retail

The definition of what constitutes a retail premises has long been a point of contention and uncertainty for landlords and tenants. The importance of the definition is critical in determining whether the lease comes under the regulation of the Retail Leases Act 2003.

Section 4 of the Retail Leases Act 2003 defines a retail lease as: “a premises 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 provision of services“.

However, what constitutes “retail” sale or provision of services has not always been easy to determine. As sellers of goods and service providers continue to innovate the way they provide their goods and services to consumers and diversify the sorts of premises they provide them from, the courts have been called upon time and time again to articulate more clearly how to apply this definition to contemporary lease arrangements.

The recent decision of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 has added the latest chapter to the discussion. In what might be a surprising decision, the court held that the lease of a wholesale cold storage facility fell under the definition of a retail premises lease.

The circumstances

The tenants business involved storing customers’ products in the freezer warehouses for a fee, and arranging transport services for its customers.  The tenant leased premises in an area zoned for “Industrial 2 use”.

The permitted use of the premises under the lease was “cold and cool storage warehouse and transport facility”. The premises itself consisted of two freezer warehouses, loading areas, vehicle areas, an office and car parking areas.

The services were available to the public although there was no sale or hire of goods from the premises, only storage services.

The Decision

The Supreme Court determined that the premises constituted a retail premises for the Purposes of the Act notwithstanding its industrial nature. They relied on the “Ultimate Consumer Test” which had been set out in previous authorities. This test generally defines a retail premises as “one where the goods services are 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”. Significantly, the Court did not distinguish between commercial and non-commercial (e.g. domestic/personal consumers) users of the goods or services. It was only relevant as to whether the Tenant’s customers passed on the services to other third parties or whether they were the “ultimate consumers”. If their customers were the ultimate consumers, then it would be a retail premises in the first instance (subject to any specific exceptions in the Retail Leases Act 2003).

What this means for Landlords and Tenants?

Landlords and Tenants should consider carefully the use of leased premises and the business that is operated from them. It is clear from this decision that premises which may have previously been assumed to be non-retail premises due to their industrial or warehouse nature may in reality be retail premises and as such under the regulation of the Retail Leases Act 2003.  This in turn may have the following consequences for leases:

• Landlords cannot recover land tax from tenants;
• Rent Review clauses which only allow for rent to increase on market reviews may be unenforceable;
• Landlords are required to provide disclosure of prescribed information in the form required by the Retail Leases Regulations;
• Assignments of leases must follow the procedures set out in the Retail Leases Act 2003; and
• Other Retail Leases Act 2003 specific prohibitions

Landlords should review their leases and consider the operation of a tenants’ business when deciding whether or not to lease to ensure that they know whether a lease is actually subject to the Retail Leases Act 2003.

If the Retail Leases Act 2003 applies, landlords should consider whether they have complied with all of the requirements of the Retail Leases Act 2003 and seek advice. Penalties may apply for non-compliance and a tenant may be eligible for compensation in some circumstances (e.g. where land tax has been borne by the tenant where it should not have been).

If you are unsure about any aspect of a lease, please contact a member of our Property Law Team.