Tenants are given an array of additional rights under a lease governed by the Retail Leases Act 2003 (Vic) (the Act) when compared to a non-retail commercial lease.
It is no surprise then, that in the recent VCAT decision Eastcombe Pty Ltd v Fagersta Steels Pty Ltd (Building and Property) [2022] VCAT 780 (Eastcombe) involving a landlord seeking a declaration that the Act did not apply to the lease and for the recovery of unpaid outgoings, the tenant sought a declaration that the Act did apply and for repayment of money paid to the landlord that is prohibited by the Act, including land tax.
At the commencement of the lease, both the landlord and tenant treated the lease as non-retail and the lease itself was titled ‘commercial lease’. The use of the premises was stated to be ‘warehouse for steel and associated uses and office complex’, which was not in dispute. However, the tenant subsequently ceased paying certain outgoings under the lease on the basis that the Act did apply.
The tenant’s evidence in respect of its use of the premises included:
For the Act to apply, the premises must be deemed a retail premises, which means a premises that under the terms of the lease is used, or to be used, wholly or predominately for:
The factors to be considered to satisfy the above test were set out in Eastcombe and included:
Two of these factors were prominent in rendering the lease a non-retail lease in Eastcombe:
The Ultimate Consumer Test is, put simply, to sell directly to the consumer uses the goods.
However, the tenant in Eastcombe acknowledged it was wholesaling from the Premises and was unable to provide evidence of proportion of customers who were the ‘ultimate consumer’ of the goods sold from the premises, including whether the products were used by the customer, on-supplied or used as an input into other goods or services.
In these circumstances, the Ultimate Consumer Test was deemed not satisfied.
VCAT found that business signage is one factor to consider in determining whether a premises is open to the public. The tenant in Eastcombe operated out of an industrial park. Importantly, the tenant’s name did not appear on the list of tenants in the industry park on the directory sign at the front of the park. Whilst there was one A4 sized sign on the front of the windows of the portable office at the Premises with the words ‘Cash Sales’, there was insufficient evidence that such a sign had been present since the commencement of the lease.
VCAT further found that whilst it was possible for a member the public to attend at the Premises during business hours to make a purchase, the method of access by customers was restricted, including that customers were to be accompanied by a staff member and wear special clothing when entering the Premises.
Taking into account these factors, the Premises was not deemed to be open to the public in the required sense.
For landlords
For tenants
Generally, Eastcombe shows us that VCAT is taking a practical approach to determine whether a lease is a retail lease or not. Therefore, both tenants and landlords should be clear with their intentions in the negotiation stages of a lease agreement and ensure any agreement entered into, and subsequent usage of the premises, fits accordingly.
Have a question regarding your commercial or retail lease? Get in touch with our corporate and commercial team at Coulter Legal today.