By Charlotte Black
Are you a landlord who is confused about whether your lease is a retail or commercial lease? The answer to that question could have serious ramifications for you. If your lease is a retail lease, you are generally not be able to on charge your land tax to your tenant. Your tenant would also be afforded a number of rights pursuant to the Retail Leases Act (2003) including in what circumstances they can withhold the payment of rent.
So the question is, when is a lease a retail lease and when is a lease a commercial lease?
In recent years, as a result of a rather prominent case in the legal industry, CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23, the definition of what a retail premises lease is changed vastly. It is now more common than not that we find ourselves advising clients that their lease is in fact a retail lease and therefore that they adhere to their obligations pursuant to the Retail Leases Act.
However, a recent decision of the Victorian Civil and Administrative Tribunal has revisited the question of a retail premises lease. Importantly, in this case, VCAT was required to consider the question of whether a lease can cease to be a retail lease and revert to a commercial lease (of which the Retail Leases Act does not apply to) during the term of the lease.
The case in question is Verraty Pty Ltd v Richmond Football Club Ltd [2019] VCAT 1073.
Verraty Pty ltd -v- Richmond Football Club Ltd
In 1998, Richmond Football Club Ltd entered into a 20-year lease with Verraty Pty Ltd to lease the Wantirna Club. That lease was renewed for a further 10 years on 7 May 2018.
A dispute arose between the Verraty and the Richmond Football Club as to whether the lease was in fact a retail lease and therefore whether it was governed by the Retail Leases Act.
Verraty asserted that the lease stopped being a retail lease during the term of the lease as they provided the Richmond Football Club with an estimate of the occupancy costs for the lease in 2016 which exceeded $1,000,000. In accordance with section 4(2)(a) of the Retail Leases Act, a lease whose occupancy costs exceed $1,000,000 is not is not a retail lease.
In 2017, Verraty again estimated that the occupancy costs would exceed $1,000,000 however they did not provide this estimate to the RFC.
The Richmond Football Club asserted that the lease could not cease being a retail premises lease during its term as this question can only be determined at the start of a lease. They further submitted that if a lease can cease to be a Retail Premises Lease during the term of that lease, as a result of Verraty’s failure to provide an estimate of outgoings for the 2017 year, the lease must revert back to being a retail premises lease.
VCAT concluded that they did not accept the argument of the Richmond Football Club that the only time a lease can be classified as a retail lease, is at the time the lease is entered into. Under that argument, a lease which, as in this case, is for a 10 year period, would continue as a retail lease, regardless of whether the occupancy costs exceeded the $1,000,000.
They accordingly concluded that for a lease to continue to be a retail lease, it must satisfy the definition of a retail lease. In this case, it meant that the occupancy costs had to be less than $1,000,000.
Conclusion:
At this stage, it would seem from VCAT’s decision that a lease can cease to be a retail premises lease during the term of that lease however this decision is likely to be appealed.
What does this mean for landlords?
The question as to when an estimate of the occupancy costs should be provided to a tenant and whether your lease is a retail lease are difficult to determine and not easily answered by the legislation.
If you are a landlord or tenant and have a query or concern regarding whether your lease is a retail lease or a commercial lease, please feel free to contact Richard Mackenzie on (03) 8621 1000 or advisors@emlawyers.com.au with any questions you may have.
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