‘In Your Lease’ is an ongoing series where our resident lease experts offer their thoughts on common issues that arise when negotiating a lease or an extension to lease.
This issue looks at relocation and redevelopment clauses.
- 1. What are ‘relocation’ and ‘redevelopment’ clauses?
Relocation clauses permit Lessors to relocate Lessees to alternative premises, within the building the leased premises are located in, by providing adequate notice. These clauses are commonplace in leases for premises located in shopping centres, market centres and similar locations.
Redevelopment clauses enable Lessors to terminate a lease by providing adequate notice due to a proposed redevelopment of the leased premises.
- 2. Are they legal?
Yes — however, the Retail and Commercial Leases Act 1995 (SA) (Act) does impose some limits on these clauses.
- 3. What are the limits on these clauses?
The Act mainly addresses these types of clauses in sections 37-39 and section 57.
Section 37 provides that a retail shop lease includes a provision to the effect that a Lessor must not alter or refurbish the building of the leased premises unless the Lessee has been provided with one months’ notice. This section does not apply in the event of emergencies and routine maintenance or repairs.
Section 38 provides that a Lessor is liable to pay compensation to the Lessee in certain circumstances.
Section 39 outlines specific protections in relation to a redevelopment clause (referred to as a proposed demolition of the building in the Act). Specifically it provides that:
(a) the lease cannot be terminated on that ground (redevelopment/demolition) unless and until the Lessor has provided the Lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated;
(b) the lease cannot be terminated by the Lessor on that ground without at least six months written notice of termination; and
(c) if notice of termination on that ground is given to the Lessee, the Lessee may terminate the lease by giving the Lessor not less than seven days written notice of termination at any time within six months before the termination date notified by the Lessor.
The above protections are limited in certain circumstances. Section 39 also notes when a Lessor may be liable to pay compensation to the Lessee due to the termination of a retail shop lease.
Section 57 deals with relocation clauses and contains numerous protections. Among other things, it provides that a Lessor cannot require the relocation of the Lessee’s business until the Lessor has provided the Lessee with details of a proposed refurbishment, redevelopment or extension sufficient to indicate a genuine proposal that is to be carried out within a reasonably practicable time after relocation of the Lessee’s business and that cannot be carried out practicably without vacant possession of the Lessee’s shop.
Section 57 further provides that the Lessee must be given three months’ notice of relocation and that the Lessee may terminate the lease within one month after the relocation notice is given by giving written notice of termination to the Lessor, in which case the lease is terminated three months after the relocation notice was given unless the parties agree that it is to terminate at some other time.
Section 57 also provides that a Lessee is entitled to payment by the Lessor of the Lessee’s reasonable costs of the relocation (including legal costs) and contains other protections as well.
- 4. Can a Lessee do anything about these clauses?
Apart from ensuring that the Lessor has complied with the Act, Lessees can always negotiate better terms with the Lessor. Deleting these clauses in their entirety, negotiating more favourable notice periods, and negotiating more favourable compensation for such relocation or redevelopments are some options available to a Lessee.
For advice on relocation and redevelopment clauses and lease terms or assistance in negotiation of terms please contact Shavin Silva, Lawyer, Pace Lawyers on 8410 9294 or send an email via this form.
Shavin Silva has been with Pace Lawyers for 3 years and in this time has assisted on matters ranging from Magistrates, District and Supreme Court litigation to a ground-breaking High Court Appeal. Shavin has a keen insight into the commercial underpinnings of the matters he deals with, working closely alongside our Principal Lawyer, Serina Pace.