Why retail lease brawls are increasing: the Victorian Small Business Commissioner

The body charged with mediating disputes on retail leases in Victoria says “financial tightness” among landlords and tenants is likely driving a surge in conflicts.

The state’s Small Business Commissioner Geoff Browne says the number of complaints about retail leasing conflicts soared to 611 in the six months to December last year, from 501 the previous corresponding period.

The complaints cut both ways: landlords are often chasing rent from tenants, and tenants are seeking the return of security for the lease.

Browne says data from the Office of the Victorian Small Business Commissioner suggests that there’s been growth in the number of landlords chasing tenants who may have closed up shop over the past 18 months or so.

“I’ve seen a number of disputes where tenants have walked away because the business is not generating sufficient revenues,” he says.

Another cause of dispute is appropriate rent increases, with valuers often sought by tenants who insist that the requested rate is too high for market conditions.

Browne says it’s imperative that tenants understand their obligations and honour their contracts, even in difficult economic conditions.

Conversely, landlords need to ensure they disclose all relevant information to tenants.

“And in this current economic climate, they need to engage with tenants if there are signs of distress.”

“It’s usually better to have a tenant rather than a vacant shop.”

Brown says he’s also hearing a willingness from landlords to look at contractual terms.

The office started life in 2003, and typically sees 10% growth in complaints each year.

Its annual report, released in September last year, showed that retail leasing accounted for about 70% of the 1,553 matters it tackled through 2011.

Browne says the body has a mediation success rate of more than 80%. Under the Retail Leases Act, parties cannot go to VCAT without going to the Small Business Commissioner first.

The comments come as Westfield, Australia’s largest shopping centre, throws down the gauntlet at local retailers complaining about rents, tipping international retail behemoths would replace them.

Speaking after reporting that its Australian and New Zealand portfolio was more than 99.5% leased, Westfield co-CEO Peter Lowy “stronger retailer internationally [are] coming in to replace” stores that close within its shopping centres.

Co-CEO Steven Lowy added he would be “staggered” if popular international brands such as Japan’s Uniqlo, Abercrombie & Fitch, and H&M didn’t enter Australia by 2017.