Disclosure Statements – What are they and why do I need one?

If you are the tenant or landlord of a retail or commercial lease, your lawyer probably required you to sign a Disclosure Statement prior to the commencement of the lease. You may be about to enter into a lease and have been provided with a Disclosure Statement. You may be wondering, what is this? Why do I need it?

What is a Disclosure Statement?

A Disclosure Statement is a document which is required to be given by a landlord to a tenant pursuant to the Leases (Commercial and Retail) Act 2001 (ACT) (the Leases Act). The Disclosure Statement must be provided to the tenant at least 14 days prior to the commencement of the lease and must include, among other things, a written estimate of any outgoings the tenant will be required to contribute to under the lease.

What should be included in a Disclosure Statement?

The information contained in a Disclosure Statement is divided into six sections, with each section requiring certain information to be disclosed by the landlord. The landlord signs the Disclosure Statement to declare that the contents are true and correct. The tenant signs to acknowledge receipt of the Disclosure Statement and understanding of its contents.

The landlord must provide a Disclosure Statement for proposed leases or when a tenant exercises an option to release the premises. It is important to remember that under the Leases Act a licence is considered a lease and, therefore, a Disclosure Statement is also required to be provided for proposed licences that fall within the ambit of the Leases Act.

While it is a requirement under the Leases Act for a landlord to provide the proposed tenant with a Disclosure Statement, this can also be used as a management tool for both the landlord and the tenant to identify the key features and commercial terms of the lease.

The information that a Disclosure Statement is required to contain includes:

  • Section 1 lists general key details of the retail or commercial lease. It provides information on things such as the Owner, Premises, lettable area, permitted use, insurance and key dates.
  • Section 2 deals with rent, the formula or method used when calculating rent and how rent is to be reviewed during the term of the lease.
  • Section 3 of a Disclosure Statement lists the tenant’s requirements in relation to finishes and fixtures, general maintenance of these fixtures and make good obligations at the end of the lease. This section also lists anything the landlord has agreed to provide for the premises.
  • Section 4 includes a table of the outgoings that may be payable under the lease. It is a requirement that the landlord lists the estimates for the various outgoings in the standard table. If the outgoings are not applicable for the premises, this will generally be left blank or be noted. In the event where the tenant pays a proportion of the outgoings under the lease, there must be an estimate listed against that particular outgoing.
  • Section 5 is only relevant if the premises forms part of a shopping centre and it lists specific information that will be relevant for the shopping centre, including the amount of shops, the lettable area of the centre, name and carparking among other things.
  • Section 6 allows for any special arrangements or agreements between the landlord and the tenant to be identified and listed. Appropriate use of this section will mean there is a point of reference for the landlord and the tenant, as well as any possible assignee, to identify arrangements that are specific to the lease in question, for example, any special arrangements relating to fit out, a right of first refusal, etc.

Other things to consider

  • A few other important facts to consider in relation to a Disclosure Statement are as follows:A Disclosure Statement is not a binding lease or offer to lease. You will still need to negotiate and enter into a lease for the premises.
  • Section 34 of the Leases Act requires the landlord to provide the tenant with a Notice of Material Change to the Disclosure Statement, if the landlord becomes aware of a significant change in the information initially provided in the statement. A failure to provide a Notice of Material Change will allow the tenant the right to terminate the lease.
  • The tenant will also have a right under section 117 of the Leases Act to terminate the lease within the first three months of the lease term if the landlord fails to provide a Disclosure Statement.

If you require advice in relation to a Disclosure Statement or any other aspect of retail or commercial leasing, please contact Lauren Pinkerton or Kate Robertson.

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