Big Changes Ahead for Lease Laws: New Property Law Act 2023

Big Changes Ahead for Lease Laws: New Property Law Act 2023

We have previously outlined the New PLA’s seller disclosure regime which will take effect from 1 August 2025.

This time we will outline how the State’s laws about leases will change. The New PLA will be replacing the Property Law Act Qld 1974 (1974 PLA), and many of its provisions apply retrospectively. So we will first explain how the provisions of the New PLA will affect all leases from its commencement date of 1 August 2025, including leases entered into before that date. Then we will turn to provisions that apply only to leases signed on or after that date.

We should mention that this article is about general commercial leasing. Neither of the 1974 PLA or New PLA apply to tenancies governed by the State’s residential tenancy laws[1]. Also, specific legislation[2] regulates many aspects of retail shop leases, such as preconditions to entry into such leases, prohibited provisions and various other notices. The New PLA will not change the retail shop lease laws.

Provisions applicable to all leases whether entered into before or after 1 August 2025

Landlord consent requirements

Leases commonly state that the landlord’s prior consent is needed for a range of proposed actions by a tenant and prohibits them occurring without such consent. Typical actions dealt with this way are a tenant’s proposed assignment of its interest in the lease, a proposed sublease or other arrangement to share possession of the premises with another, an alteration to the leased premises, or a change of the permitted use. In all these cases the 1974 PLA mandates that the landlord’s consent must not be unreasonably withheld [3]. In the case of alterations to the premises or a change of permitted use, under the 1974 PLA the landlord can require the tenant to compensate it for damage to, or a diminution in value of, the premises or neighbouring premises owned by the landlord. And unless the lease stipulates one, there is no timeframe required for a landlord’s consent to any of the above.

There are loopholes in the current law which enables the landlord to circumvent disputes about tenant proposals for any of the above. An obvious one, which was mentioned by the authors of a consultation paper[4] published in the lead up to the passing of the New PLA, is for the lease to outright prohibit the proposed conduct, but this is commercially unrealistic. Another approach, which takes the focus away from whether the landlord is being reasonable, is to embed mandatory conditions that must be satisfied for the proposed action of the tenant. For example, if the lease provision concerning assignment or subletting indicates that it may occur only if the proposed assignee or sub- lessee is a responsible and respectable entity, then the focus switches to credit-worthiness of the proposed assignee or sub-lessee and is not regulated by the current law.[5] Most commercial leases however embed a consent requirement.

The New PLA sets a timeframe of 1 month for a landlord to provide its decision in response to a tenant’s proposed assignment, sublease or arrangement to share possession, change to the use of the leased premises from the use stated in the lease, creation of a mortgage over the tenant’s interest in the lease, or for its alterations to the leased premises[6]. This also applies if any such proposal relates only to part of the premises. In all these cases the tenant can apply to court for a ruling where either the decision notice is not received in the required timeframe or if the tenant believes the landlord has unreasonably withheld consent, or if it believes that the conditions attached to landlord’s consent are unreasonable, unnecessary or onerous[7].

In the new PLA there is no equivalent to the 1974 PLA’s mandated right to compensation for the effect of alterations to premises or a change of the permitted use, nor is it prohibited. We believe that the landlord will need to rely on provisions in its lease if it wants to claim compensation in these cases. If they are in the lease and the tenant disputes the amount of compensation claimed, then it would appear open to a court to determine the level, if any, of compensation due in the circumstances.

Relief against forfeiture for breach of term of lease

The 1974 PLA prevents a landlord from terminating a lease in reliance on a tenant’s breach of the lease without having given the tenant a reasonable time to remedy a breach set out in a notice to remedy. There has always been uncertainty about how to calculate a reasonable time, considering the types of possible lease breaches that can occur, and lawyers will usually recommend to a landlord client that they err on the side of caution in estimating the time it may take to do a particular thing.  The new PLA does not markedly change the requirement for a notice to remedy to be given, and it embeds the current approach of the courts in relation to determining a reasonable time by stating (to paraphrase) that a period is only reasonable if it is reasonable having regard to all the circumstances, including, for example, the nature and extent of the breach, and the nature of the thing, if any, the lessee must do or stop doing to remedy the breach [8]. Erring on the side of caution is still appropriate.

A new legal requirement however is that the landlord will be required to give a copy of the notice to remedy to a mortgagee of the lessee’s interest in the land, a guarantor of the tenant’s obligations under the lease, a tenant’s sub-tenant, any mortgagee of the sub-tenant’s interest, and, where the lease has been assigned and where they have not been released from liability under the lease, to the assignor or a guarantor of an assignor[9]. The obligation only applies if the name and address of the designated person is known to the landlord, and failure to give a notice does not invalidate anything the landlord does in reliance of the notice, for example terminating the lease or seeking court orders to recover possession [10].

Relief against landlord refusal to grant a new lease or sell freehold

Leases often include provisions enabling a tenant, by notice to the landlord, to be granted a further lease at the end of the current term, or, less commonly, a right to buy the property from the landlord. And typically the lease will state that the landlord is not obliged to comply with the notice if the tenant has breached the lease at any time. The 1974 PLA law regulates disputes about a tenant’s entitlement in these circumstances by stipulating that the landlord can only rely on a breach of the lease to deny the right to a new lease or sale of the property if, within 14 days of receipt of the tenant’s notice, it gives a notice to the tenant detailing the purported breach and within a further month the tenant fails to institute proceedings in court against the landlord in relation to the issues[11].

The New PLA broadly replicates the current position but where the landlord is disinclined to grant the tenant a new lease, or sell the property to it, the landlord will be required give the tenant a breach notice[12]  within 10 business days of either of the date the tenant gives its option notice to landlord, where the landlord is relying on alleged breaches before the notice was given, or, if the landlord is relying on a breach after the tenant gives its option notice, within 10 business days of the alleged breach.

The landlord’s breach notice also needs to be given to the designated persons previously mentioned in relation to lease termination.

The Government has taken the opportunity to rectify a recurrent issue in this area. Disputes have often arisen about whether a tenant’s notice purporting to renew an option complies with the applicable clause. Under the New PLA, if the landlord claims that a formality in relation to giving of the option notice has not been complied with, then it can only rely on that technical breach if it complies with the breach notice process as above. [13] However, if the option notice was not given within a timeframe stated in the lease, which is typically stated as a period of months prior to the end of the lease, none of these changes will help the tenant if it simply gives the notice out of time. In that case it will not be entitled to the new lease or to buy the property.

Provisions applicable only to leases entered into on or after 1 August 2025

All of the changes mentioned above also apply to leases entered into after commencement of the New PLA. We will mention just two further changes that will only apply to such leases. There are a lot of other technical changes which apply to such leases, and so legal advice should be sought to understand the full impact of the new law.

Effect of assignment of lease by transferee to subsequent transferee

Under current law, the legal principle of privity of contract has the consequence that where a tenant assigns its interest in a lease then it remains liable for any breaches of lease by the assignee and any further successive assignees. The New PLA changes this. The original tenant, and any guarantor of the tenant’s obligation, will now only be liable for breaches of the lease by its immediate assignee. If the lease is assigned to a further assignee then the original tenant and its guarantor will cease to be liable from the date of that further assignment[14]. A provision of a lease, or a guarantee, to the contrary will not be effective[15].

For a lease entered into after 3 April 2006 and regulated by the Retail Shop Lease Act, the original tenant’s liability ceases as soon as it assigns the lease, i.e. there is no need for a further assignment for the original tenant to be released[16]. A strict precondition for this release to take effect is that the assignor, the incoming assignee and the landlord must have complied with a prescribed disclosure process in relation to the assignment[17]. The New PLA makes no changes to this aspect of retail shop leases.

Leases taking effect at a later date

Under the current law, if parties enter into a lease where the lease term is due to commence on a date more than 21 years from the date of the lease, the lease is void and unenforceable[18]. Some in the property industry take a cautious approach as a result of this law and tailor renewal options in leases to ensure that that the final lease available through an option commences earlier than 21 years from the original lease date, but legal academics cast doubt on the notion that this restriction relates to options[19].

Under the New PLA there will now be no restriction on when a lease term can start[20]. This will remove one limitation to arrangements on leasing parties wishing to secure long-term lease tenure, but there are multiple others so leasing parties should take specialist advice.

Conclusion

With the new PLA due to start on 1 August 2025, landlord’s lease precedents will need to be revised to be compliant with the new act, so now is the time for industry to prepare.

– Phil Pennington, Special Counsel

© Bugden Allen Group Legal Pty Ltd. All information contained in this article is of a general nature only and you should obtain specific legal advice in relation to any property-related affairs on any of the topics mentioned

[1] Section 27 Residential Tenancies and Rooming Accommodation Act 2008

[2] Residential Tenancies and Rooming Accommodation Act 2008 and Retail Shop Leases Act 1994

[3] Section 121

[4] See page 39 of Property Law Review Issues Paper 2 Property Law Act 1974 (Qld) – Part 8 Leases and Tenancies released in 2016, being one of 6 public consultation documents prepared Queensland University of Technology’s Commercial and Property Law Research Centre. All Issues Papers plus the Research Centre’s final report are here

https://www.justice.qld.gov.au/community-engagement/community-consultation/past/review-of-property-law-in-queensland

[5] Also on the same page cited in Footnote 4

[6] Section 142(1) New PLA

[7] Section 142(8) New PLA

[8] Section 153(2) New PLA

[9] Section 152(1) New PLA

[10] Section 154(2) New PLA

[11] Section 128 1974 PLA

[12] Form 8, contained here Breach Notice—Intention to refuse to renew or extend the term of or sell the reversion of a lease (form 8) – Property Law Act 2023 forms (valid from 1 August 2025) – Publications | Queensland Government

[13] Sections 164(1)(c)(ii) and 164(4) New PLA

[14] Sections 144(2) New PLA

[15] Sections 144(3) New PLA

[16] Section 50A Retail Shop Leases Act 1994.

[17] Section 50A Retail Shop Leases Act 1994

[18] Section 102)(3) 1974 PLA

[19] See pages 13 and 14 of Property Law Review Issues Paper 2 Property Law Act 1974 (Qld) – Part 8 Leases and Tenancies

[20] Section 138 New PLA