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Commercial leases breach unfair contract rules

Commercial leases breach unfair contract rules

Landlords squeezing SME tenants with hefty rents or poor lease conditions could be in breach of federal unfair contract provisions, My Business can confirm, in a wake-up call to commercial landlords.

Commercial and retail leases have long been the ire of businesses, with many claiming that steep annual increases are driving them out of business.

That was one of the reasons cited by Retail Food Group — owner of brands such as Gloria Jean’s and Michel’s Patisserie – for an abysmal financial result last year that forced it to embark on mass store closures.

Other businesses claimed that landlords are “locking up profitability”, while one barber shop copped plenty of bad PR earlier this year when it enforced a discriminatory clause in its retail agreement.

The issue of unfair lease terms and rents again raised its head during the banking royal commission. Marion Messih testified to the commission that her Pie Face outlet ran into severe financial trouble in 2013 when her landlord, the owners of Werribee Plaza (now Pacific Werribee), embarked on major renovations at the centre.

“We worked hard with [to grow our business] … It was running well until Werribee Plaza started to have major renovations through the plaza,” said Ms Messih.

“They closed all the carparks, bar one. And it was a month before Christmas, which is the worst time of the year to do that, because you’re waiting for Christmas sales and increase people in the shopping centre to make your business viable and actually make some money, because that’s actually the busiest time of the year.

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“People avoided Werribee plaza with a passion. There’s no parking. You can’t get in and out of the place. Why shop there? People went elsewhere.”

Despite such severe disruption to foot traffic and hence sales, Ms Messih said that her landlord did not offer any form of compensation or rent reduction.

“We had to still pay the same amount of rent to the owners of the plaza. There was no discount given. And it was in their agreement that they can do renovations whenever they want to, and you‘ve just got to put up with it,” she said.

Pacific Werribee has contacted for comment.

However in some cases, these clauses may not be valid or enforceable, thanks to the unfair contract provisions that are extended to SMEs.

Under the rules, any business entering into a contract with an SME must ensure that all terms and conditions within the contract are fair and reasonable, and do not place undue pressure of imbalance onto the smaller business.

Such terms, if declared unfair by the ACCC, are automatically voided.

“Unfair contract laws apply to standard form small business contracts entered into or renewed on or after 12 November 2016. This would include some retail lease agreements,” a spokesperson for the ACCC told My Business.

“Retail leasing is covered in our Unfair terms in small business contracts guide (page 11).”

The spokesperson noted that action has already been taken on this basis, with Servcorp forced to remove unfair contract terms in late 2017 from a number of agreements, “including rental contracts for office suites”.

Sadly, though, these rules do not apply to all commercial and retail leases. Instead, business tenants would need to check whether their lease agreement was made under federal or state laws.

“Most retail leases are covered under state-based legislation (e.g. Retail Leases Act 2003 [Vic] and Retail Leases Act 1994 [NSW]),” the spokesperson said.

“These acts often prescribe the circumstances and methods in which rent can be reviewed, and mediation of disputes is often available through small business commissioners’ offices.”

Commercial leases breach unfair contract rules
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