The widening definition of “Retail Premises”: Is your commercial lease affected?

//The widening definition of “Retail Premises”: Is your commercial lease affected?

The Supreme Court of Victoria’s recent decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage [2017] VSCA 178 has confirmed that a wide interpretation of ‘retail premises’ should be used for the purposes of the Retail Leases Act 2003 (Vic) (Act).  This included a finding that ‘the ultimate consumer test can be satisfied by either commercial or non-commercial consumers’[1] – i.e. in relation to business to business services, as well as business to private customer.

This decision could have major implications for both landlords and tenants under existing and future leases, by bringing such leases within the regulation and scope of the Act.

The facts

Cold Storage (the tenant) operated a cool storage business using freezer warehouses and related facilities which were built on the premises.[2]

The customers of Cold Storage paid fees to store their dairy products, seafood, small goods and the like.[3] In addition, Cold Storage provided ancillary services such as loading and unloading of pallets into the warehouses and arranging the transportation of products to and from the warehouses.[4]

The usual customers of Cold Storage were companies involved in the food industry.[5]

The Supreme Court dismissed the appeal and found that the premises were retail premises for the purpose of the Act.[6] The Supreme Court applied the ‘ultimate consumer’ test and determined that the ‘ultimate consumer’ does not necessarily to have to be a person, but can be a business which uses services for a business purpose.[7]

What does this mean?

If your premises are deemed to be retail premises for the purposes of the Act, the Act will deem that certain potentially onerous provisions apply in relation to the lease of that premises, despite any term in the lease to the contrary, including that:

  • the landlord is prohibited from requiring the tenant to pay the landlord’s land tax[8] and the landlord can be required to refund to the tenant any land tax paid in previous years in breach of this prohibition[9]
  • the landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into the structure of, and fittings in, the premises, the plant and equipment (including the air conditioning system), the appliances, fittings and fixtures provided under the leaseby the landlord relating to the gas, electricity, water, drainage or other services;
  • the landlord is subject to initial and ongoing disclosure obligations, the breach of which may give the tenant, in certain circumstances, the right to withhold rent and outgoings or terminate the lease;
  • the term of a retail premises lease, including any further term(s) provided for by an option for the tenant to renew the lease, must be at least 5 years; [10]
  • the landlord is liable for their own legal or other expenses relating to the negotiation, preparation or execution of the lease, obtaining the consent of a mortgagee to the lease or their compliance with the Act;[11]

These provisions demonstrate the risk for landlords who do not correctly identify retail premises leases, and set terms accordingly.

Let’s revisit the definition of retail premises

A retail premises as defined by section 4(1)(a) of the Act is a ‘premises, not including any area intended for use as a residence, that under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provisions of services’.[12]

Under the Act the time to determine if the premises are retail premises is at the time the lease is entered into or renewed.[13]

How to determine if the premises are retail

The Act does not prescribe a checklist of premises that are considered to be retail. In some circumstances it will be easy to classify your premises as a retail premises for the purpose of the Act, with some obvious examples being premises used as a clothes shop, a hairdresser or a café.

However, it can often be difficult for parties to determine if the premises is a retail premises where the tenant provides services, including if services are provided on a business to business basis.  Prudence must be exercised in such circumstances, in particular by landlords.

Reasons for findings in the Cold Storage Case

The Supreme Court concluded that the premises was a retail premises as:

  • the services were used by Cold Storage’s customers who paid a fee;
  • the business was open during normal business hours;
  • Cold Storage’s customers did not pass the services onto anyone else; and
  • the customers of Cold Storage were the ultimate consumers of their services.[14]

It was noted by the Supreme Court that in isolation none of the above features would ‘suffice to constitute the premises as retail premises’ but the ‘absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises’.[15]

The Supreme Court of Victoria stated that ‘the phrase ‘retail provision of services’ has long been interpreted by reference (at least in part) to an ultimate consumer test; that is, are the services used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to some third person?’.[16]

Therefore, it is clear that the ultimate consumer test can be satisfied by either commercial or private consumers as ‘no distinction has been drawn between commercial and non-commercial users of the service’.[17]

Lesson

  1. When determining whether a premises are a retail, special consideration to the ultimate consumer test needs to be given; and
  2. Landlords in particular should err on the side of caution, and consider setting commercial terms which are consistent with the Act, to minimise the risk exposure should a lease be found to be retail and
  3. Proper legal advice should be sought during the negotiations of the terms of the lease and in relation to the management or prevention of claims arising during or after the life of the lease.

If you have any queries relating to retail premises or leases generally, please contact Ted Vlahos or Jess Tomlinson on (03) 9614 7707.

[1] IMCC Group (Australia) Pty Ltd v CB Cold Storage [2017] VSCA 178, 44.

[2] Ibid, 1.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid, 50-1.

[7] Ibid 44.

[8] Retail Leases Act 2003 (Vic) s 50.

[9] Richmond Football Club Limited v Verraty Pty Ltd [2011] VCAT 2104.

[10] Retail Leases Act 2003 (Vic) s 21(1).

[11] Ibid s 51.

[12] Ibid s 4(1)(a).

[13] Ibid s 11(2).

[14] IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, 50/

[15] Ibid.

[16] Ibid 3.

[17] Ibid 3, 44.

Authors
2018-08-28T16:54:59+00:00 August 10th, 2017|Categories: Property|Authors: , |