The disclosure statement is late. That is not a paperwork problem.
Under the Retail Leases Act 1994 (NSW) the lessor's disclosure statement has to be given at least seven days before the lease is entered into, and an outgoing it leaves out is generally not recoverable. This is how that works from each side of the lease.
In short
- A landlord must give a prospective retail tenant a lessor's disclosure statement at least seven days before the lease is entered into, and the tenant returns a lessee's disclosure statement within seven days of receiving it.
- An outgoing whose liability was not disclosed in that statement is generally not recoverable from the tenant, whatever the lease says. A general outgoings clause is not disclosure.
- Land tax can be passed on to a retail tenant in New South Wales, but only up to what it would have been assessed at on a single-holding basis, not the landlord's actual portfolio assessment.
- Where disclosure was missing, incomplete or materially misleading, the tenant may terminate within six months after the lease was entered into. The right is lost by delay.
- The five-year minimum term the Act once imposed was removed with effect from 1 July 2017, so a precedent still offering a section 16 certificate is out of date.
A retail lease in New South Wales begins with a document that is not the lease. Before the parties are bound, the landlord must give the prospective tenant a lessor's disclosure statement — a prescribed form setting out what is being let, on what terms, and what it will cost to occupy. We act for landlords and for tenants on retail premises, though never for both parties to the same lease.
What the statement is for
The disclosure statement is made under the Retail Leases Act 1994 (NSW) and follows a prescribed form. It tells the tenant what decides whether the tenancy is viable at all: the premises and their lettable area, the term and any option, the rent and how it is reviewed, each outgoing the tenant contributes to and an estimate of it, the permitted use, fit-out obligations and centre matters. The Act attaches consequences to what the statement says and to what it leaves out, and those consequences survive signing.
When it has to be given
The statement must be given at least seven days before the lease is entered into, and the tenant returns a lessee's disclosure statement within seven days of receiving it. The consequences of being late attach to the date, not to the quality of the document, so keep proof of when the statement was given and how.
An outgoing that was not disclosed
This is the provision that quietly costs landlords real money. Where the liability to pay an outgoing was not disclosed in the disclosure statement, the tenant is generally not liable to contribute to it, and a clause in the lease making the tenant liable does not repair the omission. The tenant priced the tenancy off the statement, so the statement sets the ceiling.
A generic outgoings clause is not disclosure; each outgoing has to appear, with an estimate. And the loss compounds — an outgoing left off a statement on a five-year term is not one missed recovery but every year of the term, usually found by an incoming purchaser's solicitor.
The estimate matters as much as the line item: where the actual outgoing exceeds the estimate given, and there was no reasonable basis for that estimate when the statement was given, the tenant's liability is generally worked out on the estimate rather than on the actual figure.
Landlord: reconcile the outgoings clause against the disclosure statement line by line before exchange. Re-issuing disclosure is cheaper than arguing about it in year three.
Tenant: read each reconciliation against the statement you were given, not against the lease. A charge that never appeared in the statement is worth asking about.
Land tax, and the number it is capped at
In New South Wales land tax can be passed through to a retail tenant, but the Act caps it. A lease requiring the tenant to contribute to land tax is treated as including a limit: the tenant's liability is not to exceed what the landlord's land tax would have been had the land concerned been the only land the landlord owned, not subject to a special trust, and with the landlord not classified as a non-concessional company.
That single-holding figure is materially smaller than the assessment that actually arrives, so a landlord billing land tax at portfolio rates is over-recovering, and a tenant paying the figure on the landlord's assessment notice is very likely paying too much. Land tax is also an outgoing, so it has to be disclosed before any of it is recoverable.
The five-year minimum term is history
The Act once imposed a five-year minimum term on retail shop leases, waivable only by a prescribed certificate from a lawyer or conveyancer. That requirement was removed by amendment with effect from 1 July 2017. It survives in old precedents, so a draft that offers you a section 16 certificate is telling you how old it is. Leases entered into before the change can still be affected by the former provisions.
Is it a retail shop at all?
All of this turns on the Act applying, which is not something the parties choose. A lease headed “commercial lease” is a retail shop lease if the premises are one. The test looks to the use of the premises, the list of prescribed retail businesses, and whether the premises sit in a retail shopping centre, with exclusions including lettable area. Premises in a centre are commonly caught even where the use looks like an office; premises that fall outside are a commercial lease problem instead. Settle it before the lease is drawn: the answer changes disclosure, recovery, rent review and forum.
| Landlord | Tenant | |
|---|---|---|
| Timing | Start it with the heads of agreement; record date and method of service. | Note when it arrived, and whether it came with the lease. |
| Outgoings | List each one, with an estimate you can justify. | Check charges against the statement, not the lease. |
| Land tax | Recoverable to the single-holding figure, and only if disclosed. | Payable, capped. Ask which assessment it came from. |
| Defective disclosure | Re-issuing early beats arguing later. | Terminate within six months of entry, or not at all. |
Where disclosure has already gone wrong
Where no disclosure statement was given, or the statement given was incomplete or contained information that was materially false or misleading, the tenant may terminate the lease by notice in writing — but only within six months after the lease was entered into. A tenant relying on defective disclosure has to act, not wait to see how trade goes. A landlord facing the point needs three facts: when the lease was entered into, when the statement was given, and what it said.
A retail tenancy dispute is ordinarily referred for mediation before it can be heard by the NSW Civil and Administrative Tribunal, which changes the cost and the tactics. On a retail lease being drawn or reviewed, the disclosure statement is the document to get right first, and where we start on a retail tenancy.
Questions we get about disclosure.
We were handed the disclosure statement with the lease at signing. Does that matter?
It can matter a great deal. The Retail Leases Act 1994 (NSW) requires the lessor's disclosure statement to be given at least seven days before the lease is entered into, and a tenant's remedies for late or missing disclosure attach to that timing rather than to the content of the document. Both sides should establish the actual dates, and how the statement was delivered, before anyone takes a position on it.
An outgoing was never disclosed. Do we have to pay it?
Generally not. Where the liability to pay an outgoing was not disclosed in the lessor's disclosure statement, the tenant is usually not liable to contribute to it, and a clause in the lease imposing liability does not cure the omission. Amounts already paid can generally be recovered back. For a landlord this is the most common way money is lost on an otherwise sound retail lease, because it repeats every year of the term rather than once.
Can land tax be passed on to a retail tenant?
In New South Wales, yes, but only up to a capped figure. A retail shop lease that recovers land tax is treated as limiting the tenant's liability to what the landlord's land tax would have been if the land concerned were the landlord's only land, without a special trust and without non-concessional company status. A landlord billing its actual portfolio assessment is over-recovering. Land tax is also an outgoing, so it has to be disclosed before any of it is recoverable.
Our lease is headed “commercial lease”. Are we outside the Retail Leases Act?
Not necessarily. Whether the Act applies turns on the use of the premises and the list of prescribed retail businesses, and on whether the premises sit in a retail shopping centre — not on what the parties called the document. Premises in a centre are commonly caught even where the use looks like an office, and the answer changes disclosure, what can be recovered, and how rent may be reviewed.
Tell us what's happened.
Tell us which side of the lease you are on, when the disclosure statement was given and what it said — and we will tell you where that leaves you.
Information on this site is general in nature and is not legal advice, and may have been overtaken by a change in the law. Contacting us does not create a solicitor–client relationship.