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HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY
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HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY
Mr ALLAN MORRIS
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HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY
(REPS-Thursday, 20 February 1997)
Content WindowHOUSE OF REPRESENTATIVES STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY - 20/02/1997 - Fair trading
ACTING CHAIR —Welcome. The committee's proceedings are recognised as proceedings of the parliament and warrant the same respect that proceedings in the House of Representatives itself demand. Witnesses are protected by parliamentary privilege in respect of the evidence they give before the committee. You will not be asked to take an oath or an affirmation. However, false evidence given to a parliamentary committee may be regarded as a contempt of parliament. The committee prefers that all evidence be given in public but, should you at any stage wish to give evidence in private, you may ask to do so and the committee will give consideration to your request.
The committee has authorised for publication as evidence three submissions from the United Retailers Association and a further submission from Mr Russo. Mr Rogalsky has also lodged a further submission dated 14 February 1997 and other documents for discussion at today's hearing, which the committee will receive as exhibits. Accordingly, I will ask a member to move the acceptance of these documents.
Mr JENKINS —I move that the committee receive as evidence to the inquiry into fair trading and authorise publication of the submission by Richard Rogalsky on behalf of the United Retailers Association, dated 14 February 1997. I further move that the committee include the following documents in its records as exhibits to the fair trading inquiry: documents relating to the Hamilton Island case, media releases and correspondence relating to the Hamilton Island case, provided under cover by Mr Rogalsky's letter of 13 February, and a letter from the ACCC to Richard Rogalsky dated 10 February 1997.
ACTING CHAIR —There being no objection, it is so resolved.I now invite you to make an opening statement before we commence our questioning.
Mr Russo —The submission prepared by Mr Rogalksy, who is a consultant to the United Retailers Association, essentially is our Magna Carta. We come before you much as the feudal barons came before King John at Runnymede on 15 June in the year 1215. Theirs was the great English charter of personal and political liberty. Ours is a charter of basic rights for retail tenants, particularly shopping centre tenants. If you do make recommendations along the lines submitted by us, we know that the fight does not end there. We do not have open cheque books to pay expensive lobbyists. We know that lobbyists paid by the shopping centres will urge government to maintain the unjust status quo. This must not happen.
Small business is, of course, the backbone of the country, not the shopping centre owners with their narrow interests motivated primarily by greed. Most importantly, the committee members must also keep uppermost in their minds that the injustices suffered by shopping centre tenants do not arise primarily from these documents themselves. The injustices arise out of the representations made before the lease is signed. It is pre-contractual misrepresentation and misinformation that is the problem. This must be stopped.
No amount of education, legal advice or industry codes of conduct will
protect shopping centre tenants against the duplicity of shopping centre
owners and their employees when they make unwritten false statements upon
which the tenants rely. Simply put, if they say it, it must be in writing.
This is the thrust of the written submissions before you today.
Mr Rogalsky —The basic methodology of putting this before you is that I have been present at many of these hearings in Melbourne and I have also sought, through your secretariat, copies of all transcripts available. With the recommendations before you today, I state that I do not have, because of time and Hansard limits, the latest ACCC report to the committee. I do not know what was addressed with Mr Dee and others so I am putting forward recommendations. I would have liked to have balanced what that included but take that on board as a flexibility position, if it needs an adjustment to a recommendation.
My belief is that a lot of people have put a lot of work and effort into this. I have heard the emotion and all of the problems that we have. I am submitting recommendations to you. I am not interested in anything else other than the recommendations and for you to consider those. If you wish, criticise those, and let us get right to the nitty-gritty of what is wrong with the recommendations.
—As you said, a lot of effort has been put in. The
ACCC recommended that we look very closely at section 7 of the New South
Wales fair trading legislation, with a view to that underpinning what may
be required. What do you see as the major weaknesses in the Victorian
retail tenancy legislation? I chaired this committee nine years ago and for
nine years we have waited for the states to come up with a common retail
tenancy act. I think what Mr Russo said is very true, that there was always
a lot of people out there finding reasons why we should not do these sorts
of things. We are coming to this, not with a new look, but we are coming
back to it after nine years when nothing has got any better. In fact,
arguably, it has got worse. You can start, either individually or
collectively, and tell us what you think is the current weakness in the
Victorian retail tenancy act, the one that you deal with.
Mr Russo —Primarily, I think Dr Clyde Croft summed it up very well when he indicated that the area of misrepresentation, misinformation is clearly not caught by that legislation, and there you have it, as I have already explained in my introductory statement. The problem is not what is in the lease when you sign it. As I have already foreshadowed in my submission, even the most sage QC could read the black and white of a lease, and in between the lines, and still not foresee what might come by way of misrepresentation.
The problem with the Victorian retail law, as it stands, is that it does capture those difficulties and does not provide a remedy for them. Accordingly, the only recourse that a disgruntled shopping centre tenant or other tenant has is to take action in the Federal Court under the Trade Practices Act with the attendant expense that goes with it.
ACTING CHAIR —Mr Russo, in your evidence, you submitted that a landlord should have a duty of care to disclose all information relevant to a tenant. However, in evidence to this inquiry, it has been said that some lessors have failed to comply with the mandatory disclosure requirements already in place in state retail tenancy legislation. Therefore, do retail tenants need better law or just better access to law? Would there not be a heavy burden of proof to say that a landlord knew certain information when a lease was negotiated and deliberately failed to disclose relevant information?
You were saying that the real problem is that there is the nudge and wink approach when you are signing the document: they say, `Don't worry about that, you will be looked after. Do not worry about a five year lease because you know that you will get another five.' How do we overcome that? How do you stop people from saying, `nudge-nudge, wink-wink'?
Mr Russo —As I understand it, as the Victorian law presently stands, the provision of the disclosure statement is not mandatory. That is the problem. It should be, and it is not; that really is the basic problem. The disclosure statement should include all of those matters referred to by Mr Rogalsky in the submission that has been prepared on behalf of the URA. It should be comprehensive. These people have access to far-reaching studies that allow them to know what will happen to the centre in every respect. A retail tenant does have a right to know all that information so that they can make an informed decision. These decisions are very significant to the large part of retail tenants--they are putting their entire life savings on the line. Essentially, I see the difficulty as being that it is not really mandatory at all.
Indeed, as I mentioned in my submission, Clyde Croft did allude at one
point in his book to it being the modus operandi of the retail shopping
centre managers to avoid giving the disclosure statement, optional though
it is, purely and simply because they do not want to give the tenants any
ammunition whatsoever upon which they may rely. Therefore, it makes proving
misrepresentations for the retail tenant significantly greater and more
expensive. In the end we know, as we have already heard, money is an object
towards the end of a situation in a shopping centre where everything is
going bad--you are not making the money, so you certainly have not got the
money to fight them with, and you go under slowly and agonisingly.
ACTING CHAIR —What do you see are the desirable elements of retail tenancy dispute resolution procedures? Provided everything is signed and it is all there, you will still get dispute. If people are in dispute at a time of financial and emotional stress, how do you see the resolution process working? From listening to what Dr Croft said, this is still an expensive process and, in many instances, people are reluctant in an enclosed shopping centre to take it to those processes.
Mr Russo —I see a low cost tribunal as perhaps being the answer and I refer to the Queensland experience in that regard. I have noticed from my reading of Hansard of 17 September 1996, when Kelvin Thomson addressed parliament, that the number of owners and agents being taken to the Queensland Retail Shop Leases Tribunal for misrepresentation had increased by 40 per cent in just the last two years. So it could be the province of a similar, low cost tribunal here in Victoria and it would therefore be able to perhaps enforce the notice of disclosure being submitted and also any breach of that.
ACTING CHAIR —I do not disagree. But, as I mentioned when I was talking to Dr Croft, the evidence in Western Australia is that once you get this thing up and running for a while, government withdraws funding for all sorts of reasons and you can get a two-year waiting time, which is virtually happening in Western Australia. Those things are very good if they have to be resourced and there needs to be a political will to resource them. I do not know how you do that.
Mr ZAMMIT —Mrs Michael, in September you made a submission regarding the problems that you had. You have a shop. How large is it?
Mrs Michael —I am an ex-retailer. I am now the president of the United Retailers Association. I started this association because of my own litigation with a large shopping centre and how frustrating I found the legal system.
Mr ZAMMIT —How large was your shop?
Mrs Michael —I have been in retail for 20 years. I had 13 shops. I come from a retail background, so I was not naive. I was not daunted by the lease when I signed it. I will not go into my particular case, but that was why I started the United Retailers Association to help small businesses. I do not want anyone to go through what I went through. I have hundreds of phone calls from very distressed small business people and there is a common problem out there. As I see it, they are not being informed when they are negotiating for their lease. The landlord is withholding vital information.
You ask me what information--something like the fact that you are going to be relocated in two years at your expense. We all know that to get into a shopping centre it costs hundreds of thousands of dollars, not to mention the security deposit. The lease has to be paid for by the small retailer. They are also up for their solicitor cost and the landlord's cost. Don't you think it would be important for the landlord to mention, `In two years time, we are planning to relocate you'? Where does the landlord think the small business person is going to get that money from? They have already mortgaged their home to move in. They have already got an overdraft. That is one problem--the landlord not disclosing everything.
The second huge problem, which absolutely makes me and my members irate, is that they are not being told the centre is going to expand. When a small business person looks to go into a shopping centre they look at their competition. They ask the landlord, `What are your plans for the future?' They are being lied to, things are being misrepresented; they are virtually being told that the centre has no plans to expand. Yet, two years down the track, 30, 90, maybe 100 new retailers are going in and that is causing an oversaturation of tenancy mix. The problem lies at the initial stage--at the negotiating of the lease. This is where the problem lies. I do not care what you say, by withholding that information the landlord is not giving our members a duty of care.
Our members, from the phone calls I get, are losing their houses,
borrowing money and selling the family jewels just to pay the rent. They
are being chastised and bullied. I am saying to you that it is time that
this stopped. I am very emotional and very passionate about this. It is not
fair what is happening in Australia. The landlords have a lot to answer for
because they will lose good quality tenants. Good quality tenants are
leaving Australian shopping centres by the hundreds because small
businesses have had enough.
ACTING CHAIR —I would like to follow that up with Mr Rogalsky, because in his submission he made recommendations about mixtures of retail tenancies. In New South Wales I understand that that is already the case--the disclosure provision is there and it is mandatory that people be advised of the mix. What recommendations do you think this committee could take on tenancy mix, taking into account the commercial interests of the property manager who needs flexibility to introduce new retailers in a centre to maintain the interest of shoppers as well as the interests of retail tenants whose businesses suffer when they face more competition?
Mr Rogalsky —The real fact is that the first tenants in shopping centres are, in my view, the expert tenants. The landlord is a prudent individual, or group of people, and he sources out first the best tenants. The primary position on what we call the 20-year enclosed shopping centre structure, as we have now, encases at its start the best tenants available. Sure, there are the new ones that arrive on the scene. First of all, you will have your Red Earth, then you will have your black earth et cetera, but the general scenario is that they source out the good tenants. That is an expectation of a landlord.
To then say, `We are going to put in competitive tenants or new attractive tenants,' is okay as long as it does not do damage to the tenants that are already in the centre. In other words, you have done an equity position with a tenant to go in in good faith and he has taken a position there. The expansion of the centre, or whatever is done to attract more people and more speciality, is correct as long as the protection of the earlier tenancies is there, because they are in a 20-year captive structure. They have not got the flexibility of the strip person to be able to say, `I've had enough of this. They are going to put in another person here.' They can be flexible.
The person in the centre is constrained, captive. You must preserve the
position of the people there. As long as they are abiding by the covenants
of their lease with respect to rentals and everything else they should be
protected first. Then you can look to other entities that seek to come in
afterwards. It is good to have attraction, but not to do it in competition
ACTING CHAIR —Mrs Michael, I would like to make a point to you. I encourage you to maintain your anger.
Mrs Michael —Thank you.
ACTING CHAIR —I had a recent meeting with the British Small Business Federation which was started by someone who had the same amount of anger, and now there are 100,000 individual members and it turns over $20 million a year and is a voice that government listens to. Maintain your anger.
Mrs Michael —Thank you.
Mr ZAMMIT —Mrs Michael, in your submission you made reference to class actions by tenants in the major shopping centres. Can you tell us about the class actions that have been taken against the lessors?
Mrs Michael —Yes, certainly. I have encouraged that to a certain degree because I get the phone calls to our association. What I am trying to do is marry the tenants together. In a few shopping centres where they have a similar situation--and legal costs can run to about $100,000--if you get 10 tenants it is only a matter of $10,000 per tenant to have class action.
Mr ZAMMIT —Only $10,000?
—That is a lot of money but it is better than
$100,000 and waiting for two to three years to get to court. I will not go
into arbitration, that is another thing which Mr Rogalsky can handle, but
the legal system has got to be more affordable for the little person to
have access to. A few of our members have even had threats from landlords
to the effect that, `Take us on and we'll win, we've got more money than
you'. It is a real David and Goliath battle out there. A lot of these
pathetic souls have got a case but the landlord says, `Take it or leave it,
next please.' It is disgusting what is going on out there. I do not think
anything had prepared me for the calls that I get every day.
Mr ZAMMIT —We have heard that if some tenants want to take on the landlord that the landlord can do a lot of things to stop them proceeding, like turning off the lights and all sorts of things.
Mrs Michael —That does happen. The landlord does not really care if he is right or if he is wrong. If a tenant is litigating for, say, $200,000, the landlord could not care if he spent $500,000 on the case. Whether he is right or wrong does not enter into it. We have members who have been forced to sell their homes just to fight the litigation. There definitely has to be some arbitration or some system set up.
Mr ZAMMIT —It is grossly unjust, so I come down to my next question. What form of dispute resolution would you like to see in place to help small business in the circumstances you face? For example, should there be a small claims court for small businesses?
Mrs Michael —I do not think so, no. I think there should be an arbitration process set up which is affordable. This is all new to me but I will say it as it is. I had one member who went to arbitration and it cost him $40,000 because the particular landlord brought in QCs and barristers and God knows what.
Mr ZAMMIT —So what Dr Croft said isn't right, is it?
Mrs Michael —What do you think, Richard?
Mr ZAMMIT —In practical experience, what he said isn't right.
Mr Rogalsky —With respect, Mr Zammit, part of what Dr Croft says is correct if we lived in an ideal world, but I say again, they are captive people and captive people are disadvantaged. The position is that landlords have the power. Dr Croft talked about conciliation costs per hour, arbitration costs per hour, but no one has really said, `How much did the accountant cost the tenant to prepare his case? When did his cause of action accrue? When did his loss start?'. There could be up to $40,000 for accountancy fees for the last four years depending on what the matter is about.
Another thing that comes out of that, and this is one of the matters which causes people to be irate, is that arbitration decisions are not public, as Dr Croft said. I have been seeking to become a party to listen to arbitration cases. To be a party to listen to an arbitration case you must have the consent of the two parties. Unfortunately, there is one party--and you can guess who it is--that does not want observers.
In the Federal Court and in the Supreme Court and in the Magistrates Court we can get judgments and we can monitor so we can give to you recommendations. That is the basis of these recommendations. We can give you what has happened in the judgments, although not as a lawyer. We can say, `Let's read these transcripts'. It is a very time consuming exercise.
As for the arbitration thing, it is all good and we can have committees
and so forth but they are still missing the point. We need to know what the
judgments are, what was his decision, not that someone gets it in
confidence. They then say, `I can't tell you how much money we got'. I read
that in your transcript, you said that yourselves, it said, `We don't know
what they got but I heard they got this'. We all get the gossip but the
fact is we are in a real world and we should know what the results were.
The arbitration system is an infuriating thing. Presumably, you have my
recommendations, I have given you the answer to the arbitration matter.
Mr ZAMMIT —Why were you not able to have your retail tenancy dispute resolved under the commercial arbitration provisions of the Retail Tenancy Act?
Mrs Michael —I went down that road and the door slammed on me. They did not want to know. They did not understand. I got a `dear John' letter. While we are on this subject, I will also bring up the ACCC and Professor Fels' department. I started at the basement. I could not get to the top floor. I ended on the third floor. I also got a `dear John' letter. I found it just like a circus. It was just like being on a merry-go-round. They could not even explain the act to me. They could not really define misrepresentation or unconscionable behaviour. My barrister said to me that he could not really define unconscionable behaviour; it was very grey and it was very weak. But yes, I tried not to spend $100,000 in legal fees because that is what it nearly ended up costing me.
ACTING CHAIR —It has been argued before this committee that we should wait for the courts to develop case law on section 51AA of the Trade Practices Act, the unconscionable conduct provisions, before considering amendments. Do you consider that beefing up part 4 of the Trade Practices Act would help retail tenants?
Mr Russo —I do because unconscionable conduct, as it appears in that section, is very vague and the case law is also less than clear cut in terms of defining it. I know it has been argued that the insertion of the words `harsh and oppressive' may lead to further interpretation by lawyers on what those words mean. But I do personally believe that it would be easier to get a handle on what `harsh and oppressive' is than it would be to leave the section as it presently stands. Whatever words are inserted into that section will of course always still be open to some judicial interpretation, but I believe that it would help very much to clarify the matter.
—I notice, too, from your submission that as a
practising solicitor you found it difficult to understand the lease that
you had to sign.
Mr Russo —Indeed. I say that with a degree of sheepishness, but it is true, and that was a plain English lease, I might add.
ACTING CHAIR —That leads to two questions. Should there be a standard form of retail lease basically across the country? Do you have any suggestions as to how to address that problem?
Mr Russo —It has taken a long time--as Dr Clyde Croft alluded to--to get to the point where we have a standard form law institute type commercial lease here in Victoria. I think that is the ideal position to move towards and, if it can happen, it would be a desirable outcome. Yes. I believe that that would be desirable.
ACTING CHAIR —So that any state changes would have to be justified on a reasonable basis and be quite transparent if you had a national lease.
Mr Russo —Yes. Indeed, it really defies the imagination as to why such a situation exists in large part in England and we cannot have the same system here.
Mr ALLAN MORRIS —Somewhere in amongst all this we need to get some sense of independence, arm's length or some other form of evaluation. I notice your comments about the Lend Lease internal proposals about independent reviews and so on. How do you establish a system without going to a legal system where at those initial stages there could be some confidence on behalf of the tenant or the shopkeeper that they can talk to somebody who is not owned by the landlord?
Mr Russo —That is difficult. I think really the only thing that you can do in those circumstances is to get some sort of dialogue going between the two sides, try to agree on a party that appears to be relatively independent and just take it from there. Otherwise you get into a situation of formal arbitration where you do have to draw upon those established arbitrators. But the problem with the Lend Lease proposal in particular is that, quite frankly, I do not think that they are fair dinkum. It is as simple as that.
Mr ALLAN MORRIS —If they were, if Lend Lease were to institute an internal independence, such as the internal auditor function in companies, and quite strenuously so, there is no reason why a company like Lend Lease or Westfield or anybody else could not have an internal independent review process.
Mr Russo —I agree, there is no reason why they could not.
Mr ALLAN MORRIS
—If we were going to argue that--in fact, I have
argued that to some degree--what provisos would you put on that? How could
we be confident? How could we test it? How could we make sure that it had a
chance at least of being successful? You have given examples here and said
it is lip-service. I accept your comments. Tell us the yardsticks to
measure it by.
Mr Russo —Given that you have posed a hypothetical situation, in a sense the only yardsticks that would be available would be, in my view, outcomes, to the degree that there was a fair representation of findings in favour of the tenant on a given set of facts and, similarly, if there was--
Mr ALLAN MORRIS —But it is too late then. If you had a client who said to you, `This company is offering me independent arbitration within their company. Do I trust them or not?' You would then say, `If they do A, B, C, D, E, if these things are there, then you can. If those things are not all there, then you can't.' The question is, what are those things?
Mr Russo —Right, I follow you now. In that sense, I would expect to see the curriculum vitae perhaps of the person involved as to what experience they had, particularly in the area of determining disputes. It may be that that particular person is in fact drawn from the arbitration pool but perhaps is on retainer to the company. In that sense, that person's bona fides probably would have been already well established. Perhaps I would be seeking that that particular person had some legal training in terms of being able to assess information in an objective way, in a rational way. That is not to say that those people who are not lawyers are incapable of doing so, but that would be something that I would like to see.
Mr ALLAN MORRIS —Would you not also say you would need to see the reporting structure, so who from Lend Lease or whatever could talk to them or could not talk to them? In other words, the provisions of the professional barriers that would be placed there in terms of privacy or protection of the information so that they could not get a phone call from the centre manager or they could not be pressured in any way or be misinformed.
Mr Russo —Indeed, that is a very good point and I must say that I had not thought of that. But certainly I would like to see that there was a certain amount of quarantining of the individual so that they could not be, as it were, got at from the inside or the outside.
Mr ZAMMIT —Mr Rogalsky, in your submission you suggest that landlords deliberately avoid giving anything in writing. You also point out that small business does not rely on representations made in original negotiations for a lease or other contract, and that they also rely on statements made in the course of a business relationship. Firstly, should there be continuous disclosure of requirements in retail leases imposing ongoing disclosure obligations on property managers, and how would this operate in practice? Secondly, should small businesses be educated to get everything in writing?
Mr Rogalsky —Mr Zammit, without going to the big report and the exact parcel, because there is a supplementary recommendation submitted and tabled, the simple fact of this is that you start with a statutory disclosure statement or a document, and I have itemised for you 15 elements that I believe should form part of what people should be told before they do anything, other than on the front of the disclosure statement. `Smoking is a bad health habit', or `Your house is at stake', `Don't cross against the red light'--something simple like that. Not a big brochure, just say, `Read this carefully.' Effectively the disclosure statement covers 15 items that I believe are reasonable, intelligent things to seek and would clear the air so much of all this litigation and misrepresentation.
I spent a lot of time putting those together, I have done them on the basis of the transcripts and the questions you people asked others and I have addressed them. I have not done it with any bias against the landlord. I have done it simply on what I believe the questions are. I have addressed the Retail Act of Victoria, the disclosure statement there. I have addressed it back to the second readings of Hansard, one under a Labor Party and one under a Liberal Party, to try to assess what, in the initial act, and what, in the second act, it was trying to lock into the disclosure statement.
The basic fact is that the disclosure statement has to be in a form that answers all these situations and a person commits to it. If there are changes or anything happening subsequent to it, or ongoing changes, the landlord as at law has to be aware that further representations that have been held at law are misrepresentations. So if someone says to you, `You have been trading. Look, stay on, things are better, they are going to get brighter on the horizon,' you have to go to the case law. In the case Karedis v. Antoniou in the Federal Court it was said there that there were further misrepresentations. So you then start another action of misrepresentation.
So I am saying that all parties have to be educated. Everyone has to be
educated--the landlord, too. Perhaps a `landlord' is partly ignorant of the
problem, but if we could get all this misrepresentation, find out what is
cooking with this centre--what it is about, what it's going to do--and put
it all out in front, we will get rid of a lot of this litigation. If it is
in subsequent representations we will be able to clear the air with that
ACTING CHAIR —This directly links in with what has been a concern for many years. In many ways, it is an opt-out for a lot of people. It is about education. Who do you consider should be responsible for educating small business as to their rights under retail tenancy legislation and also the obligations that they have as well--because there are both rights and obligations by tenants. For a long time we have said that the solution is education; therefore you do not have to do anything if you educate. But nobody does the education. How do you reckon you can close the loop?
Mr Rogalsky —Regarding education, I do not really know what we are going to tell people to educate them. We can tell them what the shop is and you can educate and educate people. I have read all that about education but the significance of that worries me. How do you educate them? Do you get them in a room and United Retailers tells them what a shop or a shopping centre is about?
—Basically everyone talks about what an education
is. It is more awareness raising about things like the fact that smoking
will kill you and so on. Everyone says it needs to be done but to date
nobody does it.
Mrs Michael —As far as education goes, I think it would be good if our association put a booklet out to let tenants who are contemplating going into a shopping centre know the pitfalls.
ACTING CHAIR —And it would be compulsory before they signed a lease that they get it.
Mrs Michael —Yes, compulsory, and I think they should read that. They should know and understand that if they are relocated it is going to be at their expense.
ACTING CHAIR —One of the things this committee has dealt with is the fact that, in many instances, small businesses are not businesses in the sense that they are actually consumers. They need as much protection as consumers do from small business. The customers have got more protection than the business has from other businesses. That is one of the issues I think we need to address about how we get that education. If you sign a consumer document for finance or whatever, you have to sign a disclosure that says you were fully informed, and perhaps all leases should have a disclosure in there. Would you agree with that sort of thing gives an obligation on people?
Mrs Michael —Certainly.
Mr Rogalsky —With respect, I believe that in a pure world--to answer the thinking you have put forward--you need education in some form. My belief is that this statutory disclosure statement should form part of the information booklet. Like the credit act, it should have what are you paying, what percentage, et cetera. But if you give people a little booklet like the unconscionable conduct book, I read that and I am still confused about what it is saying. It talks about unconscionability, and when you ask what it is defined as it says, `Well, it is a common law definition.' So I do not think the man in the street is going to get an answer.
I still say, if he is intent and excited about going into a shop or whatever it be in a shopping centre, `Give him an education. Give him a warning. Give him a copy of a disclosure statement.' I believe that he should then go with his solicitor and read it--not having the full facts of the specific shopping centre in that there will not be the mixes of this and that. Do not get to the finite but, as I say, a blank credit document that tells people the rate of interest, such as the pro forma that the Credit Act has now brought out, something along those lines.
I do not believe we should get everyone in a room and tell them what a shop is about. People are really motivated to do something and we will never stop motivation. No doubt there is a percentage of fools--there always will be--but at least we can give them some benefit that they know what they are doing and then give them a book.
We can say, `This is what it is about. This is the warning department. This is a copy of the disclosure statement. This stops the misrepresentations. Hopefully, we will keep you out of the litigation court and, hopefully, we get rid of all these court actions presently on foot and see that it does not happen for new tenants.' We can then move forward on that. If we could get that disclosure statement sorted out properly, I believe a lot of misrepresentation and the worry and the emotiveness that we have been hearing for months on end would be a thing of the past.
I go on from that, as I have said in this report, that you are talking about who is going to hear these cases. I have put in the recommendations that you should look to the ACCC. Then I put in a secondary report to you, because I know governments now say it should be user pays. I have explained to you in that--as a subsequent recommendation, because I have been terribly concerned that, depending on what `faction' you are from, user pays is a thing that could be coming--the methodology that the system will pay. It is a method.
But I believe that these tribunals and all these people that are really
making a bit of a welter of it, if you can get on some of these things and
so forth, are still partly indifferent. They mean well but they go home at
5 o'clock--pack the bag, go home to mum--and the poor tenant is still
stressed out of his brain. I think it should be a closer interactive
position. I have taken on board the ACCC, as I have said, in the position.
I am not doing it with disrespect to them; I think it has got enormous
capacity. But it is a very forward thinking recommendation.
Mr JENKINS —The disclosure document goes to things that are not a static situation. Many of the elements will be dynamic, and within the period of a five-year lease there are going to be changes. If all we are going to do is to leave it that, if there are changes, they should be put to the tenant in writing, we will be overlooking a missing element. That has been the lack of a proper business relationship between the landlord and the tenant.
Some of these things that you list, and that I would see might change over the course of a lease, should be things which a tenant is able to discuss with the landlord. For instance, if the tenant is putting money forward for promotional activities, it would be silly if we said that at the start of the lease we would get the landlord or the management to say, `This is what is going to happen,' if two years down the course they could just say, `Well, that did not work so we have changed it.' What would be missing is for them to have used the pool of talent which is their tenants to help them in the running of the centre.
Likewise, it may be legitimate that, two or three years into an
individual's lease, the landlord or the manager on behalf of the landlord,
because of circumstances in the commercial world, will say, `We would like
to be changing the tenant mix.' They could decide that unilaterally. Under
this system, because we are into disclosure, they could just say two years
down the track, `Well, this was the case when we entered into the lease but
we have decided, because of circumstances, that we want a change. Here is
your notification in writing.' Again that would overlook that it would have
been helpful if, under a proper business relationship, the landlord or the
manager had sat down and talked with the tenants.
Mrs Michael —I totally agree. Could I just add to that? Getting back to the tenancy mix, there seems to be just open slather in the shopping centres. They are not being managed properly by centre management at all, particularly to judge by the calls I get in the food area, where there is just so much overlapping. Centre management just does not seem to care. It is just not an issue with him.
You have got this oversaturation of the tenancy mix. You have got a landlord who is totally unapproachable. He has got such a callous disregard for the retailer. There should be a lot more communication. I predict that there will be an absolute meltdown if we do not address this situation and get all these things set up in the federal government. I think it will all be over.
The landlord has a real problem out there. No-one is winning in this situation. The small business is not winning and it is inevitable that, in the long run, the shopping centres will not win. They will start closing down. They have invested a lot of money and if the small businesses are leaving--and they are leaving in droves--there is a huge problem in Australia out there. It is coming, it has started. Can't anybody see that? It is a no-win situation.
ACTING CHAIR —One of the more lateral suggestions put to this committee, which I think you might find has some merit, was put forward almost tongue in cheek, but not totally. It is that the tenants should actually choose the centre management.
Mrs Michael —Wonderful idea.
ACTING CHAIR —Obviously that is because they have very much an interest in making the centre work. They make the investment into the centre, not the landlord. The landlord owns the building, and anything that is changed you pay for. Do you think that is a realistic thing, and how do you think it could operate?
Mrs Michael —Most definitely. You would very rarely meet the landlord--I do not think any of us have met John Gandel or Mr Lowy--but you will certainly have contact with your centre manager. I would like to know what credibility and what experience these centre managers have got.
Mr ALLAN MORRIS
—Mr Chair, it was not quite that. What was being
proposed was that GPT, General Property Trust, is the owner; the tenants
are the tenants; and they appoint the management, not Westfield or Lend
Lease. In other words, Lend Lease and Westfield as the manager are not the
appropriate body. There is no need for a third party.
Mr Rogalsky —The real fact of a centre manager is that the tenants pay the wages of the centre manager.
Mrs Michael —We pay the wages. The small business pays the wages.
Mr Rogalsky —Let us take a centre manager now. The real world is this: a centre manager turns up when the ticks are on the board. When the shopping centre is full of people, boopety-doo, who turns up? It is the centre manager walking around, saying, `Ain't we doing well!' When it is dead, on a hot day like today, you try making a phone call saying, `I'd like to meet with the centre manager.' `Look, he is busy at the moment,' et cetera. When you next meet the centre manager he has got more files than I have got on my desk; he has got them like this. I say, `Where are you going?' `Oh, I've got a meeting with the owner to talk about the cash flow of the shopping centre for the next year.'
So you could be not doing well, you have got your complaint. He has got two hats. I will tell you what, you are paying his fees but who do you think he jumps higher for? He jumps higher for the one above. When he knocks on the door and he says, `I want you in my office now,' you are there straightaway. You say, `I am sorry I'm a second late. I would have been here earlier except I cannot run any faster.' But the tenant rings up and they say, `Can I see you?' His answer is, `Yes, but I am going to a shopping centre conference in Queensland. I will be back in two weeks,' et cetera. It is the system that is created.
You can blame landlords and that, but it is 20 years of a thing that has grown. It is a growing thing. I do not believe you throw dirt over a landlord--that is not the point of the issue. But I believe that is a very sensible suggestion. The centre manager is in a position that you should be able to knock on his door and see him. All of this is: if you do not talk to people you get this thing in your mind, `What is he about?' He should be available to people.
All right, the landlord is too big now because of the monolith of what
he is doing and his expansions and so forth, but there should be delegated
a person and then there should be someone that can complain about a centre
management if it is not performing. Perhaps it is that a lot of centre
managers really are not up to scratch. They are causing the problem to a
landlord when they say to people, `Look, things are going to get better.' I
do not think they understand enough. If you read the lease--and a lot of
leases are naive--you see that the centre manager acts in the position of
the landlord when the landlord is not there. Unless the landlord withdraws
the statement of the centre management in writing, that word is a
representation, and that creates further misrepresentation. This is crazy,
and I do not think centre managers understand what they are doing.
Mrs Michael —They do not live in the real world. They are on $80,000 a year, with their pinstripe suits. They would not know what it is like out there in the shopping centre.
Mr ALLAN MORRIS —I do not know about that: they are not going broke when you guys are.
Mrs Michael —Exactly. That is what I am saying. They are not in the real world. You very rarely see a centre manager.
Mr ALLAN MORRIS —Their world is very real. They are getting increased salaries every year, that is pretty real. I would not look at it that way.
Mrs Michael —I only see my centre manager on Christmas Eve. He came in and gave me a handshake and a Christmas card. It is disgraceful.
Mr ALLAN MORRIS —He is in the real world--he is doing fine, thank you.
Mrs Michael —No, we are in the real world. These people behind me are in the real world.
Mr ALLAN MORRIS —I suggest that by thinking that way you are probably disadvantaging the way you approach it. I want to go on to the question of rent and centres. I want to take up a couple of different angles. I will put two things to you and try and canvass what you think of them. It has been put to us, firstly, that current rents in shopping centres are about 50 per cent over value. It has also been put to us that the average rent to turnover in shopping centres is up to double or more than that for the same kind of business in a strip shop. The Institute of Valuers also reinforced that rents were over valued and that they will probably come down; in other words, the bubble will burst some time. If it does burst, then obviously a lot of people are going to be hurt. A lot of people have been hurt already but more will be hurt in that meltdown that you spoke of, Mrs Michael. How do we get from where we are to where it is sustainable without destroying people?
Mrs Michael —As far as the rental goes?
Mr ALLAN MORRIS —Assuming rents are overvalued and there is going to be a meltdown of some kind, how do we stop the meltdown?
—In the ideal world--and we would never get a
landlord to agree to this, God help us--percentage rental of the turnover.
Because the rentals are far too high. It is just the landlords' greed. I
would say percentage rental of the tenant's turnover.
Mr ALLAN MORRIS —Does your organisation support that concept formally?
Mrs Michael —Yes. I do.
Mr ALLAN MORRIS —Have you actually discussed it amongst your membership?
Mrs Michael —Yes, we have. Percentage rental of turnover.
Mr ALLAN MORRIS —I see heads nodding in the audience.
Mrs Michael —The people behind me; I can only speak for a few of them.
ACTING CHAIR —What would that do for the mix of tenants? If a landlord knew that all they would get is a fixed percentage of turnover, would they not go for the much higher turnover type of shop?
Mrs Michael —Yes, but does it not all come out in the wash, because then your rental is in line with your turnover? If the chains are turning over $1 million, they would not mind paying a percentage of their rental. It would all come out in the wash. The small business person who is only taking, say, $7,000 a week would pay $700 in rent. A person that is taking $1 million turnover a year would pay $100,000. It is so logical to me. But, God help you, as I said, you will not get the landlord to agree to that. Why would he? He is too greedy.
ACTING CHAIR —A variation of that theory--and I put it forward for you to respond to--is that different categories of shops should have different percentages of turnover. A high fashion shop has a very high profit margin. Your turnover should really be based on your profit margin in categories and that should be fully disclosed. You have one price. In that category of shops, maybe 10 shops in each centre, your rent is a certain percentage of turnover. Do you think that that is a workable option?
Mrs Michael —I think that would be very fair.
Mr ALLAN MORRIS —That was put forward to us as a preferred model--the different groupings of shops--because margins and so on are pretty relevant. That would require some other factors for situations such as when someone is not trading well or someone has a problem. You need some independence about that. Amongst your membership, have you attempted to establish those figures at all for your shopping centres? For example, I notice, Mr Russo, you have five shops in an eatery taking court action. Have they compared notes on their rent to turnover? Do they know what the rent to turnover is within their centres?
—Indeed they do. In fact, I would venture to suggest,
speaking from direct experience, that each of those five have their rental
as a proportion of turnover sitting at around about 40 per cent.
Mr Rogalsky —Whatever they tell you, it is always 30 to 40 per cent. Anyone who says they are 12 and 14 per cent is--
Mr Russo —Not in the real world.
Mr Rogalsky —If you took a line at about 30, 35, that is where it is.
Mr ALLAN MORRIS —What is that in? What kind of things are they?
Mr Rogalsky —That is your occupancy cost, which is your rent to your turnover.
Mr ALLAN MORRIS —For what kind of shop?
Mr Rogalsky —As enclosed buildings, are there all--
Mr ALLAN MORRIS —I was particularly asking about eateries because Mr Russo has an eatery.
Mr Rogalsky —Eatery is the highest, yes.
Mr ALLAN MORRIS —You have a large audience there. It would be helpful to us if we could get some examples of different shopping centres for, say, eateries or different kinds of activities--not today. We are looking at different parts of Australia so it is different in different parts and we are not getting the information for all areas. So it might be helpful to us to get some ideas about those differences.
Mr Russo —One advantage of the percentage turnover type rent situation is that it really does make the centre management accountable. Some of these blokes here are in centres that are so run-down it is not funny. They have tiles falling off walls, cockroaches scurrying out of openings in walls and they are still paying the same exorbitant rents.
Mrs Michael —Promotion does not exist.
Mr Russo —If the rent is tied to a percentage based on turnover, then you can bet your boots that the landlord is going to spend the dollars to make sure that they get that rent in, based on turnover. They will do anything they can to get the people through that centre.
Mr ALLAN MORRIS
—So how would you move from where we are to where
we could be? How do you make that move?
Mr Rogalsky —I have covered that matter for you in the recommendations. One of the things I have been concerned about is that it is a very big brush to just go to percentage rental with respect to a landlord. He has his present financing and funding positions. It is a worry that it is a new world, and in the real world we are going to confront everyone. All I have put in the supplementary recommendations to you is a trigger mechanism to create percentage rental. It is caused under the arbitration factor and it starts to introduce it. As I say in the clause subsequent to that, this at least gives you the opportunity to put your foot in the door for percentage rent.
Mr ALLAN MORRIS —What page, Mr Rogalsky? I just want to make the comment to our witnesses and to those in the audience that we are always interested in more information. If anybody wants to pass on some comments to us, a few more notes would be quite welcome.
Mrs Michael —Thank you. I welcome that opportunity.
Mr ZAMMIT —I have a question to ask. I am reluctant to ask it, but I will. I spoke to a former large shopping centre manager recently. I told him that I was very concerned at the practices employed by centre management and the owners of shopping centres as perpetrated against the small retailers, especially the small tenants.
He said to me, `Look, I wouldn't take a great deal of notice of that.' I said, `Why not?' He said, `Let me put it this way, there is absolutely no doubt that the centre management rips off tenants, but they in turn rip off the taxpayer.' I asked, `What do you mean by that?' He said, `Well, they do not declare all the things that they should declare. They take cash over the counter and so on.'
If we are going to come down hard on shopping centre management, if we are going to come down hard on owners of shopping centres, how can we guarantee that they do not come back to us and say, `You are getting stuck into us, but you should get stuck into them as well.'? How does one overcome that? It is only one person who told me, but he is no longer in the business.
Mrs Michael —I am trying to understand that. I am appalled by that centre manager. If that is his justification for what is going on out there, I find that absolutely appalling.
Mr ZAMMIT —It is a valid question, I have to ask.
ACTING CHAIR —Talking about the black economy--
Mrs Michael —Talk about being fair--
Mr Rogalsky —The answer to that is very simple. There has been an example of it at the Myer Centre in Brisbane. If you go to percentage rental, everyone is playing the game. You used the naughty word `black', but it has gone, and it helps government. What they do in Brisbane is, if you go onto the percentage rent it is a level playing field, because they set the computers, everyone is on computer line direct to the centre manager and he can come into your shop at any minute with a key and punch up and check it. He can come around with a policeman or someone and say, `I want to buy something,' so he gets something and he can check it.
The landlord has the right to have policing: you have got to balance the
field. But it is a matter of working it through. The penalty has got to be
that if the person is a naughty boy once, he gets bang, bang; if he is a
naughty boy two, three or four times, he is out the door. You have to
protect the landlord. It has got to be level. The Brisbane shopping centre
about four years ago used to do it. I saw the lady come around, and she
said everyone was lovely. They would press a button: boom, boom, boom. And
I would ask, `What was she doing?' and they would say, `She is checking the
figures'--because they were on percentage rents in the food areas.
ACTING CHAIR —I am from Brisbane. I was not aware that the Myers Centre was still a percentage rent.
Mr Rogalsky —I observed the woman coming in and going into other shops. She seemed a nice lady and I wondered what she was doing and I asked a question.
Mr ALLAN MORRIS —How long ago was that?
Mr Rogalsky —It was in 1991-92, when the REMM were there, before the demise of the REMM group. But it was a Myer centre, and I was impressed by that. I believe that percentage rent is the answer to a lot of it, but we have got a transition. Mr Morris asked what part it was in, and it is on page 8 of 15. I believe that, in all of this, we can have a dream world but we have also got to have the practical world. All of the landlords have geared their properties on a funding position, so we cannot just say that the law is now percentage rent. That is not reasonable. What I have tried to introduce in this whole recommendation to you--
Mrs Michael —Can I add something? I am still very angry about that last comment with that landlord. What you were basically saying--
Mr ZAMMIT —Former landlord: he had no reason to--
Mrs Michael —Can I just qualify this? He is saying, `Don't worry about the small business person. He is doing all right, Jack, because there is a bit of black money under the table.' Let me tell you that half of these people are not even earning a wage at the moment, and many of our members are going out and working at petrol stations after work just to pay the rent. I take absolute offence at that.
I also would like to add to this, because I am getting angry again--and
as you said, Acting Chair, you should maintain your anger. I would like to
ask this particular centre manager if he thinks it fair that small
businesses are paying more percentage rental than the large chains. Do you
know that we--small businesses--are practically running the shopping
centres? Why is it that the chains are paying less than the small
businesses? He has got the gall to turn around and make a comment like
that. Many of these people behind me are not making a wage. They can hardly
put food on the table, and I am insulted by that. Aren't you?
Mr ALLAN MORRIS —Yes.
Mr ZAMMIT —We are on your side, because we have had so many people come and tell us real life stories of how much they have suffered. I made it clear this was a person who was formerly in it.
Mrs Michael —I am glad you brought it up.
Mr ALLAN MORRIS —Can we get him as a witness?
Mr ZAMMIT —Yes, we should drag him in. The point that he made is that the larger tenants, because there are so many people involved, would not and cannot hide their takings, because they will get dobbed in.
Mrs Michael —No; they just invest it into stamp and coin collections and paintings.
Mr ALLAN MORRIS —Mr Chairman, I would like to come back to that question of the transfer from one to the other. I read your page. You raise it, but you do not necessarily give us a mechanism, and it is something you might--
Mr Rogalsky —Yes, I do, with respect; but you have got to sit down, have a cup of tea and read the lot four or five times. The time that is put into this has not been--
Mr ALLAN MORRIS —You were complaining about the brochures not being understandable, weren't you?
Mr Rogalsky —Yes, but I say that that is understandable.
Mr ALLAN MORRIS —It is okay. I said that in jest.
—You have got to read it in full. I am aware of two
things that worry me in this: percentage rent is the ideal but, to get
there, we have got to be in the real world. The landlord has his funding.
Let us get in the real world. He has obligations. He has an asset. The
point is that ideally we have got to introduce it, and I have given the
method of introducing it.
Mr ALLAN MORRIS —I am on to that. It may be that with hindsight, after today, you might give us some more comments about the actual process of it and not just the trigger. I want also to refer back to the earlier witnesses today. I am sure you were all in the audience when Dr Croft raised the question about a trading right as a kind of new instrument. Do you have any observations? He was suggesting almost off the top of his head the idea that, rather than having a tenancy lease in a shopping centre, you could have a right to trade, which would therefore be a different instrument from a normal lease and which may be able to be designed particularly.
ACTING CHAIR —You will have to be succinct, because we have only five minutes of tape left.
Mr ALLAN MORRIS —Yes. I am interested in some comments or reaction to that.
Mr Rogalsky —Again, we come back to dollars and cents. Let us look at the landlord--
Mr ALLAN MORRIS —No. This is strictly conceptual. Consider the concept that, rather than a shopping centre having a lease, they would have a contract which is a right to trade in the centre. That is a concept which would allow you to redefine what that actually consisted of, rather than picking up a lease.
Mrs Michael —There has to be a change. At the moment, the lease is written by the landlord, for the landlord.
Mr Rogalsky —That again comes back to the REMM in Brisbane. They had licences, with this percentage rent: instead of the word `trading', they use the word `licence'. I would say to that that the landlord owns the plant and the equipment and everything else. In the transcripts that I have read, the one thing that we are trying to hang on to is the nest eggs of superannuants. If they go in trade, what is really the future? Where is the goodwill for the trading person?
Mr ALLAN MORRIS —I raised the question--and perhaps you can respond subsequently--that the right to trade would be a tradeable commodity in itself, as the lease would be; but it would allow you to design it so that it was actually written in a form which was not picking up all of the hundreds of years of lease law.
—We will resume now after that short break. I
suppose the answer to this question is yes, but I would ask you to think
about it first. Should the rent or total occupancy costs of any tennant in
a shopping centre be on a public register? That is, should there be a
register drawn up of what everybody pays and that everyone can access?
Quite often the initial response to that is yes, but then people realise
that everyone would know what their margins are, et cetera. What is your
view on total disclosure?
Mr Rogalsky —I have put the statutory legal disclosure statement in the recommendations and I say outgoings have to be put on the public record. It is nice to know what people are taking but one of the concerns I have about outgoings is a new problem. It is the mixed use matter. We have got to have all that above board. We now have retail in a transit terminal, such as the REMM mix in Brisbane. You have your office and your residential. We are getting mixed use development.
We have to know what the outgoings are because it is such a mix. With mixed use there is a need to know what the outgoings are. If it was a simple 20-year structure, perhaps, but not with the modern practice of mixed use. There is also the entertainment component within an entity.
Mr ALLAN MORRIS —Concerning those questions I was asking before about a right to trade, I would be keen to get any comments later on, perhaps a note or something.
ACTING CHAIR —I want to ask about the concept of goodwill. We have had a lot of evidence before this committee about the concept of goodwill. A lot of people have put forward the proposition that because a lease is for five years, that goodwill exists only within that period. They say that at the end of five years, because the lease expires, goodwill is no longer existing. Therefore, any costs have to be amortised over the five years. Do you have a view on that?
Mr Rogalsky —Is it nearly back to a trading lease.
ACTING CHAIR —That is the reality now.
Mr Rogalsky —The reality is you have a trading lease.
Mr ALLAN MORRIS
—The word `lease' under law has a whole lot of
case law and a whole lot of common law behind it. What has been suggested
is a new instrument which does not have all that in which you could
actually define precisely what you mean. You do not have this currently
because of all the confusion as to what a lease actually is. The word
`lease' is normally used for a particular sized property--a particular
amount of space in a fixed location which is surveyed and which is
identifiable. A business in a shopping centre is not that but we call it a
lease. In other words we are calling a thing a lease which is not a lease.
It is actually a right to trade and all the baggage that goes with it. I
think what was being raised by Dr Croft was the idea that it may be well
worth thinking about defining a shopping centre lease as a new instrument
in which you have a clear-cut precise way of talking about what you
actually own and what you have when you buy it. There would be no reason
why it could not be traded as a lease can be traded depending upon how long
it runs for. Whether it runs for three years or 25 years would be part of
that particular contract.
Mr Rogalsky —With regard to that, my concern is in the interests of the community. The element of goodwill is very important to everyone. At the present time the five-year lease, as the Deputy Chair states, does not allow people--and I have read the transcripts--to get their money back. They do not have a nest egg; they are just goodbye Charlie, I am off. Who is next in the line--tick the box. We get into the question of the smokescreen. Take the person that for five years has made those beautiful pies. People have come from other areas to see the chap and his wife and got to know them. To my view that is goodwill. That is an element people have gone out of their way and strived to create. But after five years, you can wipe the slate. He has got no superannuation; he has got nothing from it.
It goes back again to the basic premise of the five-year lease. It has to be a ten-year lease. It has to be a five-year lease with an option to the tenant of five years--not to the landlord. Let us get the goodwill in and get him a chance to get his money back out.
Mr ALLAN MORRIS —That does not give him goodwill. What he needs is residual rights to renew.
Mr Rogalsky —No.
Mr ALLAN MORRIS —That is what it needs. Whether it is five years, seven years or ten years it does not matter because at some stage you have a year or two to go and if you haven't got it by then you are stuck. A residual right to renew is what would give goodwill.
Mr Rogalsky —If you read the recommendations as I said--perhaps I should not have shown you that brochure where it says that it is very hard to understand. I put in the recommendations a five-year lease with an option of five years to the tenant with a further option of five years to the landlord with a further five years. I trigger the landlord but I also say that the tenant has to have abided by the covenants in the lease. The covenants being mainly to pay your rent on time et cetera.
—I have got a feeling here--and this is a science
graduate going through the maze of legalities--that this concept of
goodwill is something different from what I thought at the start of the
inquiry. My concept of goodwill you have nearly described. It is those
customers that come to have Mum and Dad's pies but that is not something
that is tradeable. What you are saying is that, by increasing the length of
the rental periods from say five to ten years, a whole host of other
matters that are involved with conducting the business can run across the
ten years. If somebody wanted to sell their business on they would get, if
it is after four years, six-tenths of something back but there does not
seem to be an ability to sell the customers and things like that. Before
this inquiry started, this was not something that I had actually realised,
and that is what I thought goodwill was.
ACTING CHAIR —You can sell that as long as someone is prepared to pay the money. Goodwill only exists if someone is prepared to buy it. But what that person needs to buy is more than thin air and unless there is a continuity of lease arrangement then the people may pay goodwill but they will in the end only have two years to amortise all their expenditure. That is where you are coming into a real danger situation because goodwill is exactly what you say and what Mr Rogalsky says. That is, Mum and Dad have built up a business. They sell that goodwill; people pay for it but unless they have security of tenure of premise, then it is gone. Some businesses you can move but not in an enclosed shopping centre.
Mr Rogalsky —There is one element that I did not mention and that will probably ease your mind a lot. At the end of the first five-year lease, the option is to the tenant to extend but the tenant has to give an option to the landlord to take it back with its inherent goodwill in it. If someone comes to the tenant in say three or four years and says, `I would like to buy your business,' and there is a year or two to go, if he has got another five-year extension perhaps the landlord would like to take it back. In some leases, the tenant must offer to the landlord a right to buy the business back at the price that someone has offered him.
Mr JENKINS —I want to just change the questions a little. I want to give Mrs Michael a chance to give her association a plug. How many numbers have you got at the moment? How many shopping centres across Melbourne and Victoria are represented in that membership? I think that as part of the maintenance of the rage and anger you should be pushing the association.
Mrs Michael —We have members in all shopping centres. We have got a very dedicated committee. We are different from the Retail Traders Association in the fact that we are run by small businesses for small businesses. We have the passion and the understanding to know what they are going through. Our membership is increasing. We have a subcommittee of solicitors who can help and advise tenants. This week we have received some tremendous contacts from Perth, Adelaide and Sydney suggesting that we do go national and we are considering that. We feel as though United Retailers is the first and only association representing small businesses run by small businesses.
As I said before, we are represented in every single shopping centre in
Melbourne. Each one of our committee members is a small business person
within that shopping centre. We get weekly or fortnightly reports of what
is going on in that shopping centre and once we have a member we also
inform them. It is sort of like being a survivor of a plane crash--it is
the only way I can describe it--because by speaking and being together we
can discuss similar problems. The small business person is not feeling left
out there in the cold.
Mr JENKINS —Do you have members that are from strip shopping centres?
Mrs Michael —No.
Mr JENKINS —Are the problems different depending on the size of the shopping centre or is it across the board?
Mrs Michael —No. I do not think any shopping centre is isolated. The problems remain the same within all shopping centres. It is just basically the greed of the landlord.
Mr JENKINS —My final question is about the ability of traders to act collectively. Often we have had people come before the inquiry who were the chairperson or the secretary of the centre's traders association. They have gained the impression that they have been victimised because they have taken on those positions. That seems a real difficulty because it would seem, as you have experienced, that by bringing people together, and you talk of even legal class actions, there is a great deal of strength from that coming together. But it is also a pity, I believe, in terms of the proper conduct of the shopping centres for the landlord and the management not to be able to have a point of reference of people who can speak on behalf of the tenants.
Mrs Michael —What are you actually asking me?
Mr JENKINS —I am wondering whether, within the shopping centres, you try to assist people to come together as centre committees?
Mrs Michael —Yes, we most definitely encourage it. I will not mention the shopping centres, but I have what I call my hit list. I get my hit list out every Monday morning and do a whip around and speak to each shopping centre. In other words, I have someone in each shopping centre that I can talk to at any given time. If they have a problem, I have a phone number at which I am available 24 hours a day. The reason we are different from any association is that, having been a retailer of 20 years, I have done the full circle. I have been successful, I have litigated, I have won, and now I am trying to pass on my information to fellow retailers.
ACTING CHAIR —So you have the passion, which a lot of them do not.
Mrs Michael —Yes, I have a genuine passion.
ACTING CHAIR —I think one of the great successes you will have is that you are made up of small businesses. Retail traders associations tend to be dominated by the people who pay the wages of the people who work for the retail traders.
—I might add that everyone is doing this voluntarily;
no-one is getting a salary. We have huge expenses--photocopying, obviously,
and all sorts of expenses, including the documentation to you.
Mr Russo —I would like to make one point to follow on from what Lisa has said. It is all very well to have a representative organisation, as we do have, and we are quite solid across the board of the shopping centres. But the simple fact of the matter is that shopping centre owners and managers do not like to speak to a representative purporting to represent the members within a shopping centre. They try to split one off against the other. That is very important to note. They will not talk to a representative organisation speaking on behalf of the shopping centre tenants collectively.
Mr ALLAN MORRIS —Could we go back to the question on goodwill and leases--and, again, you might want to think about this. The English system has a right to renewal with the tenant. Unless there is a reasonable expectation that you can actually renew a lease--for example, if it was accepted that a person who was trading properly, paying all their bills and so on, would be able to expect to renew--it seems to me that goodwill becomes a shrinking commodity, whether it be two years to go, a year to go or four years to go. Can you think about that and drop us a note. I am not sure if you can answer it now, but you can see what I am trying to get towards, that without that you have no goodwill.
Mrs Michael —I would like to define goodwill, because that was in a press release we sent off this morning and it is interesting that you should bring up the subject. This is the way we define goodwill, which only involves three words: retailing is largely dependent upon the goodwill, hard work and commitment of small traders. That is what goodwill is.
Mr ALLAN MORRIS —Yes--but can you sell it?
Mrs Michael —I do not think there is any goodwill these days. It would be very hard to sell hard to sell a business for goodwill.
Mr Rogalsky —It says in the leases that we have got goodwill.
Mrs Michael —Yes--you used to be able to get goodwill.
ACTING CHAIR —I am about to draw this to a conclusion, but in case we have not covered any issues you wanted to raise I will give you the opportunity to raise them now.
Mr Rogalsky —One of the issues that is very burning and that is coming to light more is in the Alan Millington report. You gentlemen heard Alan Millington and you can judge what you thought of the man, but his report to the Retail Traders Association in January last year was a very intelligent and very positive approach. As I observe the man, although Alan Millington understands the problems of tenants he is an economics driven person, concerned with evaluation. He has stated in his book that landlords are going to have a problem very shortly. The prime tenants are disappearing and there is going to be a change in the value of their assets.
Not only that, we got the transcript yesterday of another case of this
from a report on the PM program on the wireless that Gareth
Griffiths, President of the Institute of Business Brokers--I do not know if
you have heard him?
ACTING CHAIR —Yes.
Mr Rogalsky —If you refer to what he says, with all these expansions we are creating a problem for everyone--mortgagees, landlords, financiers, the stock market, superannuants. With all of this money you are getting in from your poor little person with his superannuation, where do we put it? Shopping centres. They are saying, `Look, they are the 10 wealthiest people. Let's get the shovel out and throw the money over there. Let's keep going into it.' But that is going to crash the country.
Every other element has had its drop and I get concerned for landlords the way they are going with it. The tenants are running out. We have destitute tenants already and we are now creating more, so we attract other people--they will find someone to go in--and we are creating this economic problem. Those two elements are a problem that you in government have to look at. It is a very important element.
ACTING CHAIR —Mr Zammit is in government, the rest of us here are not.
Mr Rogalsky —In opposition or in government.
Mrs Michael —To sum up, I would like to thank the fair trading inquiry for this opportunity for United Retailers to speak for the majority of small businesses. I have a question I would like to ask the Acting Chair, because I am the new girl on the block.
Mr ZAMMIT —Is this a dorothy dix question?
ACTING CHAIR —No.
Mrs Michael —I would like to know where this is heading. I think you mentioned before that you did something similar to this 10 years ago, yet nothing has changed. What is the next step? When should small businesses have an answer? When should we hear the outcome from this?
—We would hope to have the report tabled mid-year.
Then the government has to respond. The frustrating thing about the last
report was that I was the chairman of this committee, then I became the
minister and for three years I fought all the state governments to try and
get uniform legislation--and we are back here nine years later.
Mrs Michael —This is very disheartening.
ACTING CHAIR —At least we know that it did not happen.
Mrs Michael —I hope you and I are not back again nine years later addressing the same situation.
ACTING CHAIR —No, I do not think so.
Mrs Michael —I am here to say that I do not think many small businesses can survive.
Mr ALLAN MORRIS —That is why he asked you to maintain your anger.
Mrs Michael —I will maintain my anger--but nine years is a bit too long to maintain it.
ACTING CHAIR —I know. Thank you all for attending, because this has been most important for us. On Monday, 24 February, the Property Council of Australia is appearing before the committee, so we were very keen to hear your point of view. Susan clearly indicated to the committee how impressed she was with the submission you made, so we are very glad that you took the time to come and see us today. We am glad the other people came, we hope you all found it interesting, and we hope that you will also find the report so.
Mr Russo —I would just like to correct a misapprehension that you may have unwittingly conveyed when you said that I did not understand the lease.
ACTING CHAIR —No, I said that you found it difficult to understand.
Mr Russo —No. Indeed, I understood the lease, but what I did not understand was the level of duplicity that preceded it by way of inducement. That was what I intended to get across.
ACTING CHAIR —Okay. Thank you very much.