“Retail premises leases” cannot jump out of the Retail Leases Act 2003

The Supreme Court of Victoria has ruled that a lease that is a “retail premises lease” (within the meaning of s.11 of the Retail Leases Act 2003) when it is entered into cannot cease to be such a lease during its term.

In Richmond Football Club v Verraty [2019] VSC 597. Croft J upheld an appeal by a tenant from a VCAT decision which held that a lease that was a “retail premises lease” when entered into could cease to be such a lease during the lease term. VCAT held that the Act ceased to apply when “occupancy costs” exceeded $1,000,000 exclusive of GST.

Section 4(2) of the Act sets out circumstances in which premises are excluded from the definition of “retail premises” in s.4(1). The exceptions include, among other things, where “occupancy costs” (i.e. estimated outgoings plus the rent) exceed $1,000,000 exclusive of GST,  where the tenant is a publicly listed company or a subsidiary of such a company, and where the Minister makes a declaration that the premises are premises to which s.4(2)(f) applies with the consequence that the premises are not “retail premises”.

The effect of Croft J’s decision appears to be that all of the circumstances listed in s.4(2) of the Act are relevant only when the lease is entered into – they are not relevant after that time. Unless one of the exclusions in s.4(2) applies when the lease is entered into, the lease will be a retail premise lease for the term of the lease.

The judgment is less clear concerning the terms of a lease resulting from the exercise of an option.  It appears that even if an exclusion in s.4(2) applies (i.e. so that the premises are not “retail premises”) when a renewed lease commences (i.e. following the exercise of an option), the renewed lease will nevertheless contain the provisions implied into the lease by the Act (i.e. provisions such as ss. 37, 52  – 57) and the provisions of the lease made void by the Act (i.e. provisions such as those referred to in s.35(3) (ratchet clauses) and 50 (land tax) will remain void. The only way to avoid the renewed lease containing the terms implied by the Act, or to revive provisions made void by the Act, is to include appropriately worded provisions in the lease that are to apply if the Act ceases to apply.

I will write further about this case.

 

 

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‘Ultimate consumer test” remains one of the indicia of the retail provision of services

The CB Cold Storage and IMCC Group saga has ended. This morning the High Court of Australia refused the landlord’s application for special leave to appeal. The consequence is that the Court of Appeal’s decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 stands and practitioners can draft leases and give advice confident that the so-called “the ultimate consumer test” remains one of the main indicia in determining whether premises are “retail premises” and therefore governed by the Retail Leases Act 2003. The saga began as a preliminary question in VCAT – the question being whether the Act applied to the premises. The lease permitted CB Cold Storage to operate the premises as “Cold and cool storage warehouse and transport facility” and also contained a clause that precluded CB Cold Storage from operating the premises as “retail premises”. The prohibition on the tenant operating the premises as “retail premises” was irrelevant because the landlord agreed that that the tenant’s actual use of the premises accorded with the permitted use; this meant that  the only question was the premises should be characterised as “retail premises” under the Act. Premises are “retail premises’ where:

“under the terms of the lease…the premises are used, or are to be used, wholly or predominantly for –

(a)   the sale or hire of goods by retail or the retail provision of services” (s.4(1))

In Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333 Nathan J said that:

“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so.”

His Honour’s statement has been applied many times. Where a service is provided there will be few instances where the service is not “consumed” or used in the leased premises. In CB Cold Storage the service was “consumed” or used in the premises by the ultimate consumer, being the tenant’s customers. While the tenant’s customers ranged from large primary production enterprises to very small owner operated businesses, any person could store goods in the premises. VCAT held that the premises were not ‘retail premises’ on the basis that the tenant’s customers were using the tenant’s service for business purposes rather than for personal use. In CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 Justice Croft held that the premises were “retail premises” and the Court of Appeal agreed with His Honour. The Court of Appeal held that the “ultimate consumer test” was one of the indicia of the retail provision of services. In all cases it is necessary to consider whether the premises are “open to the public”  – that is there are no restrictions on access to the service and who can use it. The characteristics of the user – that is whether the use is an individual or a business is not relevant. At [50] the Court of Appeal said:

“In summary, the services were used by the Tenant’s customers who paid a fee. Any person could purchase the services if the fee was paid. The Tenant’s business was open during normal business hours. The Tenant’s customers have not passed on the services to anyone else. They were the ultimate consumers of the Tenant’s services. In isolation, none of these features would suffice to constitute the premises as retail premises. Conversely, the absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises. However, in the circumstances of this case, when all of those features are taken together, the conclusion must be that the premises are retail premises.”

Where the parties intend that premises not be governed by the Act the permitted use should make that clear. A good example is Sofos v Coburn [1994] 2 VR 505 where the permitted use was “wholesale and export fish supply”. The tenant was undertaking retail sales. Nathan J held that the tenant could not rely on what it was actually doing when that contradicted the express terms of the lease.

 

 

 

 

 

Retail Leases Act 2003 (Vic) likely to apply where tenant provides a service

Where a tenant provides services from leased premises in accordance with the permitted use the lease is likely to be a “retail premises lease” and therefore governed by the Retail Leases Act 2003 (Vic).

In every case it is necessary to identify precisely the service being provided, consider what activity is permitted under the lease and whether the service provided accords with the permitted use.

The Act applies to a “retail premises lease”.  “Retail’ is not defined; however, the expression “retail premises” is defined (s.4(1)):

“….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 –

(a)   the sale or hire of goods by retail or the provision of services;”

(underlining added).

The authorities provide strong support for the ‘ultimate consumer’ test as the touchstone of retailing. In Wellington Union Life Insurance Society Limited [1991] 1 VR 333, Nathan J said at 336:

“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so.”

Wellington Union concerned the provision of a service: patent attorneys providing advice to large foreign chemical companies from rented premises. In some cases the advice passed through the hands of an intermediary to the ultimate consumer. Nathan J held that the premises were “retail premises”.

In Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 (which also concerned the provision of a service) Croft J referred to Wellington Union at [16]:

“The fact that the advice of the patent attorneys may pass through the hands of an intermediary to the ultimate consumer or end user was not regarded as significant, provided it came into the hands of that person in a form that could not be amended and hence remained the product of the intellect of the deliverer. More generally, this highlights and emphasises the importance of characterising the nature of the “service” that is being provided. Thus, in the context of Wellington, it would follow that if the position was that the patent attorneys provided advice to, for example, a solicitor who would, in turn, provide advice to his or her client, the ultimate consumer, using the patent attorney’s advice merely as an “input” in his or her advice, wholly or partially with additions and modifications on the basis of his or her professional opinion, the position would be different. In those circumstances the patent attorney’s advice could not, in a relevant sense, be said to pass through the hands of an intermediary to the ultimate consumer. It does not, however, follow that in these circumstances the solicitor may not be regarded as the “ultimate consumer” of the service for the purposes of his or her own practice; as is likely to be the case with other “inputs” for the practice such as, for example, legal research services, stationary and office supplies.”

Most reported cases concern whether goods are being sold by retail. At [17] in Fitzroy Dental Croft J considered whether the sale of goods could be said to be “retail”;

“….. a sale of “widget type A” from premises by A to B who, in turn, “converts” the good “widget type A” to “widget type B for sale to C would not involve the sale of “widget type A” to C as the ultimate consumer of that type of good. Depending on the nature of the goods involved these transactions may involve sale by wholesale to B and a retail sale to C – or, alternatively, two retail sales of different goods, “widget type A” to B and “widget type B” to C.”

And at [18];

“… that the fact that a good or a service is provided to a person who uses the good or service as an “input” in that person’s business for the purpose of producing or providing a different good or service to another person does not detract from the possible characterisation of the first person (and perhaps also the second person, depending on all the circumstances) as the “ultimate consumer” of the original good or service.”

In CB Cold Storage Pty Ltd v IMCC Group Pty Ltd [2017] VSC 23 Croft J had to again consider whether rented premises were “retail premises”. The tenant conducted the business of a cold and cool storage warehouse storage from the premises which accorded with the permitted use under the lease. The tenant’s customers ranged from large primary production enterprises to very small owner operated businesses. VCAT held that the tenant’s rented premises were not “retail premises” on the basis that a “consumer” was a person who used goods or services to satisfy personal needs rather than for a business purpose and therefore the tenant’s customers were not consumers of the tenant’s services. The tenant appealed VCAT’s decision. Croft J allowed the appeal and held that the premises were “retail premises”. The Tribunal erred in holding that customers that used a tenant’s service for a business purpose were not “ultimate consumers”; the Tribunal treated the services provided at the premises as an “input” into the tenant’s customer’s business arrangements with the consequence that the tenant’s customers were not the ultimate consumers of the tenant’s services. The matter was not remitted to VCAT because the Tribunal had been satisfied of all other matters necessary to support a conclusion that the premises were “retail premises”: the premises were being used in accordance with the lease, were “open to the public” and there were no findings to support a conclusion that the premises were not “retail premises”.

CB Cold Storage highlights the importance of identifying the nature of the service being provided and the user or consumer of that service. In most cases the provision of a service will be “retail”.

Media Presentation By Robert Hay

Re-entry and Relief from Forfeiture in Commercial Leases 

Robert Hay  – Greens List

 

My  clerk can be contacted via this link http://www.greenslist.com.au/

 

 

 

https://www.youtube.com/channel/UCnZ52SbIPsHnEz74tK8ikRg