By Alvin Lim and Anna-Nikol Vladimirova
When it comes to leasing, transparency and open communication between a landlord and tenant is paramount. Tenants rely on accurate information to make informed decisions about the premises they intend to lease. To safeguard this requirement for certainty, the Retail Leases Act 2003 (Vic) requires landlords to provide accurate disclosure statements to their tenants within 14 days before the execution of a lease agreement. Failure to do so can have serious repercussions, potentially leading to the termination of the retail lease contract. As this article will later show, it is also crucial to obtain legal advice before entering into a retail lease in order to minimise the cost of potential disputes.
The Importance of Disclosure Statements
A disclosure statement is a document that is signed by the landlord or the landlord’s agent and must be provided to the tenant within 14 days before the execution of a lease agreement. By providing accurate and comprehensive information, landlords allow tenants to make decisions that align with their needs and expectations.
Common Elements of Disclosure Statements
- Essential elements of lease terms and conditions
This section outlines the essential details of the lease, including the duration, rent amount, payment e payment schedule, and any specific conditions or restrictions.
- Property Condition
Landlords are obligated to disclose any known defects or issues with the property. This could include structural problems, plumbing or electrical issues, or environmental hazards.
- Maintenance and Repairs
Information about the responsibility for maintenance and repairs should be clearly outlined. This ensures that both parties are aware of their respective obligations.
- Operating Costs and Additional Expenses:
Tenants need to know if there are additional costs beyond the base rent, such as utilities, property taxes, or maintenance fees.
- Use Restrictions:
Some properties may have specific zoning or usage restrictions that tenants must adhere to. These should be explicitly stated in the disclosure statement.
Consequences of Inaccurate Disclosure Statements
In the case of Okil and Rajput v Lu and Turner Building Property [2019] VCAT 525 (‘Okil’), Senior Member L. Ford explained that a disclosure statement contains representations made by the landlord to the tenant. Where these representations are misleading or inaccurate, the landlord may be liable for misleading or deceptive conduct pursuant to section 18 of the Australian Consumer Law.
To demonstrate the importance of accuracy, consider an issue that arose in Okil. One of the sections of the disclosure statement requires the landlord to disclose to the tenant the existing structures, fixtures, plant and equipment in the premises that the landlord will provide with the lease. This section requires the landlord (or their agent) to tick a box next to the items which are included and strike through the items that are not included with the lease of the premises. In that case, the landlord’s agent had ticked some items, crossed out others, but left the box for a separate gas utility meter neither ticked nor crossed. The tenants viewed the disclosure statemen and presumed that the premises contained a separate gas meter. Unfortunately, they suffered financial loss when they discovered that this was not the case and were unable to commence operating their business until they arranged for such a meter to be installed. The issue was whether this unmarked item constituted a representation that the premises included a separate gas meter. The court held that, despite the fact that the disclosure statement was not filled out in the conventional way, the items which were neither crossed out nor ticked, constituted a representation that the item will be included with the premises.
In that case, the premises did not have a separate gas utility meter. This meant that the landlord’s disclosure statement was false and that the financial loss sustained by the tenants was recoverable.
This case not only highlights the importance of ensuring that the disclosure statement is accurate and true, but also the necessity of obtaining legal advice before executing lease agreements. This is because, the law provides that if a tenant realises that a disclosure statement is false, misleading or materially incomplete, he can issue a notice of termination within 28 days of entering into the lease. This means that the entire case of Okil could have been resolved in a much more efficient and effective manner, had both parties obtained legal advice. As Senior Member L. Ford stated:
It is very unfortunate that neither party appeared to obtain legal advice on their rights and obligations as landlords and tenants at the commencement of the lease or when issues arose during the lease. Had they done so the outcome of this matter is likely to have been very different… Both parties found themselves in difficult predicaments, the impact of which could have been significantly reduced had they received timely legal advice.
These wise words remain relevant to all commercial endeavours. At Nevile & Co. we are dedicated to protecting our client’s interests and minimising commercial risk. If you find yourself in the process of entering into a retail lease, contact us today to discuss your rights and obligations.
Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication
