Commercial Tenancy (Retail Shops) Agreements Amendment Bill 2011, Trenorden
Author: Max Trenorden
Published on: 28-June-2011
The National Party strongly supports the Commercial Tenancy (Retail Shops) Agreements Amendment Bill 2011. It does a range of things: it requires landlords to disclose certain leasing information to tenants prior to entry into a lease; imposes a minimum five-year lease term for most leases; prohibits landlords requiring retail shops to open during certain hours; includes provisions regulating rent review; and prohibits unconscionable conduct. It will provide extra protection to small business tenants by prohibiting landlords from passing on to retail shop tenants certain legal costs associated with preparing and negotiating the lease. It contains a new requirement for landlords to provide tenants with prior notification of the expiry date of their option to renew alease. It contains a new requirement for landlords and tenants to supply valuers with relevant leasing information about retail shops in the same building or retail shopping centre. This will promote more accurate and consistent market rent reviews. I will talk about that later on. The bill will also clarify tenants’ rights regarding relocation and prohibit misleading and deceptive conduct.
The State Administrative Tribunal has the power to deal with all matters arising under a retail shop lease and thus has the power to consider and determine claims. That is one matter I would like to leave with the minister. Most of us would be aware that SAT does not do that. SAT can determine the claim but it cannot prosecute the claim. As the member who spoke before me said when outlining the strong contests that have occurred with people in this industry, SAT can make a determination but it cannot enforce that determination. The only way that a determination can be enforced is by taking it to the courts, which takes us right back to where we started. I suggest to the minister that, in those cases, that is not a clear answer. I expect that maybe that will be the answer in 90 per cent of cases and or maybe even 95, 96 or 97 per cent, but it will not be the case in all of them. SAT’s determination falls to pieces when people dispute it. I suggest that we need to get the lead agency argument going; that is, that argument can go back to the Small Business Development Corporation for it to give assistance in that area.
The two areas that I wish to talk about relate to the definition of “retail shop” and clause 9. Clause 9 of the bill states that information provided under section 11 must remain confidential and not be disclosed unless it was publicly available when disclosure was made. If confidential information is disclosed and the tenant or landlord suffers loss or damage, they are entitled to be paid compensation by the individual who made that disclosure. That is another issue that members of the National Party will talk about at some length.
This debate has been around for a long time. Western Australia has been trying to deal with the question of commercial tenancy for at least three decades, which has been to the detriment of the government, industry, small business and the consumers of this state. The Nationals in WA and also those on the federal scene have always been committed to supporting small businesses. We understand the vital role that they play in the community, whether we are talking about metropolitan or regional areas. A Nationals Queensland senator who
will be retiring from the federal scene very shortly, Senator Ron Boswell, did a lot of work with other Liberal Party members in the Senate to try to get the Trade Practices Act and a range of other acts aligned to this very difficult debate on commercial tenancy and also to the supremacy of the two majors in the retail sector. In fact, if we go back in history, we find that over the years there have been several debates in both houses of this Parliament on whether Western Australia should have antitrust laws to deal with the same issues. Legislation on
this issue never quite got through because the Trade Practices Act overrides any antitrust law that this state may put up. I am not sure whether that is the truth but that is the technical argument.
I want to run through the history of commercial tenancy. I will run through this relatively quickly so that I do not have to get a glass of water. This is a highly protected industry. Off the top of my head, I cannot think of an industry as protected as this one. When a new area is established, the planning department designates where a shopping centre can be built. If we go to any of the existing suburbs and knock down 50 houses and build a shopping centre, we are not allowed to operate it. The main gazetted shopping centre is the gazetted shopping centre and its operation is protected by this house and the other house for that purpose, and nobody else within a given precinct can oppose it. Once the centre is there and someone takes control of it, they get an anchor tenant and the banking arrangements are almost instantaneous. The person who gets hold of the land is in a privileged position in the market. People would struggle to give me an example of any other industry in which that is the case.
Once the centre is owned, it is a nice little earner. The only time it is questionable whether it is a nice littleearner is when there is a crash, such as the one we have had in the past couple of years, and all of a sudden retail starts going south. When the retail market is going the way we want it to go, what happens? What happens is that incomes increase, rents increase and the whole system bowls along nicely. The really hot issue is that the financial matters of the anchor tenant or tenants are secret; they are a national secret. We can do a lot of things, but we cannot tell anyone the rents and outgoings of anchor tenants. That is a very strange issue for members on both sides of the chamber who would argue that they support private enterprise. In these centres, the small business operators, not the anchor tenant, pay the bulk of the outgoings. The power and control in the centre is overwhelmingly in the hands of the manager appointed by the owner.
As I have already said, in better times things bowl along nicely. For the past two decades, as the market has bowled along, people have made money. As people have made money, rents have increased; and, as rents have increased, the value of the centre has increased. They all rise with the argument. But what happens when it goes bad, such as at the current time? Do rents fall? No, they do not. Why do rents not fall? They do not fall because the information is secret. All the information that the owner has when times are good allows the owner to roll the
machine on and to keep turning it over. There is no information on what those shops are making.
The amendment that I introduced some years ago to deal with turnover was knocked on the head. I moved it from opposition when I was in the other place, and a Labor minister accepted that amendment. People cannot get information on turnover, but they do know when shops are doing well and the capacity of a shop to pay increased rents. As time goes by, rents escalate. A lot of centres in this state and in other parts of this nation, and certainly some in the United States, are under pressure. The information is not there for a new person who wants
to pick up a lease in a centre and start a small business. The information is not there for that person to realistically argue that their rent should be set at today’s commercial value, not at some commercial value that was struck some time ago when the economic climate was somewhat different. Of course, it is true that if rents in shopping centres fall, the value of the shopping centre falls and the value of the asset falls.
Is that not what happens everywhere else? Does that not happen in any business in most of Australia and in this state? If that happens, people are sad. Most members in this chamber have friends who are in that predicament and have businesses that are struggling, because right now is not a good time to be in the commercial world. It is a bit tough out there.The thing that worries the Nationals is that this bill will struggle to get consensus. We will argue that it is time to have an open market in commercial tenancy.
Let me just read a couple of sentences from a letter I have dated 7 April 2011 that was sent to Mr Martin Dempsey, the chief executive officer of the WA Retailers Association, who happens to be sitting behind me, by the Department of Commerce.
It states —
the Department of Commerce released a Position Paper outlining a proposal to introduce lease register
requirements I understand the argument; we want to get a lease register out there.
The second paragraph of the letter states —
there was limited support for the model proposed in the Position Paper.
That is an area that concerns the National Party a great deal, because that is where we have been for 30 years. I cannot remember any change in this argument. We can go back to the days of Senator Ron Boswell on the federal scene and we can go back to the days of many of those Liberal Party senators of whom I am aware who fought these arguments under the Trade Practices Act about five or six years ago in the Senate. They were fighting a monster; they were fighting a large, successful machine. I have not seen it defeated. So I will ask the question: why would we be confident that it will be defeated this time? Why would we be confident, with the
review that is taking place, that the outcome will be any different?
I will also quote one paragraph from the ministerial statement of the Minister for Commerce on 28 June, which is quite recent. This morning the minister stated —
In contrast, there remain widely diverging views on the best method of achieving greater access to retail tenancy information.
I absolutely agree with the minister. The minister continued —
The proposal was not supported and concerns were raised about confidentiality, the misuse of
information and increasing leasing costs.
I agree with the minister. I also agree with some of the advisers—I thank the minister’s advisers for giving me their time—that not everything I am going to say will be greeted with open arms by sections of the commercial community. It will not be. That has been the history of this matter for 30 years. I will further quote from the minister’s statement today —
appropriate cost–benefit analysis to ensure that any new regulation is proportionate to the problems addressed.
That raises three options —
increased access to lease information for valuers in a broader range of circumstances than permitted inthe Commercial Tenancy (Retail Shops) Agreements Amendment Bill; a publicly accessible statewide electronic database of lease information; and compulsory registration of retail shop leases on the land title.
I laud the minister for trying to get those outcomes.
The National Party does not have confidence that things will be any different tomorrow, next year, or three years or six years hence. History shows that this has been a hotly debated and hotly contested issue, with no give. We would argue that the laudable things that the minister is after are important. I am sure that his attempt to get a tenancy register is supported by the majority, but it will not be supported in total, and when the minister gets down to the detail of it, it will be very difficult to get the proposal up. Our solution is to open it up and to not have any secrets—just make it an open market. That is the core of the National Party’s first amendment on the supplementary notice paper. That amendment, to pages 4 and 5 of the bill, will change the definition of “retail shop lease”. If our amendment is passed, basically a retail shop lease will be any lease in a shopping centre including the anchor tenants. Therefore, no-one will be treated any differently under the roof of the shopping centre or, indeed, in the precinct of the shopping centre, because not all businesses are under the
shopping centre roof.
I have advice from the minister’s advisers that this amendment does not quite do what I intend, but I cannot see why. I had massive help in drawing up my amendments. There is a great writer of amendments in this house called Max Trenorden who would not have a clue what he is doing, basically, but that is not the point. The point I make is that as backbenchers we do not have a lot of resources; we can only do the best we can. That is all we can do. This is the best that I can do. Some people might argue that the paragraphs in my amendment are not right, but I point out that they come from a New South Wales act.
The National Party does not see the purpose of defining a retail shop lease differently for a small and a big business. We are not talking about lettable areas of 1 000 square metres and all these sorts of matters. If a shop is in a shopping centre complex, it is simply a business in the centre. For example, why should Woolworths or Coles be treated differently from any other shop in a shopping centre complex? It is the National Party’s opinion that no distinction should be made. The Commercial Tenancy (Retail Shops) Agreements Amendment Bill deals
with retail shop leases, so it should deal with all retail shop leases, not just some, under a shopping centre’s roof.
This amendment ensures that the provisions of this bill will apply to all retail shops, and it is an important step in achieving a fair retail tenancy market in Western Australia. What we are trying to achieve, which I thought many members in this chamber would philosophically agree with, is an open market. The amended definition that we propose was drawn from the New South Wales Retail Leases Act 1994. We feel that it sufficiently covers all relevant leases and, importantly, includes leases that may not be a standard written agreement but are verbal or
by another arrangement. That is an important point. By ensuring that unwritten and verbal lease arrangements are included in this definition, straightaway we have eliminated a considerable amount of frivolous legal action to try to ascertain whether a particular lease agreement falls under the jurisdiction of this legislation. Therefore, straightaway we have resolved a potentially enormous problem. We want to deal with these matters with some immediacy.
Our second amendment relates to the confidentiality of information provided by the landlord or the tenant to a valuer or any other relevant person as requested under proposed section 11(3B). In line with the minister’s comments in his second reading speech about his expressed intention behind this bill, we agree that inequality exists between landlords and tenants and big business and small business, and our amendments go towards evening that up. We could go on forever about that, but it is a position that I do not think too many people would argue against. We want to promote efficient and fair relations between those groups in Western Australia.
This amendment simply ensures that tenants will be able to negotiate lease agreements on a level playing field. They will know what that big department store just down the corridor is paying in rent and what it is contributing financially to the common areas of the shopping centre. The amendment will ensure that small business can remain economically viable and competitive. We do not say that if these amendments are passed, the anchor tenants will automatically start paying more rent; that will not happen.
However, the small business people down the corridor will know what the anchor tenants pay and what they contribute to outgoings. The small business people can then make an assessment about the value of the square metreage that they will lease. A part of that
argument has to be what is happening around a tenant in the shopping centre, as well as what is happening to the major anchor tenant or tenants in that centre. Importantly, the amendment does not make it compulsory to disclose all this information; it simply makes it possible and it does not penalise people who disclose the information. It does not say that people have to make that information available, but if a person within the shopping centre wants to disclose that information, they are free to do it and no-one can come down on them with a pair of jackboots. That is a considerable difference from the current clause in the bill.
It also follows that information regarding the financial turnover of the company will remain confidential. We respect and appreciate the need for the privacy of individuals and businesses, and our amendment retains the confidentiality of this most important element—that is, turnover. As Hon Ljiljanna Ravlich pointed out, managers have always tried to get the turnover of businesses and to beat them over the head with their own success. A while ago the owner of a sporting store told me that he had been approached by the manager of the shopping centre who told him that he knew the sporting store’s turnover and that the business was worth so much a year. The shopping centre manager then said that he would put the store on the market, that the owner could not keep it and that he would tell the buyers what its turnover was so that they could bid for that profit margin. It was not a threat; that actually happened, but it was some time ago and there has been some amendments to the legislation since that time.
I flick through a couple of closing remarks. The tenancy register is probably a good idea, but we would prefer an open market—to have all the information open and free. Therefore, we would not have to put up an electronic site, we would not have to argue with people who want to be on that electronic site and that information would be out there in the ether. I agree that if a person has just signed a five-year tenancy lease and their competitors open at a shopping centre down the road and pay less rent; that is not good. But as I said before, that happens to everyone else outside the shopping centre; it happens to everyone else out there trying to carry out business. I
cannot see how we help the industry by arguing that we should not allow that information to escape because rents might go down, valuation sentiment might go down and people might get hurt. Commercial tenancy is real life and in all commercial activity, people get hurt; that is an unfortunate fact. If this bill passes with our amendments, there will be significant changes. We would like to see immediate change.
We are not part of any argument that may or may not exist between the Liberal and Labor Parties—I am frankly not interested in that argument—but my colleagues and I do not want this day to pass without taking the opportunity to create a level market for commercial tenancy. When we get into the Committee of the Whole, we will ask that our amendments be supported. Those amendments are available at the back of the house. They are simple amendments. I repeat for the third time that all our amendments do is make all information, except commercial
turnover, public. That is what happens for the majority of business in the western world and in Australia; why does it not happen in our shopping centres?
