskul v Vynotes P/L [1996] VicSC 479, the court denied the purchaser’s claim and decided to apply the ‘external walls’ method (utilized by the developer). We note that this case has not received acclaim by other courts and is yet to be cited. In coming to its decision, we also note that here, the court may have taken other factors into account and the circumstances of this case may have been very different from the cases discussed above.

Conclusion:

When purchasing a new off the plan development, it is important for purchasers to research the proposed developer, their company, and any buildings previously constructed by that same developer. It may be helpful to clarify the method by which dimensions are to be measured. Lastly, purchasers would be wise to keep in mind that often, advertisements are created to generate interest and that although the foundational elements of development should be present; some final products may not truly and wholly reflect the advertised product.

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Land Tax Policies in NSW

If you own land in New South Wales and the value is above the land tax threshold, you may have to pay land tax unless you are exempt.

One main exemption is called the Principal Place of Residence (‘PPR’) exemption. Each family can only claim the PPR exemption for one property and the land should generally be used for residential purposes.

You need to continuously use and occupy the land as your PPR from 1 July to 31 December before the relevant tax year. In the case of joint owners, then at least one person needs to satisfy the requirement. The question of whether the land was continuously used and occupied is assessed objectively. That means, although your intention to live in the property is relevant, it will be considered against the actual number of nights you spent living in the property.

For people who spend a lot of their time overseas for work or other reasons, it is likely that if you spend more time in the overseas property then the Australian property will not be considered to be your PPR. You might allow your family to use the property, but to claim the exemption your family member should be a joint owner of the property.

There are many concessions for the requirement to use and occupy the land as your PPR. For example, if you live in your property continuously for at least six months and then leave, you can claim the PPR exemption for up to six years. However if you own or occupy another place of residence in those six years, then the concession will not apply.

If you disagree with the land tax assessment, you may submit an objection to the Chief Commissioner of State Revenue. There are also options for further review.

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

An Introduction to the First Home Buyers Policies

First Home Buyer Assistance Scheme (FHBA) and First Home Owners Grant (FHOG) are the current national schemes introduced by the government to benefit the first home buyers. It is funded by the States and Territories and administered under their own legislations.

First Home Buyer Assistance Scheme (FHBA)

This scheme provides an exemption or concession on stamp duty. An exemption from transfer stamp duty for eligible first home buyers purchasing a new home or existing home valued up to $650,000 and vacant land up to $350,000. Concessions are available on stamp duty for homes valued between $650,000 and $800,000 and vacant land valued between $350,000 and $450,000.

To be eligible for the Scheme, a home buyer (applicant) must satisfy the following requirements:

  • The Contract for sale of land is entered into after 1 July 2017
  • The applicant is an individual over 18 years old
  • The applicant and the spouse (including de facto spouse) have never owned any residential property in Australia
  • At least one applicant is an Australian citizen or permanent resident
  • At least one applicant will move in within 12 months after settlement for a consecutive period of 6 months

First Home Owners Grant (FHOG)

This scheme provides a one-off grant payable to the eligible first home owners. The amount of subsidy on stamp duty and the grant varies in each State and Territories. In NSW, the grant amount has been revised to $10,000 if the transactions was made on or after 1 July 2017.

To qualify, the purchase price of your new home must be no more than $600,000. If you’re buying land to build a new home, the total price – including the land and home – must be no more than $750,000.

To be eligible for the Scheme, a home buyer (applicant) must satisfy the following requirements:

  • The home is a new home (including renovated home)
    • which has not been previously occupied – this includes occupation by the builder, a tenant or other occupant; and
    • which has never been sold as a place of residence and it must be the first sale of that home; or
    • which has been substantially renovated or the home has been built to replace a demolished premises
  • The applicant is an individual over 18 years old
  • The applicant and the spouse (including de facto spouse) have never owned any residential property in Australia prior to 1 July 2000
  • At least one applicant is an Australian citizen or permanent resident
  • At least one applicant will move in within 12 months after settlement or completion for a consecutive period of 6 months

However, an applicant may be eligible if he/she or his/her spouse, including de facto spouse, have owned any residential property in Australia on or after 1 July 2000 and the applicant has not resided in that property for a continuous period of at least 6 months.

If application is made through the applicant’s financial institution, the grant will be made available for settlement or for the first draw down on contract to build. If application is made after completion, it must be made within 12 months of completion. It is an offence to apply for the Scheme if the applicant is not an eligible person.

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Who is Liable to Pay Vacancy Fees

What is a Vacancy Fee?

A Vacancy fee is an annual fee which must be paid by certain ‘foreign’ owners of real residential property in Australia if the property that they own is unoccupied for more than half of the year (183 days). The purpose of this fee is to discourage holding empty properties and improve access to housing for native Australians. This fee is administered by the Australian Tax Office (ATO). All foreign owners of residential dwellings are required to file a ‘Vacancy Fee Return’ so that the ATO can assess whether a Vacancy Fee needs to be paid.

Who is liable to pay vacancy fees?

Anyone liable to pay a Vacancy Fee must have all of the following characteristics:

  • They are a‘Foreign’ owner: A person who is not an Australian citizen and is not ordinarily resident in Australia (i.e., who has not stayed in Australia for 200 days out of the last year), who is
  • The owner of Residential property, which
  • Is not occupied or genuinely available on the market for at least 183 days out of the year, and who
  • Applied for FIRB (Foreign Investment Review Board) approval in buying the property.

Those to whom the Vacancy Fees apply will have received notice from the ATO with their FIRB approval.

Note that the criteria do not include people who did not have to apply for FIRB approval. As permanent residents typically do not have to apply for FIRB approval, someone who is a permanent resident at the time of purchase of their property, and thus who did not need to seek FIRB approval, is typically not required to pay Vacancy Fees or lodge Vacancy Fee Returns.

How to file a Vacancy Fee return?

All foreign owners of residential property who applied for FIRB approval in purchasing the property are required to file a Vacancy Fee Return annually. The Vacancy Fee Return is a document which records the details of the property and helps the ATO decide whether a Vacancy Fee is payable.

All foreign owners of residential property need to file this return regardless of whether the property is occupied for 183 days out of the year. If the ATO determines that no vacancy fee is payable based on the Vacancy Fee Return, no amount will be required.

The electronic form for the Vacancy Fee Return is available at: https://www.ato.gov.au/FIRBvacancyfee/

Filling out the form requires information provided in an email reminder to pay the Vacancy Fee, which the ATO sends to the email in the FIRB application.

The Return must be filed within 30 days after the end of every 12 month period you own it. The time when you own it is the time from which you gained the right to occupy the property- usually, the completion date.If you complete a property purchase on 1 Jan, you have to file a Vacancy Fee Return by 30 Jan every year. Friendly reminder to all foreign owners of property- keep an eye on the anniversary of your purchase, and remember to file the return every year! Late payments may result in fines or interest payments.

After lodgement of the Vacancy fee return, you will see a confirmation page containing reference details, any amount you need to pay and how to pay. The amount of payment and the payment due date will also be contained within an email sent in response to lodgement .

Are there any exceptions to paying a Vacancy Fee?

Even if one is a person who has to file a Vacancy Fee Return, there may be an exception to paying the Vacancy Fee if the property was unable to be occupied. If you meet the following conditions or similar, you may be able to waive the Vacancy Fee, but you will still need to file a Vacancy Fee Return to claim this exception, along with supporting evidence.

Criteria for exemptions due to unsuitability for occupation include:

  • the dwelling is damaged, unsafe or is otherwise unsuitable to be occupied as a residence
  • the dwelling is undergoing substantial repairs or renovations
  • occupation of the dwelling as a residence is prohibited or legally restricted, by an order of a court or tribunal or a law of the Commonwealth, state or territory; or
  • a person (who may or may not be the foreign person) who ordinarily occupies the dwelling was absent from the dwelling due to receiving long-term, in-patient, medical or residential care.

FURTHER INFORMATION:

For more information, please visit https://www.ato.gov.au/General/Foreign-investment-in-Australia/Annual-vacancy-fee/#Vacancyfeeexemptions

 

Please contact our firm for advice specific to your circumstances.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.