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Breakthrough Cases: Victorian Retail Leases Act to apply to leases where tenants provide services.


Leases that may have previously been considered not subject to the Retail Leases Act 2003 ("the Act") may now be so due to recent court decisions.            

Written by

Bill Hazlett
Partner

Tony Raunic,
Partner

 

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This means new protections for tenants and increased obligations for landlords. The impact of this change needs to be considered by both when negotiating leases or managing disputes.

CASE NOTE:
CB Cold Storage Pty Ltd v Morgan Street Investments Pty Ltd (Retail Tenancies) [2014] VCAT 773

Morgan Street Investments Pty Ltd ("Morgan") applied to strike out part of CB Cold Storage Pty Ltd's ("CB") claim that the lease was governed by the Act. Morgan argued that the premises were not 'retail premises' because:

  • CB's use of the premises did not constitute 'the provision of retail services'; and
  • the provision of retail services was not a permitted use of the premises under the lease.

RETAIL PREMISES

Section 4 of the Act defines "retail premises" as premises used or to be used wholly or predominantly for

"the sale or hire of goods by retail or the retail provision of services".

Item 15 of the Schedule to the lease stated the permitted use of the premises was:

"the use in connection with the conduct of a cold storage business, office, warehouse, transport facility and food processing plant by the Tenant".

THE ULTIMATE CONSUMER TEST

The 'ultimate consumer' test is used to determine if premises are 'retail premises'. The basic premise is that retailing requires that an item or service is provided 'to an ultimate consumer for a fee or reward' (per Justice Nathan in Wellington v Norwich Union Life Insurance Society Limited [1991] VR 333).

Counsel for CB submitted that 'use in connection with the conduct of a cold storage business' could only be interpreted to mean use of the premises for a retail purpose, following the case of Fitzroy Dental v Metropole Management Pty Ltd [2013[ VSC 344.

FITZROY DENTAL

In Fitzroy Dental, Justice Croft determined that the provision of a conference centre by a tenant to function companies – who used the centre to host functions and conferences to others under separate arrangements – was use for a retail purpose. The function companies were the 'ultimate consumer' of the services provided by the tenant, even though those services were then 'input' into other services provided by the function companies to function attendants. On this basis, Justice Croft found the lease was governed by the Act.

'The fact that a good or service is provided to a person who uses the good or service as an 'input' in that person's business for the purpose of providing or producing a different good or service to another person does not detract from the possible characterisation of the first person … as the 'ultimate consumer' of the original good or service.'

VCAT agreed with CB that the actual use of the premises was the provision of a cold storage facility to consumers. Morgan's application raised the question whether this use was permitted by the lease.

PERMITTED USE

VCAT accepted Morgan's submission that actual use of the premises for retail services could not bring the lease within the ambit of the Act if that use was not a permitted use under the lease.  Whether or not the parties knew the permitted use may involve the retail provisions of services would not have bearing on the application of the Act.

There were inconsistencies in the lease, which brought into question whether use of the premises to provide retail services was permitted.

VCAT refused Morgan's strike out application as it considered that the question could not be resolved at the interlocutory (or preliminary) stage.

IMPACT OF THE DECISION

Following CB Cold Storage and Fitzroy Dental, it appears that the Act will apply to most leases where a tenant provides any type of service, subject to that use being within the permitted use of the premises in the lease.

If you wish to discuss this important decision and its impact on current leases, disputes and future negotiations, please contact us.

CONTACT

Penny Cable Sydney
Mark Byers, North Ryde
Tony Raunic, Melbourne
Bill Hazlett, Melbourne
Egils Olekalns, Adelaide
Darren Miller, Perth
Antony Logan, Hobart
Christine Osborne, Darwin


Disclaimer: The information contained in this e-alert/update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser.

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