Short Term Leases and Licences – Can they delay a redevelopment?
Published on June 23, 2016 by Paul Carroll
In the lead up to a redevelopment, sitting tenants can be permitted to continue to occupy premises under expired leases for some time while the plans for the redevelopment are finalised.
Sometimes, such tenants are granted short term licences to continue to occupy their premises. These give both parties some certainty about the occupation of the premises. As the planning for development continues, a tenant may be granted a series of short term licences. What is the status of a tenant occupying premises under a series of short term (eg, 3 month) licences? What happens if their occupation continues under such licences for more than 1 year?
Section 6A from the NSW Retail Leases Act – Application of the Act to short term leases. (Section 12 of the Victorian Retail Leases Act is similar.) provides that leases for less than 6 months are not subject to the Retail Leases Act (RLA), but can become subject to that Act if the lessee remains in occupation for more than 12 months.
For the purposes of the RLA, it makes no difference whether occupation is granted by way of a lease or a licence.
The key date is the day the that the lessee is in possession of the premises for 12 months. On that day, their lease (or licence) becomes subject to the RLA (regardless of how long it is for). Also on that day, any prior expired lease or licence that applied for part of their possession of the premises becomes retrospectively subject to the RLA, and any future lease or licence, regardless of how long it is, will also be subject to the RLA. The only requirement is that the lessee’s possession of the premises is not interrupted.
Subsection (3) provides that a disclosure statement is not required for short term leases or licences that commenced (and which may have ended) before the key date, but is required for any future leases or licences.
Subsection (4) provides that the lessee may elect to have the benefit of section 16 – ie – the lessee may elect to have their lease or licence extended to a term of 5 years. Any period of time the lessee has been in uninterrupted occupation counts for the 5 year term. (Section 21(2A) of the Victorian Retail Leases Act provides the same in relation to prior uninterrupted possession.)
On a technical reading of section 16 of the RLA, a new section 16(3) certificate is required for every new lease or licence that is subject to that Act, regardless of length of the term. So, if a series of 3 month licenses are subject to the RLA, then a new section 16(3) certificate will be required for each licence – otherwise, it could be extended to a term of 5 years.
If the lessee had a 5 year lease that expired in October 2015, and was then placed on a series of 3 month licences. Section 6A(2) provides that each of the 3 month licences are subject to the RLA, but as the lessee’s uninterrupted occupation has been for longer than 5 years, section 16 does not become a problem. Remember that the RLA does apply so, for example, you must give the notice of non-renewal !
If the lessee had a 3 year lease that expired in October 2015, and was then placed on a series of 3 month licences, then each of those licences is subject to the Retail Leases Act, and unless the lessee provides a section 16(3) certificate at the beginning of each new licence, the lessee may elect to have their term extended to 5 years. The 5 years will run from the beginning of the original 3 year lease.
If the lessee only entered the premises on a 3 month licence on 1 January 2016, and continues to occupy the premises on a series of 3 month licences, then on 1 January 2017, each of those 3 month licences and any more granted into the future will be subject to the RLA, and unless the lessee provides a section 16(3) certificate at the beginning of each new licence, the lessee may elect to have their term extended to 5 years. The 5 years will run from 1 January 2016.
Considering the above – in the lead up to a redevelopment, it seems risky to grant a series of short term licences unless the tenant has been in occupation for more than 5 years.