Retail leases: How to know if you’re a party to one, and what it means

In the case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, the definition of ‘retail provision of services’ was considered in the context of retail versus non-retail leases, in relation to a lease for the provision of cold storage facilities.

The majority of the services provided by CB Cold Storage were to other businesses, not to the general public. CB Cold Storage argued that a lease for business-to-business services was not a retail lease but a commercial lease and, as such, was not required to comply with the Retail Leases Act 2003.

Ultimately, this argument was rejected and the Court of Appeal instead endorsed a broad definition of ‘retail lease’.

Many leases not previously considered to be ‘retail’ are likely to fall within this definition, involving significant potential consequences for landlords and tenants alike.

What is a retail lease?

A retail lease is a lease of premises which are used predominantly for the sale or hire of goods or the retail provision of services.

Whether or not a premises is used for the sale or hire of goods is generally self-explanatory.

Whether or not it is used for the retail provision of services may be more difficult to determine.

In the case discussed above, the Court held that this question could be determined with reference to an ultimate consumer test which asks the following:

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 party?

In other words, is the tenant’s customer the ultimate consumer of the service? In the above case, the service was the provision of cold storage facilities. The consumers were therefore those who used the facilities for storage and not, as CB Cold Storage contended, the public who bought the products that had been stored there.

There are however exceptions to this definition of a retail lease. For example, the following leases are not classified as retail leases in Victoria:

• Leases where the annual occupancy costs, such as rent and outgoings, are greater than $1 million
• Leases where the tenant carries on a business on behalf of the landlord
• Leases where the tenant is a listed corporation (or subsidiary of such)
• Leases where the tenant is a body corporate listed on a stock exchange (or a subsidiary of such)
• Leases on premises located within the Melbourne Markets
• Leases of 15 years  
• Leases used for charity and community purposes.

Why does it matter?

Retail leases are governed by the Retail Leases Act 2003 (Vic). This Act imposes certain obligations on tenants and landlords that are not imposed for non-retail leases.

Some of the relevant differences between retail and non-retail leases include:

• The landlord is required to provide a tenant under a retail lease with a Disclosure Statement containing a summary of key information under the lease
• A landlord cannot refuse the transfer of a retail lease except in accordance with the Act. A non-retail lease can only be transferred in accordance with the reasonable terms of the lease itself
• A retail lease has to be for a minimum of 5 years unless the tenant signs a ‘5 year waiver certificate’
• The landlord has to pay the legal costs of executing the lease and obtaining the mortgagee’s consent, if relevant. In a non-retail lease, this is a matter for negotiation between the parties
• If the landlord and tenant cannot agree to a rental increase, a specialist retail valuer must be appointed
• Most disputes regarding retail leases must be brought to the Victorian Small Business Commissioner prior to commencing any proceedings in VCAT
• The landlord is prohibited from recovering land tax under a retail lease. This matter has been the subject of multiple cases in recent years, including the CB Cold Storage case. Where a landlord has required tenants to pay land tax under a lease which is later determined to be a retail lease, tenants have in some cases been able to recover the amount paid to the landlord through litigation.

It is important to note that the Retail Leases Act 2003 only applies to retail leases granted following 2003.

Landlords and tenants should also review leases granted prior to the enactment of the Act in 2003 to ensure that the lease has not been surrendered and re-granted post-2003, as occurred in Richmond Football Club Limited v Verraty Pty Ltd (ACN 076 360 079) (Retail Tenancies) [2011] VCAT 2104.

Landlords who fail to comply with the Act may be subject to penalties.

How can Sharrock Pitman Legal assist?

If you believe you are a party or may become a party to a retail lease, it is important that you familiarise yourself with the Act or consult a lawyer regarding your obligations under the Act. Call Accredited Specialist in Property Law Andre Ong on (03) 8561 3317, for further information regarding retail leases.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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