Governments urged to implement standardised retail tenancies

The Productivity Commission has urged governments to act quickly to implement standardised retail tenancy documents in its draft review of the retailing sector.

The 461-page report acknowledges competitive concerns expressed by the likes of failed book retailer REDGroup, but as with previous inquiries, the Productivity Commission will not intervene.

REDGroup, along with Australian Newsagents' Federation among others, complained of the large gap between rents paid by anchor tenants versus those paid by smaller specialty retailers in shopping centres.

The commission recommends the implementation of national disclosure statement prior to the signing of lease agreements - one of three projects it wants implemented on a national basis.

The national disclosure document, a project being undertaken by National Retail Tenancy Working Group, is designed to provide tenants with important leasing information before contractual obligations are incurred.

To date it has only been implemented in NSW, Victoria and Queensland.

Australian Retailers Association executive director Russell Zimmerman says the organisation supports recommendations for a harmonisation of lease information and nationally consistent model legislation as well as voluntary national code of conduct for shopping centre leases that is enforceable by the ACCC.

However, the ARA is “disappointed there is no further recommendations for third-party reporting of turnovers to avoid abuse of predatory negotiations from landlords nor a national registration of retail leases as suggested in ARA’s submission”.

In their submissions both Westfield and Stockland were critical of the time taken to implement this and other harmonisation projects.

“The various jurisdictions have taken more than two years to agree to the content of a common lessor’s disclosure statement and, so far, only NSW, Victoria and Queensland have agreed to adopt one,” Westfield wrote.

“The agreed disclosure statement which took effect in these states on 1 January 2011 is still deficient because of peculiar state legislative requirements. A single disclosure statement, which can operate in all jurisdictions, must be achieved.”

Stockland wrote that it considered retail tenancy reforms would result in a greater harmonisation of legislation and result in cost efficiencies through the removal of administrative and compliance costs.

“However, Stockland does not consider that the retail tenancy reforms are being implemented in a timely manner. By way of example, a single disclosure statement does not yet operate in all jurisdictions,” the company wrote in its submission.

The comments by Stockland and Westfield were supported by Shopping Centre Council of Australia, which also criticised the lack of timeliness with implementation:

The other two projects being undertaken by the working group are the development of nationally consistent measuring and reporting standards for tenancy enquiries, complaints and dispute resolution; and the development of common terms to be used nationally in reference to retail tenancy leases and the simple meaning of these terms.

The report also recommends a re-examination of outstanding recommendations from its 2008 retail tenancy report. 

These recommendations include: 

• improving, where practicable and cost-effective, education, information and dispute resolution procedures
• moving towards self-regulation rather than continued reliance on government legislation
• removing the more restrictive elements of retail tenancy legislation, including divisions between jurisdictions and the broader market for commercial tenancies, that impede contracting between firms.

Key concerns to emerge from the 123 submissions received from retailers include:

• Significant differences in retail rents in Australia compared with the United States.
• Reporting of turnover data in shopping centres is used to set rents at “excessive” levels.
• Shop fit-out requirements, particularly the inability of retailers to negotiate competitive quotes for the work undertaken.
• Standard lease terms (a provision incorporated in most state and territory legislation in a bid to improve security of tenure for tenants) that are normally of five years duration, do not provide sufficient security and are insufficient to amortise capital costs.
• Limited negotiating power of retail tenants in shopping centres at the time ofrenegotiating a lease.
• Landlords who exploit their superior bargaining power when a lease expires by seeking “excessive” rent increases
• Retailers’ lack of security of tenure during "lease hold over" periods
• Lack of publicly available information relating to shopping centre rents