PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE (Retail) PLANNING SYSTEM
New South Wales Government ‘Better Regulation Office’
SUBMISSION:  email  planningreview@dpc.nsw.gov.au
 
The RETAiL Alert Group Comments and Recommendations
NSW Specialty Chain, medium and SME Retailers May 2009
 

Contents

• RETAiL Alert Group Introduction.

• New South Wales Government paper and RETAiL Alert Group comments;
  PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM.

·         Creeping Acquisitions plus Obligation to Divest
The Way Forward for a Competitive Australian Retail Sector
Federal Government Report Submitted for Consideration; The RETAiL Alert Group (Australia) 13^th May 2009.

• Four Pillars of Harmonised Retail Lease Legislation for consideration; Article published April 2009.

__________________________________________

The RETAiL Alert Group Introduction

For the Attention of the New South Wales Government ‘Better Regulation Office’

Dear Sir or Madam,

Please find a response from The RETAiL Alert Group to the PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM review due 12 June 2009.

In 2008, the Australian Competition and Consumer Commission and the Productivity Commission, while recognising the merits of planning and zoning controls in preserving public amenity, recommended that governments should consider relaxing those controls likely to restrict competition. 

It was recognised that improvements to competition could have positive flow-on effects for consumers through greater choice and lower product prices.

It is our contention that the current New South Wales process of planning and zoning controls in attempting to preserve public amenity has restricted retail competition creating an uncompetitive, unfair and costly retail property environment damaging the viability of the New South Wales small retail sector comprising national specialty chains, medium and SME retailers.

The RETAiL Alert Group is recommending a New South Wales retail planning and zoning environment which;

1. Reflects the best retail service interests of existing New South Wales local communities and developing New South Wales communities under local council jurisdiction during and from 2009.

2. Actively encourages new retail development on behalf of the New South Wales specialty chain, medium and SME Retail Sector in partnership with the private sector in 2009.

3. Actively encourages the growth of the competitive high employing New South Wales specialty chain, medium and SME Retail Sector in new retail planning and zoning developments during 2009.

4. Encourages the growth of new retail development with the minimum of retail regulation; including reducing the current costs of New South Wales Retail Lease Legislation through simplified National Harmonised Retail Lease Legislation through the COAG Tenancy Reform Group.

5. Recognises that in international terms that due to a current tight retail planning and zoning regulations the New South Wales government has encouraged the growth of an oligopoly of powerful Shopping Centre groups limiting fair and reasonable access to fair occupancy costs, and lease terms and conditions for 1,000’s of specialty store, medium and SME retailers under the jurisdiction of the New South Wales government in 2009

6. Recognise 5. is a crisis for many New South Wales specialty store, medium and SME retailers in 2009.

7. Provides a competitive retail planning and zoning environment which allows New South Wales specialty chain, medium and SME Retailers maximise sales and profits delivering the highest standard of customer service, value and choice to the New South Wales consumer in 2009.

8. Accepts that the New South Wales specialty chain, medium and SME Retail Sector is competitively disadvantaged in occupancy cost, lease terms and conditions in approved and established New South Wales Regional Shopping Centres due to thirty years of well intentioned but poor retail planning and zoning decisions.

9. Requires the New South Wales government to deliver a retail planning and zoning environment which provides a remedy to the retail market competition imbalance major retailers vs. New South Wales specialty chain, medium and SME Retailers as defined in The RETAiL Alert Group submission.

10. Provides adequate land for retail development for New South Wales specialty chain, medium and SME Retail Sector in 2009.

11. Mandates local councils with the responsibility to have an ongoing auditing process on Shopping Centres under their jurisdiction in 2009 to ensure that Shopping Centres are providing fair and adequate support to New South Wales specialty chain, medium and SME Retailers under their jurisdiction.

12. Mandates local councils to have an ongoing duty of care to all retailers under their jurisdiction to ensure that where a single owner Shopping Centre exists practice fair and reasonable competition practices to unsure that all retailers irrespective of size have similar free market access to retail space as existed in the High Street free market property market prior to the growth of Shopping Centres in New South Wales.

13. Provides retail planning guidance encouraging local councils to provide competitive free property High Street and single owner Shopping Centre development retail alternatives as retail service partners for New South Wales specialty chain, medium and SME Retailers during green field suburban development in 2009.

14. Provides retail planning New South Wales specialty chain, medium and SME Retailers mix guidance based on market comparisons with combined Shopping Centre and High Street developments when there is a possibility of catchment domination by a one owner Shopping Centre without a High Street competitor mix.

15. Provides retail planning guidelines to ensure that an occupancy cost balance is negotiated to provide fair and reasonable access to retail space in a Shopping Centre avoiding terms, conditions and occupancy costs which are materially different in market competition terms between major retailers and specialty chain, medium size and SME retailers; especially if the only planning choice is a single owner Shopping Centre.

16. Provides existing New South Wales specialty chain, medium and SME Retail Sector retailers under council jurisdiction a fair and reasonable commercial opportunity to be part of any council instigated retail rezoning or proposals when developing plans for a new Shopping Centre or new retail High Street.

17. Embeds the proposed Four Pillars of Harmonised Retail Tenancy Reforms for the New South Wales specialty chain, medium and SME Retail Sector as being discussed and negotiated via the COAG Retail Tenancy Reform Group of which the New South Wales government is an active participant during 2009.

The RETAiL Alert Group is delighted to have this opportunity to participate in the PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM process on behalf of the New South Wales specialty chain, medium and SME Retail Sector.

The RETAiL Alert Group is ready to commit to discussions regarding the submission.

Contact for discussions or further information as below.

Yours sincerely,

Tony Standley
Principal
The RETAiL Alert Group (Australia)

47 Queens Road
Asquith NSW 2077
AUSTRALIA

Mobile +61 (0)41 924 0497
e-mail info@adsass.com.au
Fax +61 (0)2 9987 0633
Website http://www.retailalert.com.au

23 May 2009

__________________________________________

PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM

How to Make a Submission

Interested persons are invited to provide written submissions to the Department of Planning and Better Regulation Office.

Submissions are most useful when they are detailed, based on evidence, and suggest solutions to the problems identified.

Please send submissions by email PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM to: planningreview@dpc.nsw.gov.au  

If you do not have access to email, please send submissions to: 

Better Regulation Office

GPO Box 5341

SYDNEY NSW 2001

Phone: 02 9228 5414

Fax: 02 9228 4408 

Submissions must be received by Friday, 12 June 2009.  

All submissions will be made publicly available. If you do not want your personal details released, please indicate this clearly in your submission. 

Once submissions have been received, feedback will be analysed and potential recommendations will be developed.  A report detailing suggested reforms to the NSW planning system will be provided for consideration by the NSW Government. 

__________________________________________

PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM

• The RETAiL Alert Group congratulates the NSW government on having the courage to review the current merits of retail planning and zoning controls in New South Wales.

• Over the last thirty years well meaning retail planning laws in New South Wales has taken the free retail property market which existed prior to the 1960’s to a largely controlled closed retail property market in 2009.

• Currently there are two classes of retailer in New South Wales, giant and major retailer with privileged property lease terms and conditions in Shopping Centres and the small retail sector comprising nation specialty chains, medium and SEM retailer with onerous property lease terms and conditions.

In 2008, the Australian Competition and Consumer Commission and the Productivity Commission, while recognising the merits of planning and zoning controls in preserving public amenity, recommended that governments should consider relaxing those controls likely to restrict competition.  It was recognised that improvements to competition could have positive flow-on effects for consumers through greater choice and lower product prices.

The RETAiL Alert Group notes that the aim of this review is to consider if aspects of NSW planning policies and legislation need to be adjusted to ensure the right balance in achieving sustainable social and environmental outcomes and in promoting a competitive business environment.  NSW businesses and consumers benefit from a competitive business environment that encourages investment and creates jobs. 

• The RETAiL Alert Group also notes that the NSW Government has committed to effective and efficient regulation that creates the climate for this. 

The review is one of a range of actions the NSW Government is taking to stimulate and grow the NSW economy.

• The RETAiL Alert Group agrees that the need for this review is particularly acute given the current economic downturn. 

A number of recent reviews have commented on the potential impact of the planning system on competition. 

In 2008, the Productivity Commission’s review of retail leases regulation and the Australian Competition and Consumer Commission’s review of grocery pricing found that while zoning and planning laws are designed to preserve public amenity, they could also influence the quantity and location of retail space available and therefore competition in the retail market.

• It is the RETAiL Alert Group’s clear view that competition within the NSW small retail sector is being detrimentally affected by current well meaning past retail planning regimes.

• The following table taken from the RETAiL Alert Group submission to the Federal ‘Creeping Issues’ review 16^th June is pertinent to the effect NSW planning laws, imbalanced retail lease terms and conditions plus an ACCC with no anti-trust powers has created a serious business threat to the high employing NSW small retail sector.

Reference 1.  (Taken from the RETAiL Alert Group Federal Creeping Acquisitions Report)

Australian Retail Property Time Period - Occupancy Competition Status

The NSW Legislative Council Standing Committee on State Development is currently conducting an inquiry into the NSW planning framework, which includes consideration of competition policy issues. Additionally, the Council of Australian Governments (COAG) has recently identified competition in planning as an issue for discussion at the national level.

• The RETAiL Alert Group is asking for Harmonised Retail Lease Legislation reform via the COAG Tenancy Reform Group to rebalance the terms and conditions given to major retailers in shopping centres vs. terms and conditions available to NSW and National Specialty Chains, medium and SME retailers.

• A table follows again taken from The RETAiL Alert Group report on ‘Creeping Acquisitions’ showing the differences between a conventional High Street retail lease compared with the onerous conditions applied to the NSW small retail sector.

Reference 2. (Taken from The RETAiL Alert Group Federal Creeping Acquisitions Report)

Strips vs. Shopping Centres Terms and Conditions for consideration

Small Retailer / Specialty Retailer Retail Lease Choices – Strip vs. Shopping Centres

(Summary Only)
 

_____________________________

New South Wales Government 

Department of Premier and Cabinet

Better Regulation Office

Governor Macquarie Tower,

1 Farrer Place, Sydney NSW 2000

GPO Box 5341, SYDNEY NSW 2001 

T: (02) 9228 5414   F: (02) 9228 3062

DEPARTMENT OF PLANNING AND BETTER REGULATION OFFICE

ISSUES FOR CONSULTATION

PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM

8 May 2009

Written submissions due Friday 12 June 2009 

 1

MESSAGE FROM THE MINISTER FOR PLANNING AND THE MINISTER FOR REGULATORY REFORM
Responses, Commentary and Recommendations from The RETAiL Alert Group

The NSW Government wants to ensure the best competitive and economic outcomes are achieved in NSW.

• The RETAiL Alert Group congratulates the NSW government on having the courage to review the current merits of retail planning and zoning controls in New South Wales.

• Over the last thirty years well meaning retail planning laws in New South Wales has taken the free retail property market which existed prior to the 1960’s to a largely controlled closed retail property market in 2009.

• Currently there are two classes of retailer in New South Wales, giant and major retailer with privileged property lease terms and conditions in Shopping Centres and the small retail sector comprising nation specialty chains, medium and SEM retailer with onerous property lease terms and conditions.

In 2008, the Australian Competition and Consumer Commission and the Productivity Commission, while recognising the merits of planning and zoning controls in preserving public amenity, recommended that governments should consider relaxing those controls likely to restrict competition.  It was recognised that improvements to competition could have positive flow-on effects for consumers through greater choice and lower product prices.

The RETAiL Alert Group notes that the aim of this review is to consider if aspects of NSW planning policies and legislation need to be adjusted to ensure the right balance in achieving sustainable social and environmental outcomes and in promoting a competitive business environment.  NSW businesses and consumers benefit from a competitive business environment that encourages investment and creates jobs. 

• The RETAiL Alert Group also notes that the NSW Government has committed to effective and efficient regulation that creates the climate for this. 

The review is one of a range of actions the NSW Government is taking to stimulate and grow the NSW economy.

• The RETAiL Alert Group agrees that the need for this review is particularly acute given the current economic downturn. 

It is noted that the review will be jointly undertaken by the Department of Planning and the Better Regulation Office.

The review will be seeking experiences on how economic growth and competition have been influenced by the planning system in NSW.

Views and comments will be sought as to whether there is an appropriate balance to achieve the benefits of competition while taking into consideration the broader public interest ­ the review is looking for suggestions on how that balance can be improved to better support economic growth and investment in NSW. 

• The RETAiL Alert Group will be expressing an opinion on behalf of the specialty chains, medium and SME New South Wales small retail sector.

• We will also be expressing the views of some of the national specialty chains who are important contributors to the New South Wales small retail sector.

It is noted that the NSW Government is encouraging all interested persons to forward their views on the issues raised in this paper and that the New South Wales government is looking forward to the outcomes of this review.

It is also noted that The Hon Kristina Keneally MP; The Hon Joe Tripodi MP Minister for Planning Minister for Finance Minister for Redfern Waterloo Minister for Infrastructure Minister for Regulatory Reform Minister for Ports and Waterways are the relevant Government Ministers with interest in the outcomes of this review.

  2

 PROMOTING ECONOMIC GROWTH AND COMPETITION THROUGH THE PLANNING SYSTEM

Background

The planning system in NSW is established by the Environmental Planning and Assessment Act 1979 (NSW).

The Act is supported by the Environmental Planning and Assessment Regulation 2000 and a number of other documents, including the draft Centres Policy, the Metropolitan Strategy, regional strategies, draft subregional strategies, the Standard Instrument (Local Environmental Plans) Order 2005 and Local Environmental Plans (LEPs).

This planning framework helps deliver social, environmental and economic goals including providing infrastructure, equitable access, amenity, local character and sustainability.

A number of recent reviews have commented on the potential impact of the planning system on competition. 

In 2008, the Productivity Commission’s review of retail leases regulation and the Australian Competition and Consumer Commission’s review of grocery pricing found that while zoning and planning laws are designed to preserve public amenity, they could also influence the quantity and location of retail space available and therefore competition in the retail market.

• It is the RETAiL Alert Group’s clear view that competition within the NSW small retail sector is being detrimentally affected by current well meaning past retail planning regimes.

• The following table taken from the RETAiL Alert Group submission to the Federal ‘Creeping Issues’ review 16^th June is pertinent to the effect NSW planning laws, imbalanced retail lease terms and conditions plus an ACCC with no anti-trust powers has created a serious business threat to the high employing NSW small retail sector.

Reference 1.  (Taken from the RETAiL Alert Group Federal Creeping Acquisitions Report)

Australian Retail Property Time Period - Occupancy Competition Status

The NSW Legislative Council Standing Committee on State Development is currently conducting an inquiry into the NSW planning framework, which includes consideration of competition policy issues. Additionally, the Council of Australian Governments (COAG) has recently identified competition in planning as an issue for discussion at the national level.

• The RETAiL Alert Group is asking for Harmonised Retail Lease Legislation reform via the COAG Tenancy Reform Group to rebalance the terms and conditions given to major retailers in shopping centres vs. terms and conditions available to NSW and National Specialty Chains, medium and SME retailers.

• A table follows again taken from The RETAiL Alert Group report on ‘Creeping Acquisitions’ showing the differences between a conventional High Street retail lease compared with the onerous conditions applied to the NSW small retail sector.

Reference 2. (Taken from The RETAiL Alert Group Federal Creeping Acquisitions Report)

Strips vs. Shopping Centres Terms and Conditions for consideration

Small Retailer / Specialty Retailer Retail Lease Choices – Strip vs. Shopping Centres

(Summary Only)
 

The NSW Government has released a draft Centres Policy designed to increase investment by providing flexibility for existing centres to grow, new centres to be established, and development to occur out of centre where justified.

• On behalf of the NSW small retail sector new NSW retail planning regulations have an obligation to embed Harmonised Retail Lease Legislation delivering fair and reasonable tenancy lease terms and conditions to all retailers irrespective of market power and size.

The draft Centres Policy recognises that the market is best placed to determine the need for development and ensures the supply of available floor space accommodates demand.

It is noted that when finalised, the draft Centres Policy will address some of the concerns about competition and investment raised in previous reviews.

• The RETAiL Alert Group contends that it will require cooperation from the competition regulator, the ACCC with increased powers to oversee adequate competition protection for the NSW small retail sector.

·        
The RETAiL Alert Group’s submission follows this report; we ask that the full RETAiL Alert Group report Creeping Acquisitions plus Obligation to Divest; The Way Forward for a Competitive Australian Retail Sector be taken into account when finalising the draft Centres Policy.

The NSW Government has asked the Department of Planning and the Better Regulation Office to review the impacts of the planning system on competition and investment taking into consideration the public interest. 

There is an opportunity to examine the broader range of competition and investment issues which could be affected by the planning system and inform the NSW Government’s input into COAG’s national level discussion. This will not be a full scale review of the rationale and effectiveness of the planning system. 

Issues for Discussion

The introductory notes states Competition creates incentives for business to produce the goods and services customers want.

• The RETAiL Alert Group agrees but to have Competition there needs to be equal opportunities to secure retail trading space on fair and equal terms; this opportunity does not exist in NSW Shopping Centres and as already stated will the required Harmonising of Retail Lease Legislation via the COAG Tenancy Reform Group. 

The planning system allows for competition between and within residential, retail, commercial, recreational and industrial sectors. 

• As much as possible, there should be a level playing field that allows for innovation and competition across the sectors; The RETAiL Alert Group agrees with this statement. 

For consumers, this can result in access to a wider range of better quality and better priced goods and services. 

For competition to be most effective at delivering these benefits, it is essential that businesses have the flexibility to respond to market demand, including through ensuring that there are no unnecessary costs or requirements on their activities.

• It is the view of The RETAiL Alert Group that Harmonised Retail Lease Legislation has the ability to dramatically reduce the amount of costly complexity in the current NSW Retail Lease Legislation.

• The RETAiL Alert Group is recommending Four Pillars of Harmonised Retail Tenancy Reform as the basis of negotiated discussion.

Our recommendations are for a set of simplified ‘rules’ based on four principles.

1. Lease Harmonisation Legislation; general agreement; a basis for discussion. (COAG).

2. Gross Leases; a basis for further discussion (COAG).

3. Sales to be given to an independent Third Party reported at Category Level only; a basis for further discussion. (COAG).

4. Annual Rents Increased / Decreased based on Sales per Meter by Category by Centre; some questions for readers to consider. COAG / ACCC)

• All ready for COAG (Council of Australian Governments) National Tenancy Group consideration (Stage 1 Concept Discussion Form) for the Australian Retail Sector Harmonised Lease Legislation Reform.

• It is fair to say that the ARA (Australian Retailers Association) is in general agreement with 1, 2 and 3.

• Point 4 a competition matter as part of the Federal Creeping Acquisitions competition inquiry.

The planning system provides a framework to ensure that new development meets business and community needs, is environmentally sustainable, and makes the most efficient use of the State’s investment in infrastructure. 

• Sustainable Retailing should be at the centre of all retail developments; Sustainable Retailing in Shopping Centres designed to reduce the current high operating costs of Shopping Centres for the NSW small retail sector.

In doing so, a goal of the planning system is to recognise the opportunity costs of different uses of land and make appropriate trade-offs.   

Under the planning system, it is the responsibility of the planning authority to ensure that development proposals are considered on their merits.

The merit assessment process at both the zoning and development application stage should not normally take into consideration the likely competition impact of a new entrant on any existing centres or individual developments unless there is a public interest which requires consideration of broader issues, such as quality of life or infrastructure. 

• It is a strong view of The RETAiL Alert Group that it is no longer acceptable for councils to pass a community retailing asset to a single owner without remaining responsible for ongoing local Shopping Centre conditions of trading.

• Conditions of trading to include presentation, security, maintenance and a mix of retailers suited to the market.

• The RETAiL Alert Group recommends an annual audit of Shopping Centres to ensure that they are complying with the original planning scheme or material changes agreed between council and the Shopping Centre owner.

• Costs of such audit to be borne by the Shopping Centre.

Further, within a particular zone, the system should not favour a particular development over another unless there is a clear public policy case for doing so. 

• The RETAiL Alert Group has concerns that seeming commercial benefits of a single owner Shopping Centre vs. a long term rateable income downturn from existing strip shops should be part of any Shopping Centre or alternative retail develop should be part of any new development consideration.

• There are numerous instances of urban decay created by poor retail planning throughout all parts of New South Wales; instances of future urban decay resulting from poor retail planning permissions should be avoided in the future.

As a result, the need for the development should not normally be a consideration as part of the merit assessment. 

Similarly, the impact on individual businesses, measured through, for example, the impact on turnover, should also not normally be considered as part of the merit assessment.

• The RETAiL Alert Group has some concerns that this statement does not take into account the impact on existing small retail businesses in a catchment; especially when major supermarkets are involved.

• There have been cases when good local businesses have been deliberately targeted with predatory pricing.

• Whilst recognising the free market there is an obligation to cover any unintended overpowering commercial impacts on existing business is viable high rateable strips.

• With new major shopping centre developments where existing viable strips exist, it should be reasonable for sitting tenants in those strips to be given a fair opportunity to be part of the new development.

Where there is good reason to believe a competitor is trying to delay or prevent new entrants into an area (for example by objecting to an application even where the application will have no direct impact on the objector), the consent authority should not normally give it determinative weight.

• The RETAiL Alert Group has concerns that retail planning permission given to a dominant Shopping Centre Group or a Shopping Centre Group with a material controlling interest in Shopping Centre within a commercial catchment is not reducing competition by market dominance.

• There will be a need to be aware of the possible new anti-trust powers given to the ACCC with regard to the market power of the current retail duopoly and existing Shopping Centre oligopolies when making retail planning decisions.

The consent authority would normally focus more on the implications for the broader community and any associated costs on the community, the council or agencies.

From a competition perspective, it is essential that the planning system minimises any regulatory burdens that could inadvertently constrain sustainable economic development and competition within the industry. 

This means ensuring there is sufficient suitable zoned land available for development to reduce barriers to entry. 

It also means that planning controls need to be kept up to date to provide for recent changes in industry formats or take into consideration any improved standards of performance by industry. 

In addition, as is currently being undertaken as part of the planning reforms, complex planning provisions which can lead to costs associated with preparation of assessment reports along with associated time delays need to be reviewed and streamlined so as to avoid having the zoning and development approval process providing a barrier to entry, and thereby restricting competition. 

A well functioning planning system supports investment by providing certainty in land use zoning, development approval requirements and the provision of infrastructure. When firms and individuals have confidence about the future use of their own and surrounding land, they are more likely to commit to investment, which drives economic growth, employment and productivity. Uncertainty creates investment risk, imposing additional costs and difficulty securing finance, which may result in otherwise commercially viable projects failing to proceed.

3

Issues for Discussion

The review is seeking: 

1) Comments on your experiences on how economic growth and competition have been impacted by the planning system in NSW including in relation to:

(a) Provisions in strategies or environmental planning instruments  

(b) The spot rezoning process 

(c) The development approval process, or 

(d) Development contributions under s94 of the Act.

2) Your views and comments as to whether there is an appropriate balance in the planning system to achieve the benefits of competition while taking into consideration the broader public interest.

3) Any suggestions on how the balance can be improved to better support economic growth and competition in NSW, including any specific proposals for changes to the planning system. 

4) Comments on your experiences on how economic growth and competition have been dealt with in the planning systems in other jurisdictions and if there are approaches that could be applied in the NSW system.   

Tony Standley
Principal
The RETAiL Alert Group (Australia)

47 Queens Road
Asquith NSW 2077
AUSTRALIA

Mobile +61 (0)41 924 0497
e-mail info@adsass.com.au
Fax +61 (0)2 9987 0633
Website http://www.retailalert.com.au

23 May 2009  

__________________________________________

Creeping Acquisitions plus Obligation to Divest
The Way Forward for a Competitive Australian Retail Sector

Report Submitted for Consideration; The RETAiL Alert Group (Australia)
13^th May 2009

Contents

·         Submission Report

·         Reference 1.
Australian Retail Property Time Period - Occupancy  Competition Status

·         Reference 2.
Strips vs. Shopping Centres Terms and Conditions for consideration

·         Reference 3.
Four Pillars of Harmonised Retail Lease Legislation - Article for consideration

Basis of Submission

The Government welcomes any submissions regarding the issues identified above, or any other matter related to the issue of creeping acquisitions.

Submissions will be made publicly available on the Treasury website.  If a submission, or any part of it, is to be treated as confidential, please indicate this clearly on the submission.

Submissions should be made by Friday 12 June to:

The General Manager
Competition and Consumer Policy Division
The Treasury
Langton Crescent
PARKES ACT 2600

Email:  creepingacquisitions@treasury.gov.au

            Facsimile:  (02) 6263 3964

__________________________________________________

 Creeping Acquisitions plus Obligation to Divest
The Way Forward for a Competitive Australian Retail Sector

Submission Report to the Federal Government

The RETAiL Alert Group’s focus is the Australian Retail Sector.

Currently there are damaging free market major competition imbalances within Australian retail sector Shopping Centres needing to be addressed.

There is no doubt that ‘Creeping Acquisitions’ and ‘Obligation to Divest’ powers provided to the ACCC will progressively address the current retail sector market imbalance in the process promote the ACCC to one of the leading Competition Regulation retail authorities in the OECD.

The admirable intent of the first discussion paper was to address concerns raised by the Australian Competition and Consumer Commission (ACCC) that section 50 of the Trade Practices Act 1974 (TPA) my not be able to deal with creeping acquisitions that, according to the ACCC, have the potential to cause competition concerns in certain concentrated industries.

·         The Australian Retail Sector is an example where there is genuine community concern that there are competition concerns; particularly in Australia’s closed market Shopping Centres.

·         Current imbalanced competition market and negotiating tenancy lease terms and conditions are damaging Australia’s retail free market environment demanding competition legislation change; the casualties, the high employing and mostly efficient specialty chains, medium and SME retail sector plus the Farmgate and the associated Australian retail supply chain.

Although commending the ACCC initiative it the view of The RETAiL Alert Group that there should be Obligation to Divest provisions similar to those in the US anti-trust legislation embedded in the Trade Practices Act 1974 (TPA).

The Obligation to Divest to cover market uncompetitive retail market conditions where it is deemed necessary to divest divisions and parts of a business creating an uncompetitive balanced retail market but also divest contract terms and conditions creating and uncompetitive balanced retail market.

Question 1 The RETAiL Alert Group believes that there are little or no unintended consequences to be considered in the two regulatory options mentioned for the Australian Retail Sector.

Creeping acquisition legislation as proposed will support, protect and encourage growth in the high employing and mostly efficient small retail sector and associated supply chain suppliers, including the Farmgate.

Question 2 there are alternative regulatory options that are appropriate responses to creeping acquisitions concerns in the Australian Retail Sector.

Following are The RETAiL Alert Group’s appropriate responses as enhancements to the proposed creeping acquisitions legislation to answer those concerns raised from the 1 September 2008 Creeping Acquisitions discussion paper.

·         Canvassed in the first discussion paper were concerns related to a potential loophole in section 50, which currently prohibits acquisitions that would, or would be likely to, substantially lessen

·         As canvassed in the first discussion paper, the Government considered that creeping acquisitions concerns related to a potential loophole in section 50^[i], which currently prohibits acquisitions that would, or would be likely to, substantially lessen competition in a market. 

This loophole was understood to relate to a series of small acquisitions that individually would not substantially lessen competition in a market, but collectively may have that effect over time. 

Many submissions found that the loophole in itself may not be a problem in all situations, but that it could cause considerable competitive harm and consumer detriment in certain circumstances.

Subsection 46(3D) states that more than one corporation may have a substantial degree of power in a market. 

·         The concept of market power is well established in competition law, and is far more effective than a focus on market share, as it allows a court to take into account all the relevant characteristics of a market.

·         For example, the Federal Court^[ii] has previously imposed penalties for misuse of substantial market power where a corporation had only around 16-20 per cent of the share in the relevant market.

The RETAiL Alert Group’s view is that there are ‘obligation to divest’ words in the US anti-trust legislation that should be considered as import in style and affect in the Australian Trade Practices Act.

Ø       Supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing. 

The amended version of the SMP (Substantial Market Power) model might read:

(1)      A corporation or entity that has a substantial degree of power in a market must not directly or indirectly:

·         Acquire shares in the capital of a body corporate.

·         Acquire any assets of a person.

If the acquisition would have the effect, or be likely to have the effect, of enhancing that corporation’s substantial market power in that market.

(2)              If a corporation or entity that has a substantial degree of market power considered to threaten the competitive process in a relevant market then the corporation or entity might have an obligation to divest such market share in an orderly and timely manner but not to materially disturb the financial standing of the corporation or entity during the obligation to divest process. 

(3)              If a corporation or entity that has a substantial degree of market power caused by contract terms and conditions in a relevant market then the corporation or entity might have an obligation to divest itself of such contact contract terms and conditions e in an orderly and timely manner but not to materially disturb the financial standing of the corporation or entity during the obligation to divest the corporation or entity of such terms and conditions.

(4)              The SMP model would be designed so the Minister could only make a declaration after receiving an application from the ACCC.  The ACCC would make an application where it has concerns regarding creeping acquisitions by a particular corporation or entity, or in a product/service sector.

(5)              The Minister could also make a declaration after receiving an application from the ACCC   make an application where it has concerns on market share or uncompetitive terms and conditions requiring an obligation to divest divisions, entities or contract terms and condition deemed by the ACCC as uncompetitive.

·         The RETAiL Alert Group amendments would enhance a range of submissions, particularly those from the independent grocery sector and the ACCC.

·         This amended model would enable the ACCC to address creeping acquisitions and obligation to divest concerns in a timely manner, and could be effectively incorporated into the ACCC’s existing informal clearance process.

The RETAiL Alert Group as well as Government is acutely aware that any intervention in this area, while preventing harm and detriment should be seen to be fair and reasonable.

Proposed legislation changes should not stop the legitimate and organic growth of businesses, particularly the Australian small retail sector.

It is crucial that the legislation is framed to increase trading efficiencies in Australia’s small retail sector, enhancing the welfare of Australian consumers.

This is particularly important in the current economic environment. 

As such, both The RETAiL Alert Group and Government recognise that there is a fine balance to be struck but the current gross competition imbalance in the Australian retail sector has to be addressed.

Tony Standley
Principal
The RETAiL Alert Group (Australia)

47 Queens Road
Asquith NSW 2077
AUSTRALIA

Mobile +61 (0)41 924 0497
e-mail info@adsass.com.au
Fax +61 (0)2 9987 0633
Website http://www.retailalert.com.au

13^th May 2009

Reference 1.

Australian Retail Property Time Period - Occupancy Competition Status

Reference 2.

Strips vs. Shopping Centres Terms and Conditions for consideration

Small Retailer / Specialty Retailer Retail Lease Choices – Strip vs. Shopping Centres

(Summary Only)
 

Reference 3.

Four Pillars of Harmonised Retail Lease Legislation for consideration

Article published April 2009

Harmonised National Lease Legislation Reform
Four Pillars of National Retail Lease Reform
The ARA has got it almost right..! 

Further to the ARA proposal for a Rudd government Retail Tenancy Roundtable we want to congratulate the ARA for taking a retail sector association leadership position on Harmonised National Retail Lease Legislation Reform. 

Long overdue and welcome. 

We think a meeting of retailers would be beneficial before any proposed round table with government and the shopping centre industry. 

Expect to see the Shopping Centre Industry carry the normal banner ' leave things as they are, it is working' and try to disparage the ARA's initiatives. 

For us it is shades of the Retail 'Black Hand' society 1992-1994 all over again.  

Compromises which benefited the Retailers and the Shopping Centre Industry happened then and will happen now.

Maybe this is the cause that will bring the ARA, NRA and the QRTSA together into that one Federated Retail Sector Association we have been asking for? 

Although covering most of the RETAiL Alert Group’s Four Pillars of Harmonised Retail Lease Legislation Reform there are some gaps we want to speak to.

Our recommendations are for a set of simplified ‘rules’ based on four principles.

5. Lease Harmonisation Legislation; general agreement; a basis for discussion.
6. Gross Leases; a basis for further discussion.
7. Sales to be given to an independent Third Party reported at Category Level only; a basis for further discussion.
8. Annual Rents Increased / Decreased based on Sales per Meter by Category by Centre; some questions for readers to consider.

All ready for COAG (Council of Australian Governments) National Tenancy Group consideration (Stage 1 Concept Discussion Form) for the Australian Retail Sector Harmonised Lease Legislation Reform.

Although in firm agreement with the thrust of the ARA’s recommendations there are comments;

• We believe that there should be one gross lease structure for shopping centres and the high street; administration and legal costs slashed for Shopping Centres, Retailers and State Governments.

• To have two sets of lease structures will defeat the exercise of having a reduction in red tape and State government legislation costs; two formats will create confusion and create unnecessary costs for all parties.

• The proposed code of conduct for Shopping Centre Landlords regulated by the ACCC will not work.

• Codes of conduct have failed in the past and the ACCC does not have our proposed ‘Obligation to Divest’ anti-trust powers to force divestment of uncompetitive lease terms and conditions disadvantaging the chains, medium size and SME retailers vs. major retailers.

• Lease length and terms and conditions to be similar in competitive market nature between major retailers and Australian Specialty Chains, medium size and SME retailers. 

• We are in total agreement with the Disclosure of Sales Figures being reported to an independent third party reported at category level but we want to add also sales per meter by category.

• Our recommendation is for the ABS to be the independent sales hold party with an open ‘pay by view’ structure to;

1                    Allow landlords to assess retail category weaknesses by centre for marketing support.

2                    Allow retailers to assess the sales potential of a Shopping Centre.

3                    To provide Federal, State and Local governments access to performance of the retail sector by category by State / Local Government Area.

4                    Allow the ACCC to have qualified data on which to assess retail sector competitiveness.

5                    The ability to use the sales per meter by category by centre to calculate annual retailer category rent increases or decreases. 

• The initial software patterned on the Westfield best practice Monthly reports.

• Non complying retailers subject to two auto-email warnings then penalties applied as per non BAS disclosure.

• Our view, annual rental reviews performance based by sales per meter by category by Shopping Centre will progressively rebalance the gulf in competitive occupancy costs, major retailers vs. the Australian chains, medium and SME Retail Sector.

• As with declaration of sales to a third party we are total agreement in the establishment of an open National Retail Lease Register where all occupancy costs and inducements are registered.

• Again costs of the National Retail Lease Register funded by an open ‘pay by view’ mechanism.

The key purpose of our Harmonised Four Pillar Retail Tenancy Reforms is to provide certainty to Australian Retailers on the risks and opportunities of entering into an exciting but risky retail business venture.

• Having solid Harmonised Four Pillars of Retail Tenancy Legislation Reforms will also streamline the plethora of confusing and costly State retail lease legislation and ACCC dispute matters currently in play.

The RETAiL Alert Group wants to congratulate the ARA on having the courage to present the Harmonised Retail Lease Legislation Reforms to market. 

As indicated we welcome the ARA taking the retail industry association market leadership position.

The RETAiL Alert Group’s comments should not be seen as a criticism of the ARA’s initiative but seen as complimenting and enhancing the Australian Retailers Associations proposals. 

We believe that our modifications based around the RETAiL Alert Group’s Four Pillars of Retail Legislation Harmonisation to the ARA’s position delivers a fair and balanced set of a Harmonised ‘retail leasing platform’ and should be the basis of any ARA Tenancy Committee proposals to the Rudd government and the Australian Shopping Centre Industry. 

Tony Standley

Principal
The RETAiL Alert Group (Australia)

Mobile +61 (0)41 924 0497
e-mail info@adsass.com.au
Fax +61 (0)2 9987 0633
Website http://www.retailalert.com.au

 

Submissions

The Government welcomes any submissions regarding the issues identified above, or any other matter related to the issue of creeping acquisitions.

Submissions will be made publicly available on the Treasury website.  If a submission, or any part of it, is to be treated as confidential, please indicate this clearly on the submission.^[iii] 

Submissions should be made by Friday 12 June to:

The General Manager
Competition and Consumer Policy Division
The Treasury
Langton Crescent
PARKES ACT 2600

Email:  creepingacquisitions@treasury.gov.au

          Facsimile:  (02) 6263 3964