ELETRA Pty Ltd, 27 July 2007

Submission to the Inquiry into the Market for Retail Tenancy Leases in Australia	

We have been in the market for a retail tenancy in Melbourne’s prime retail strips for the past 3 months. Although we have only dealt with reputable real estate agencies as landlords’ agents, we have had very negative experiences.

There is clearly a lack of competition and imbalance of power in favor of the landlords (and/or their agents) as evidenced by our following observations and experiences: 

1-	Landlords’ unwillingness to deal with tenants who are demanding their legal rights such as receiving a disclosure statement and the draft of the lease contract before signing a legally binding heads of agreement.

2-	Rents increasing significantly faster than retail sales turnover in the past 5 years. 

3-	Landlords not negotiating any of the terms of their lease contracts (“take it or leave it attitude”).  

4-	Ratio of average rents to retail revenues climbing up to historical highs that are also above international benchmarks.

5-	Landlords declining to offer 5 year initial leases and instead forcing 3 year terms with annual CPI-indexed increases plus 3 or 5 year options with a market review at the start of the option.

6-	Landlords making unreasonable demands such as requesting tenants to
a.	sign legally binding “Commercial Terms of Lease” agreements that make them commit to signing a lease prior to receiving the lease agreement terms or the disclosure statements;
b.	pay for the landlord’s insurances for payment of 12 months rent if the lease is terminated prematurely;
c.	agree to annual CPI increases as well as market reviews which can be requested at any time and can only be above the current rentals; and
d.	provide personal guarantees in addition to deposits.

7-	Landlords agreeing on a rental amount during negotiations and then demanding a substantial increase just prior to signing the lease. 

8-	Landlords making further demands such as deposits or onerous lease conditions once their initial demands are met during negotiations. 

9-	Wide variations in the definition and ratio of outgoings to net rents (ranging from %13 to %233).

10- Lack of a low cost dispute resolution avenue when the landlords’ conduct before a lease is signed is against the law. Existing processes are all designed for disputes that occur after a lease is signed.

Recommendations:

1-	Increase the transparency in the market by requiring “gross rents” (all-inclusive) to be used in advertising and lease contracts. This will improve competition by making it easier to compare alternatives for tenants.

2-	Require provision of a draft lease contract and the disclosure statement (or an estimate of costs), if applicable, at the start of the lease negotiation phase. Lack of information only results in market inefficiencies and prolonged negotiations.

3-	Improve the enforcement of existing laws and regulations including the period prior to signing a lease.  

4-	Make it easier to report landlords and tenants acting against the laws and regulations including the period prior to signing a lease.