PROPERTY ALERT: Industrial retail leases (Victoria)

13 March 2018

Publications

Summary

Premises used for industrial purposes that previously would not have been considered retail premises may now be subject to the Retail Leases Act 2003 (Vic) (RLA).

It has been held by the Victorian Supreme Court of Appeal that part of the test of whether premises are retail premises for the purposes of the RLA is the “ultimate consumer test”, i.e. are the goods or services provided by the tenant from the premises used by the person to whom they are sold (the ultimate consumer) or are they passed on by the person in an unaltered state to third persons? Other factors to take into account in determining whether the RLA applies include the type of service and whether it is generally available to any person for a fee.

Given most services are not passed on to a third person, many premises used for the supply of services to the ultimate consumer are likely to be subject to the RLA even if the transaction is “business to business”.  (This is contrasted with the sale of goods where the distinction between wholesale and retail is more readily discernible.)

This is arguably at odds with the original intention of the legislation to provide consumer protection safeguards for unsophisticated retail tenants. It is also largely out of step with the retail leasing legislation in other states in Australia, which generally have prescriptive definitions for what falls in and out of the definition of ‘retail premises’.

The High Court has refused leave to appeal the decision of the Victorian Supreme Court of Appeal so this will be the position unless Parliament legislates to change it.

Examples

In the case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 (CB Cold Storage Case), the tenant operated a cold storage business and its customers paid a fee for storage of their products.  As the services of providing cold storage were provided on the premises, the tenant’s customers could not pass on the services to anyone else and were the ultimate consumers of the tenant’s services.  The Court also noted that the tenant’s business was open during normal business hours and that any person could purchase the services if a fee was paid.  It was therefore found that the premises were subject to the RLA.

In a subsequent case, Access Solutions International Pty Ltd v Gamut Pty Ltd, it was held that premises were retail when used for the manufacture of electrically operated security doors and gates.  The tenant supplied the doors and gates to builders.  This was held to be a supply of services rather than goods as the builder incorporated the doors/gates into its process to deliver a product in the form of fire station, police station or other buildings to its customer.  The builder was found to be the ultimate consumer of the doors/gates.

Practical considerations

Based on the current cases, industrial warehouse premises used for the supply of services to another business which is the ultimate consumer can be found to be subject to the RLA.  This applies even where a significant rent is paid (see below re the $1 million threshold exemption).

Landlords of industrial premises found to be subject to the RLA will not be able to claim land tax payments or enforce ‘ratchet clauses’ in relation to rent reviews and in many instances, tenants may be entitled to a minimum 5 year term and be released on an assignment.

As in the CB Cold Storage Case, there is a risk to landlords that tenants under existing leasing arrangements may also attempt to retrospectively recover charges collected under leases which are prohibited under the RLA such as land tax.

The RLA does not though apply in limited circumstances including where:

  • occupancy costs (including rent and outgoings) payable per annum in respect of the premises are more than $1 million (GST exclusive); or
  • the tenant is a listed corporation or a subsidiary of a listed corporation.

Contact

If you require more information in relation to industrial retail leases or retail leases generally, please contact:

Vicki Sharp | Partner | +61 3 9461 8668 | vsharp@tglaw.com.au

Sarah Rizk | Partner | +61 3 8080 3708 | srizk@tglaw.com.au

Emma Martin | Special Counsel | +61 3 8080 3559 | emartin@tglaw.com.au