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Pay up or, pay up: small business slugged again

"Labor Party amendments to the Federal Government's New Deal:Fair Deal Fair Trading Reforms for small business will cost sole traders, trusts and partnerships a minimum of $700 each," Alan Cadman, Parliamentary Secretary for Workplace Relations and Small Business, said today.

"Some small businesses, so a Parliamentary Report found, can be damaged by unconscionable behaviour from shopping centre operators and the Committee concluded that concerns about unfair business conduct should be addressed urgently.

"Rather than try to prevent damage to small businesses, the ALP wants to force them all to become companies, at a minimum cost of $700, so uniform tenancy laws can be introduced Australia-wide.

"It is tough going to be in small business but if they don't pay up for their incorporation, Labor will slam them with increased taxes as a penalty!

"This solution is blatantly anti-small business and it is also totally unworkable. The Commonwealth does not have the power to bring in uniform tenancy laws.

"But worst of all for small businesses, this amendment is only being put up to delay progress of remedial Government legislation.

"The only winners from Labor's actions will be the shopping complexes, who are the very ones Labor claim they want to control.

"New Deal:Fair Deal has been hailed by all small business organisations everywhere and the Coalition Government is working with the States to achieve tenancy legislation which will be better for all small businesses."

Contact:

Alan Cadman MP, (W) 02 6277 4182

Mr Michael Delaney

Executive Director

Motor Trades Association of Australia Limited

Canberra ACT 2600

Dear Mr Delaney

National Uniform Retail Tenancy Legislation

We refer to the request by the MTAA for advice concerning the extent of the Commonwealth Parliament's powers to enact retail tenancy legislation.

2. Such legislation would give protection to lessees against unfair conduct by lessors, including protections that are lacking under the existing legislation of at least some States and Territories.

Commonwealth legislation in the Territories

3. The Commonwealth Parliament has full power to enact such legislation in the Territories (section 122 of the Constitution) subject to constitutional restrictions such as the requirement to provide "just terms" for any "acquisition of property" (see paragraphs 15- 16 below).

Commonwealth legislation in the States

4. In the States the Commonwealth's powers are limited to laws with respect to the subjects listed in the Constitution. They are found mainly in section 51.

The corporations power

5. The main power would be the corporations power - the power in section 51(xx) to make laws with respect to

"foreign corporations and trading corporation or financial corporations formed within the limits of Australia."

6. Under the corporations power the Parliament could regulate retail tenancies:

(a) Where the lessor was a "trading or financial corporation".

- By virtue of its provision of accommodation for reward, a corporation would be a "trading corporation", unless perhaps that activity, together with other trading activities, formed a very small part of its total activities.

- A corporation with a substantial proportion of "financial" activities would be a "financial corporation" - eg a bank, building society or credit union.

(b) Where the lessee was a "trading or financial corporation".

- The corporations power extends to measures, not only to regulate such corporations but also to protect them ( Actors and Announcers' Equity Association of Australia v Fontana Films Pty Ltd (1982) 150 CLR 169).

- A corporation providing retail financial services as a substantial part of its total activities would be a "financial corporation".

7. One technique used in some legislation (eg relating to the superannuation industry) in order to expend the reach of Commonwealth legislation is to exercise the Commonwealth's taxation power in section 51(ii) of the Constitution by imposing a high rate of income tax on bodies engaged in the relevant activity if they are not incorporated. When they become incorporated, they become subject to regulation under legislation based on the corporations power ( of Superannuation Industry (Supervision) Act 1993).

8. In the present context, it would be open to the Commonwealth to impose higher rates of income tax or some other tax (eg a land tax) on the lessors of retail premises if the lessors were not incorporated. Upon becoming incorporated in order to avoid the higher income tax rates or special tax, the lessors would become subject to Commonwealth legislation based on the corporations power.

9. The actual proportion of retail tenancies in the State that would be covered by such Commonwealth legislation would depend on how many retail tenancies had retail or financial corporations as lessors or lessees. We do not have access to statistics on that matter. However, our general impression is that a high percentage of current lessors are corporations. Some retail premises, particularly large shopping centres, are owned by public unit trusts: these trusts must have corporations as managers (Corporations Law, section 1064).

10. The proportion of retail tenancies with corporations as lessors would increase if there were sufficient taxation incentives to incorporate (of paragraph 7- 8 above). At least in the absence of such incentives, the proportion might decrease, since some incorporated lessors might conceivably change to unincorporated forms in order to avoid the Commonwealth legislation.

Other constitutional powers

11. Other Commonwealth powers would enable retail tenancy control of regulation of retail tenancies in limited circumstances. For example -

. tenancies of premises for the purpose of business engaged in inter- State trade could probably be covered under the inter- State trade and commerce power in section 51(i);

. tenancies or sub- tenancies of premises on land owned by the Commonwealth ("Commonwealth places") could be covered under the power in section 52(i) with respect to Commonwealth places;

. sub- leases from the Commonwealth of premises outside Commonwealth places could be covered by the exercise of various powers supporting the Commonwealth's dealings with such premises.

Constitutional gaps in the Commonwealth legislation

12. Tenancies in the State solely between unincorporated parties would not be covered by Commonwealth legislation under this corporations and Territories powers. They could, of course, be covered by State legislation.

Relationship between the Commonwealth, State and Territory legislation

13. The Commonwealth could enact legislation under the corporations and Territories powers (and also the Commonwealth places power, if thought worth while), and the Sates and Territories could enact legislation expressed simply to apply to provisions of the Commonwealth Act as amended from time to time (ie the State and Commonwealth legislation).

14. The Commonwealth legislation could be expressed either -

(a) to cover only those cases falling outside the reach of the Commonwealth Act, or

(b) to cover all cases so that there would be overlap between the (comprehensive) Sate and Territory legislation and the (partial) Commonwealth Act.

(This option would require an express provision in the Commonwealth Act to enable both sets of legislation to operate concurrently. The Commonwealth Act could be expected to provide that persons could not be punished twice for offences against both the Commonwealth and State legislation in respect of the same conduct.)

Limits on the Commonwealth's powers

15. Commonwealth legislation under the corporations and Territories powers would be subject to some constitutional restrictions. The main restriction relevant to retail tenancy is the requirement, made by virtue of section 51(xxxi) of the Constitution, that Commonwealth legislation with respect to the "acquisition of property" is invalid unless it provides "just terms". (The application of section 51(xxxi) to legislation applying in a Territory has recently been "discovered" by a majority of the High Court: Newcrest Mining (WA) Ltd v. The Commonwealth, 14 August 1997, not yet reported, which overruled Teori Tau v. The Commonwealth (1969) 119 CLR 564). Legislation taking away existing contractual rights has been held by the High Court to make an "acquisition of property" - the "property" being the contractual rights, and the "acquisition" being the extinguishment which results in a benefit to the other party to the contract ( Georgiadis v. Australian Overseas Telecommunications Commission (1994) 179 CLR 297).

16. This problem does not arise where the legislation is no more than a reasonable adjustment of the rights of the parties ( eg Health Insurance Commission v. Perevill (1994) 179 CLR 226). It would therefore probably not arise in relation to retail tenancy legislation of the kind in question here. Nevertheless, care would need to be taken if the legislation was to apply to tenancies already existing at the commencement of the Commonwealth legislation.

17. This advice has been prepared in consultation with our Special Counsel, Dennis Rose QC.

Yours faithfully

BLAKE DAWSON WALDRON