When entering into a commercial arrangement, particularly in the realm of retail leases, both landlords and tenants must be well-informed about their rights and responsibilities. In New South Wales (NSW), the Retail Leases Act 1994 governs these agreements, setting out various requirements to ensure transparency and fairness. One of the pivotal elements of this act is the disclosure statement, a document designed to provide vital information to prospective tenants before they commit to a lease.
What is a Disclosure Statement?
A disclosure statement is a document mandated by the Retail Leases Act 1994 (NSW) that must be provided by the landlord to the tenant before the lease is signed. This document is intended to give tenants essential information about the lease terms, the property, and any other pertinent details that could impact their decision to enter into the lease.
Contents of a Disclosure Statement
The Retail Leases Act specifies the information that must be included in a disclosure statement. Landlords are required to provide:
- The names and addresses of both the landlord and tenant.
- A description of the premises, which should include its location and details about its current condition.
- The term of the lease, including any options to renew and the total potential duration of the lease.
- Details of any rent payable, including how it's calculated and any rent reviews that may occur during the lease term.
- Outgoings that the tenant will be responsible for, such as council rates, water rates, and other costs.
- Details of any refurbishment or fit-out requirements that the tenant must undertake.
- Any other amounts payable by the tenant, such as contributions to the landlord's costs.
- Disclosures in relation to exclusivity, potential works at the property or in the future.
Importance of the Disclosure Statement
The disclosure statement is not just a formality; it plays a crucial role in ensuring transparency and fairness in commercial leasing arrangements. Here's why it's so important:
- Informed Decision-Making: The disclosure statement empowers tenants to make informed decisions about whether to proceed with the lease. By providing all the necessary details upfront, tenants can better understand their obligations and the costs associated with the lease.
- Preventing Disputes: Clear communication at the outset can help prevent misunderstandings and disputes later on. When both parties have a shared understanding of the terms and conditions, it reduces the likelihood of disagreements down the line.
- Legal Requirement: Failure to provide a disclosure statement as required by the Retail Leases Act can have serious consequences for landlords. It may give tenants the right to terminate the lease within a certain timeframe or seek compensation for losses incurred due to inadequate disclosure.
- Protecting Vulnerable Parties: In many cases, tenants in retail leasing arrangements may be small businesses or individuals without extensive legal knowledge. The disclosure statement serves as a protective measure, ensuring they have the information they need to protect their interests.
Tenant's Rights and Obligations
Tenants should carefully review the disclosure statement and seek legal advice if needed before signing the lease. They have the right to receive this document at least seven days before entering into the lease. If the landlord fails to provide the disclosure statement, the tenant may have the right to terminate the lease within the first six months.
It's also essential for tenants to understand their obligations regarding the disclosure statement. They must complete and return the acknowledgment of receipt section within seven days of receiving the statement. Failure to do so could have implications for their rights under the lease.
Representations in the Disclosure Statement
Tenant’s can claim compensation from a landlord for misrepresentations made before entering into a lease. For this reason, landlord’s are required to fill out the disclosure statement properly and by not including relevant information the landlord can leave themselves open to compensation claims. In Armstrong Jones Management Pty Ltd v Sales-Bond & Associates Pty Ltd (RLD) [2007] NSWADTAP 47 (Armstrong), the Tribunal said the following on the landlord’s obligation in the disclosure statement:
“…lessors should actively set out in their disclosure statement the representations which they have made in the course of negotiations and perceive as going to material matters. So far as the lessor is concerned, it is self-evident we think that any representation as to the identity of a major anchor tenant, however conditionally expressed, is of major importance to prospective small tenants. It is not sufficient, we think, for lessors simply to use the blank space under the heading ‘details of agreements and representations’ to list the agreements they have procured which favour them, and ignore the representations they made to secure the deal (as occurred here). It is not fair to leave it entirely up to the lessee to identify the representations that have been made.”
One aspect of the tenant’s obligations is that the lessee must fill and sign their own disclosure statement in return. In this disclosure is a representation made by the lessee as to whether they have relied upon any statements or representations made by the lessor. In particular, this part should be filled out if any representations have been made in relation to exclusivity of the use of the premises within the shop or retail shopping centre or competing uses or any other important matter relied upon by the lessee.
It's important that a tenant fill this out if the landlord’s agent or the landlord or their authorised representative, have made representations as to the shop, any works, or competing uses. Failure to include the representations that a lessee has relied upon in entering the lease can result in the lessee from being estoppel that they have relied upon a pre-lease representation that the lessor knew was false or ought to have known was false or misleading from claiming compensation from the lessor.
Also in Armstrong, the Tribunal held that the disclosure process is "...designed to implant firmly in the minds of the parties the importance of transparency as to all matters of significance to each party" and "...lessees should see the disclosure system regime as providing the place in which to record all material representation that induced them to enter the contract".
Failure to include a representation that was important can be detrimental to a tenant claiming compensation but is not necessarily fatal. Armstrong also held: “…a lessee can be forgiven for not noting down all relevant representations in the lessee disclosure statement. The failure to live up to a representation may only become apparent on entry into occupation. A lessee should not be barred by an omission at the disclosure statement stage from taking action on a pre-lease representation that was important but not included in the disclosure statement. But we accept that at some point an estoppel may arise.”
Conclusion
In the complex world of commercial leasing, the disclosure statement is an incredibly important but often overlooked document in the preparation of a retail lease. Its goal is to provide transparency. It ensures that both landlords and tenants are on the same page regarding the terms of the lease, protecting the interests of all parties involved. For tenants, it's a valuable tool for making informed decisions for protecting their interests and setting out the statements that the lessee has relied upon in entering into the lease. For landlords, it's a legal requirement that must be fulfilled to avoid potential disputes and it is important to properly set out all matters in which the lessor is required to make disclosure.
By understanding the significance of the disclosure statement under the Retail Leases Act 1994 (NSW), both parties can enter into lease agreements with confidence and clarity and potentially avoid or limit their liability in respect of statements or representations made.
Need help with your next lease review or drafting? Get in touch with our Business Law team today (02) 6331 2911.
Andrew Kelly | Director