Key retail lease report calls for less protection for tenants

The Productivity Commission has rebuffed calls from small retailers for reforms to give them more bargaining power with shopping centre owners in its report on leasing laws released today.

The Productivity Commission has rebuffed calls from small retailers for reforms to give them more bargaining power with shopping centre owners in its report on leasing laws released today.

Small retailers argued retail tenancy laws should be changed to provide longer lease terms, mandatory renewal options and the right to withhold turnover figures from shopping centre landlords.

But the Productivity Commission has rejected these recommendations and, if anything, argues that existing legal protections for tenants are ineffective and should be watered down.

The report finds laws in relation to lease terms, first rights of refusal and occupancy costs have “not helped redress negotiating imbalances between tenants and landlords”, and argues they should be either removed or replaced by a voluntary code of conduct.

The Federal Government has already rejected this position however, and says legislative safeguards ensuring things like minimum lease terms will stay.

In effect, the Productivity Commission argues it that retail tenant complaints largely stem from a failure to understand what they are getting themselves into.

“Many of the perceptions of shopping centres’ ‘misuse’ of negotiating power stem from a lack of understanding or acceptance that the business model of a retail shopping centre is fundamentally different from traditional retail strips,” the report says.

“Retailers who sign a lease in a large managed shopping centre without realising that the ‘rules of the game’ are very different, are at a disadvantage and can be seriously disappointed, if not financially devastated.”

Improved disclosure and information to help ensure tenants are aware of what they are getting themselves into is the key recommendation of the report, along with a voluntary code of conduct policed by the Australian Competition and Consumer Commission to govern landlord behaviour.

The Productivity Commission also urges state and federal governments to work towards a model national retail lease, with consistent clauses and terminology to reduce compliance and administration costs.

Southern Sydney Retailers Association president Craig Kelly says he is disappointed with the report. “It is a very sad day for the retailing sector. It seems amazing to me they could say the market is working well; they obviously have their heads in the sand,” Kelly says.

He rejects the Productivity Commission’s view that there is no entrenched inequality in bargaining power between shopping centre owners and tenants.

“The Productivity Commission is basically commercially naïve and making such a deluded finding has damaged its credibility. To suggest there is no imbalance between a giant multinational shopping centre owner and a small family business is an absurdity.”

The Australian Retailers Association has taken a mixed response to the report. Chief executive Richard Evans says while it is a “quality” report with several good recommendations, it doesn’t address bargaining inequalities adequately enough.

“There is a monopolistic approach with shopping centres that means tenants can’t move out and take their goodwill with them, so they have reduced bargaining power in negotiations,” Evans says.

Milton Cockburn, executive director of landlord representative body the Shopping Centre Council of Australia, says he welcomes the reports findings that the retail tenancy market is working well.

“I think the big problem is a lot of tenants don’t bother to appraise themselves of the information already available to them when they are entering into negotiations,” Cockburn says.

Read more on retail leases