Many leases are signed for a period of five years, with further options to renew. Others are signed for shorter terms, also with further options to renew.
Under Section 21(5) of the Retail Leases Act 2003 (the Act) tenants have the right to a five-year term but can waive this right and sign a lease for a shorter period of time. (Tenants whose lease terms add up to at least five years do not need to apply for the waiver certificate, for example, a three-year lease with an option of a further two-year term.)
To waive the right to a five-year term tenants must apply to the VSBC for a Five-year Waiver Certificate.
To submit a request for a Five-year Waiver Certificate, download the Request By Tenant form or fill it out online. It is important to provide your telephone number as the Act requires that the VSBC discusses your request with you.
Reasons to apply for a Five-year Waiver Certificate
The most common reason as to why a tenant will apply for a waiver certificate relates to a tenant starting a new business.
The tenant may:
- be unsure about the long-term suitability of the premises;
- may be questioning whether their business will succeed; or
- may be unsure if their business will outgrow the premises over the terms of the lease.
In these cases, tenants may seek a term of less than five years (for example, a two-year lease). In other cases the landlord may not be able to offer up to five years (for example, if the building is to be demolished or re-developed. The landlord may therefore request that the tenant seek a five-year waiver certificate before commencing negotiations).
Submitting a request for a Five-year Waiver Certificate
Once you submit a request for a Five-year Waiver Certificate, a VSBC officer will call you to explain the effect of waiving your right to a five-year minimum term.
This oral explanation is a requirement of section 21(5)(a) under the Act and will point out, among other things, that:
- having a lease of less than five years may not allow the tenant to fully depreciate the costs of their fit out to the premises;
- there may be a lost opportunity for the tenant to build goodwill and a greater value in the business;
- if tenants change their mind about waiving their rights (even after a certificate is issued), the tenants are under no obligation to provide written notification to the landlord that they have waived their rights, and as such the statutory right continues.
Once the explanation is given, and after the VSBC is satisfied that it has been given correctly, we will issue the certificate.
Note: It is important to consider that the role of the VSBC is to explain to tenants the effect of section 21, not to veto the lease.
Provisions under the Act
There are a number of provisions under the Act regarding the Five-year Waiver Certificate. These include:
- Section 21. This outlines the statutory minimum term of five years.
- Section 21(1) This outlines a provision for a term of at least five years, counting the initial term and any further term or terms provided by any options for renewal.
- Section 21(5) This provides that tenants who wish to waive this right can request the VSBC to certify in writing that he, or a person acting on his behalf, has explained to the tenant the effect of waiving this right, and the effect that the certificate will have on the term of the lease. The waiver will not be effective unless the tenant gives the landlord written notice that they have waived this right. The section provides that the VSBC must issue the certificate within 21 days of the tenant’s request.
- Section 84(1)(e) This outlines the VSBC’s function to confirm whether a certificate has been given in accordance with section 21(5).
The Victorian Civil and Administrative Tribunal (VCAT) has handed down the following decision regarding the overholding and entitlement to a five-year term:
- Daco Enterprises Pty Ltd v The Golden Sultana Pty Ltd  VCAT 2457 (19 December 2006)
- Awad v Conell (Retail Tenancies)  VCAT 2402 (11 November 2009)
Other decisions can be found on the Australian Legal Information Institute (AustLII) website.