Disclosure statement errors in retail leases – what are the consequences?

Section 22 of the Retail Shop Leases Act 1994 (RSLA) requires a draft lease and disclosure statement to be given to the prospective tenant “at least 7 days before the tenant enters into” a retail shop lease.

If any of the following errors occur in relation to giving the disclosure statement, the tenant can terminate the lease any time up to 6 months after the lease is entered into:-

1. if the statement is not given;
2. if the statement is given late, i.e. inside the 7 day period; or
3. if the statement is “defective”,

A disclosure statement is “defective” if it is incomplete or contains false or misleading information. However, in the case of a defective statement, the tenant is prevented from terminating if:

• the landlord was acting honestly and reasonably and “ought reasonably to be excused for giving the defective statement”; and
• the tenant is in substantially as good a position as they would have been had the statement not been defective.

In all cases, the tenant has a separate right to claim compensation for proven financial loss that results from failure to give a proper disclosure statement in time. If the landlord hasn’t given the disclosure statement but wants the lease to start inside 7 days, it would be better to defer the date of “entry into” (i.e. the signing of and probably the start date) of the lease to be sure the 7 day disclosure period is not infringed.

If the tenant is a “major lessee” i.e. leases 5 or more retail shops in Australia, it may by agreement with the landlord, waive the entitlement to receive a disclosure statement any earlier than before it enters into the lease. However for the waiver to be effective, the tenant must give the landlord written financial and legal advice certificates.

It is not necessary to give a disclosure statement or draft leases when a tenant exercises an option.

Note that a landlord and assignor must each give a prospective assignee a disclosure statement in the event of a proposed lease assignment. The landlord must also supply a copy of the lease. The assignor must give it at least 7 days before asking the landlord to consent and the landlord must give the statement and the lease copy at least 7 days before the “assignment is entered into”. The 7 day interval does not apply to a landlord disclosing to a “major lessee”.

In the case of an assignment, failure to duly give the disclosure statement does not entitle the assignee to terminate the lease. Rather, the assignee may within 2 months after the assignment is entered into, seek an order from the tribunal directing the landlord to provide the documents.

A Landlord must within 30 days after the parties have signed the lease, send a certified copy to the tenant. Failure to do this could result in a fine of up to $4,000.

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