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Commercial Landlords and Tenants: Renegotiating your lease in a pandemic

August 6th, 2020

At Miller Harris, we know that local businesses are feeling the impact of COVID-19.  The Commonwealth government previously announced a “code of conduct” to allow business tenants to negotiate rent relief with their landlords during the pandemic.   That code of conduct did not have any legal force, but after a considerable delay, the Queensland government passed regulations to put it into effect.

There are some myths going around about what rights tenants and landlords have in the pandemic.  In particular, there is no automatic right to a 50% rent discount.  Read on to find out how the system works.

If a tenant requests renegotiation of the rent or conditions under the lease, parties must enter into negotiations provided that:

  1. the tenant has an annual turnover of less than $50 million, or is not-for-profit; and
  2. the tenant is eligible for the JobKeeper scheme.

The landlord and tenant must share enough information with each other to enable them to negotiate in a fair and transparent way.  During the negotiations, both the landlord and tenant must cooperate and act reasonably and in good faith. At the end of the negotiations, the landlord is obliged to make an offer to the tenant.  If agreement cannot be reached, or a party does not negotiate, the matter can be referred to the Small Business Ombudsman.

For affected tenants:

  • Start the renegotiation process.
  • Do not simply stop paying your rent or expect your landlord to stop charging rent.
  • Get your business records in order so that you can demonstrate the impact of the COVID-19 measures on your business.

For affected landlords:

  • Do not increase the rent payable before 1 October 2020.
  • Be cautious about taking action against a tenant for failure to pay rent during this period.
  • Speak with your bank about what options are available if your tenants are unable to pay the full rent.

Finally, make sure that any agreement you reach is recording in writing and that changes to the lease are reflected in formal, enforceable documentation.

If you have any questions or concerns regarding your rights and obligations you should contact our experienced commercial and property law team as soon as possible on 4092 3555, or feel free to see us in our Mareeba office at 222 Byrnes Street, Mareeba.

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Online business and retail shop leasing – is it a retail shop?

March 26th, 2019

If a tenant conducts an online retail business, but uses premises predominantly for producing or storing goods, is it a retail shop?  The Victorian Civil and Administrative Tribunal (“VCAT”) recently considered this question.

The Retail Shop Leases Act in Queensland and its equivalent across other states in Australia (“Retail Shop Legislation”) imposes additional tenant protections in leases of retail shop premises.  These additional protections do not apply to premises that are not considered retail shops under the legislation.  The concept of what is a retail shop is not always a straightforward determination to make, as illustrated in the decision of VCAT in Bulk Powders Pty Ltd v Seicon Pty Ltd (Building and Property).

Bulk Powders Pty Ltd v Seicon Pty Ltd (Building and Property) [2018] VCAT 2000

Bulk Powders Pty Ltd (the tenant) leased premises in an industrial area in Victoria where it developed and produced sports nutrition and supplement products.  While the tenant sold the items it produced as a retail business, the sales were mostly online, except in limited circumstances where some customers could collect products by appointment.  The tenant sought a declaration from VCAT that the premises was a retail shop.  The reason the tenant did this was that the lease included outgoings which would not be permitted to be recovered by the landlord if the premises were a retail shop.

The Retail Shop Legislation defines retail premises as premises that are “used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services”.

Upon reviewing the law on this point, VCAT considered that to be retail premises, it was necessary that the premises have a retail characteristic of being open to the public, which in this instance, it was not.  The premises were used for predominantly production and storage of products and even though those products were sold online, that did not make the premises retail premises.

With so many businesses being conducted online today, this is an important clarification for both landlords and tenants about when the Retail Shop Legislation will apply to a leasing arrangement.  The consequences of the Retail Shop Leases Act applying to a lease are significant, for example, as illustrated in this case, the inability of the landlord to recover certain types of outgoings and charges.  There are also further disclosure obligations on the landlord that, if not complied with, can give the tenant extensive rights to terminate a lease.  This decision also goes to show that what does constitute a retail shop is not always a straightforward answer and there are a number of considerations in making a determination about this.

You can access the full decision of VCAT here.

Our team at Miller Harris Lawyers has extensive experience in commercial and retail leasing in Cairns and surrounding areas.  We would be happy to assist you with all of your leasing requirements.  Please contact our office on 07 4036 9700.

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Buying a Franchise – 5 Top Tips

March 20th, 2018

Entering into a franchise arrangement and running your own business can be a very exciting time.  You receive the benefits of the established brand, and usually a well-documented operations manual to assist you to run the franchised business.  However, before you take that big step, consider my 5 Top Tips before entering into a franchise.

1.  Read the disclosure statement

Yes, this document has been provided for a very good reason, so you should read it.  Franchisors are required by law to give prospective franchisees a disclosure statement and the law prescribes what must be included in the statement.  Whilst the statement provides numerous pieces of useful information, I suggest you pay particular attention to the number of franchises that have been terminated in the last few years, whether there is any litigation that the franchisor is involved in, and carefully peruse the table provided by the franchisor outlining all estimated franchise costs.  The disclosure statement provides really useful and important information about the franchise – be sure to read it!

2.  Contact other franchisees

The disclosure statement also contains details of other franchisees operating the franchise in other territories throughout Australia.  Ring at least five other franchisees including the ones in the territories closest to you.  Ask them how their franchise is going, how much support they receive operationally, marketing-wise and in relation to training from the franchisor.  Ask them if they would enter into the franchise if they had their time again.  In my experience, this is often where you will receive the most honest and practical information in relation to the franchise you propose to purchase.

3.  Do a business plan and budget

A business plan is integral to the success of any business – especially a franchised business.  As part of the plan, consider your operating budget – this is often where other franchisees can assist, identifying costs of the franchised business that were not necessarily clear from the outset.  For example, how much did it cost to fit out the premises with the franchisors corporate branding, and what do they spend on marketing and training annually.

4.  Get the right advice

A lawyer and an accountant play an important role in advising a prospective franchisee before entering into a franchise agreement.  As professional advisors who have often read many franchise agreements, they are qualified to know when a clause is unusual or uncertain.  When advising my clients in relation to a franchise I provide a comprehensive review of the franchise agreement and draw to the attention of the franchisee any critical clauses and relevant dates.  Whilst a majority of franchisors are reluctant to agree to any changes to their franchise agreement, I always highlight changes that I would recommend be made to the agreement to benefit the franchise and encourage the franchisee to negotiate the proposed changes directly with the franchisor to save costs in the first instance.  I have found that franchisors of newer franchises are often more agreeable to discussing changes to a franchise agreement than those that are well-established.

Further, it is at this time, I would recommend the franchisee seek clarification from the franchisor in relation to any clauses that are uncertain or lacking in detail.  It is always best that a franchisee finds out this information before signing on the dotted line.

5.  Do not rush in

Entry into a new franchise or the purchase of an existing franchise is a big and often costly exercise.  Therefore, it is important that you do not rush into this decision.  It is vital that you complete your due diligence investigations in relation to the franchise and the business first, draft your business plan and budget, obtain independent legal and financial advice and spend a good amount of time reading the proposed agreement before you proceed.

For more information about franchise agreements, please contact Partner, Melissa Nielsen.

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