New edition of ‘Mortgagee’s Power of Sale’ published

The latest edition of The Mortgagee’s Power of Sale has been published by LexisNexis.   Now in its fourth edition this book started life in 1980. The book is primarily written for practitioners and the text is arranged, as far as possible, in the same chronological order as the steps a mortgagee may take in selling mortgaged property under the power of sale. The authors are Justice Croft (now the Honourable Dr Clyde Croft AM SC) and Robert Hay QC. Professor the Honourable Marilyn Warren AC QC has kindly written the foreword. Dr Croft  was the sole author of the first edition.

 

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“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.

 

 

“Jumping out” the Retail Leases Act – a clarification

Today I posted an article about Verraty Pty Ltd v Richmond Football Club [2019] VCAT 1073.

I have had queries about paragraph (i) where I said:

“where the commencing rent under a new lease does not exceed $1,000,000 for the first 12 months,  before the lease is entered into the landlord should make an estimate of outgoings for the first 12 months of the lease and keep a record of the making of the estimate;”

The point I was intending to make is that where a new lease is being entered into and the rent is less than $1,000,000 (but when added to outgoings  “occupancy costs” exceed $1,000,000), a failure to make an estimate under s.4(3) could result in the lease (assuming it concerns “retail premises” (s.4(1)) being a “retail premises lease”. The reason  is that “occupancy costs” constitute rent and an estimate of outgoings made by the landlord (s.4(3)); in the absence of an estimate of outgoings  the “occupancy costs” will be restricted to the amount of the rent. There is no need to give the estimate to the tenant.

A new lease will be a “retail premises lease” where “occupancy costs” do not exceed $1,000,000 in which case it is necessary to give a written estimate under s.46.

 

 

 

 

 

Estate agents’ commission fiasco to be fixed

The Victorian government has revealed its “fix” for the problems that emerged from the Victorian Court of Appeal’s decision in  Advisory Services Pty Ltd v Augustin [2018] VSCA 95. That decision was the subject of an earlier blog. The consequence of the decision was that estate agents faced claims by vendors for recovery of commissions that had been paid despite the agent’s engagement or appointment containing rebate statements in a form approved by the Director of Consumer Affairs Victoria. The decision also prevented agents who had not been paid from seeking to recover commissions.

The “fix” is contained in the Justice Legislation Miscellaneous Amendment Bill 2018 which has been introduced into the Victorian Legislative Assembly. The Bill provides for amendments to the Estate Agents Act 1980 which will protect agents who have used a rebate statement in a form approved by the Director but,  by reason of the decision in Advisory Services, does not contain the statement referred to s.49A(4)(a) of the Act or the statement referred to in s.49A(4)(c) of the Act. However, the protection will apply only where the rebate statement is contained in an engagement or appointment entered into before the date after the day on which the Justice Legislation Miscellaneous Amendment Act 2018 receives the Royal Assent.

The amendments to the Estate Agents Act  will not assist the unfortunate estate agent in Advisory Services.

Estate agents and their advisors should ensure that the correct rebate statements are being used.

 

 

 

VCAT loses jurisdiction to hear a dispute where a party is not resident in Victoria

Following last week’s High Court decision in Burns v Corbett [2018] HCA 15 the Victorian Victorian Civil and Administrative Tribunal has lost its jurisdiction to hear and determine a dispute where one of the parties is resident of a State other than Victoria.

This will pose significant problems for VCAT particularly concerning its exclusive jurisdiction to hear and determine a “retail tenancy dispute” under the Retail Leases Act 2003 (2003 Act)[1]. Proceedings in the Tribunal where a party is not resident in Victoria will be affected by the decision. Because VCAT never had jurisdiction to hear and determine a matter where a party was not resident in Victoria, Burns is also likely to have consequences for proceedings that have been heard and determined where one party was not a resident of Victoria.

Where a party is not resident in Victoria, disputes under the 2003 Act will have to be heard and determined in a Victorian court, the Federal Court or an interstate court. Where a “retail tenancy dispute” is heard in a court, a significant issue will be whether the cost regime in the 2003 Act applies or whether the awarding of costs will be governed by court rules. Except in limited circumstances, s.92 of the 2003 Act requires each party to bear its own costs.

In Burns the High Court held that provisions of the Civil and Administrative Tribunal Act 2013 (NSW) were invalid to the extent that they purported to confer jurisdiction upon the Civil and Administrative Tribunal of New South Wales (NCAT) concerning matters between residents of different States.

Chapter III of the Australian Constitution includes ss75 to 77. Section 75(iv) provides that the High Court has original jurisdiction in all matters between residents of different States. Section 76 enables the Commonwealth Parliament to confer additional original jurisdiction on the High Court. Except for the High Court, s.77 permits Parliament to defines the jurisdiction of any federal court including defining the extent to which the jurisdiction of any federal court is exclusive of the jurisdiction of a State court, and gives State courts federal jurisdiction. Section 39 of the Judiciary Act 1903 invests State courts with federal jurisdiction subject to certain conditions and restrictions.

In Burns, Mr Burns complained to the Anti-Discrimination Board of New South Wales about statements made by Ms Corbett and Mr Gaynor which he alleged vilified homosexuals contrary to the Anti-Discrimination Act 1977 (NSW)). Mr Burns was a resident of New South Wales, Ms Corbett was a resident of Victoria and Mr Gaynor was a resident of Queensland.

The complaint against Ms Corbett was referred to the Administrative Decisions Tribunal of New South Wales (predecessor to NCAT) which found that Ms Corbett had breached the Act and ordered her to make an apology. Ms Corbett refused to apologise and Mr Burns commenced a proceeding in the Supreme Court charging Ms Corbett with contempt. Ms Corbett contended that neither the ADT nor NCAT had jurisdiction because she was a resident of Victoria. The complaint against Mr Gaynor was dismissed by NCAT. However, Mr Gaynor obtained leave to appeal to the Court of Appeal in respect of an interlocutory costs order on the basis that NCAT had no jurisdiction to determine matters concerning residents of a State other than New South Wales.

The New South Wales Court of Appeal determined the jurisdiction disputes. The Court had to decide whether NCAT could hear and determine a dispute arising under the Act between a resident of New South Wales and a resident of another State. It was common ground that in determining Mr Burns’ complaints, NCAT was exercising the judicial power of the State despite it not being a “court of a State” within the meaning of Chapter III. The Court held that NCAT had no jurisdiction to hear and determine the complaints against Ms Corbett or Mr Gaynor.

The High Court unanimously dismissed the appeals with a majority deciding that Chapter III permitted adjudicative authority concerning the matters in ss 75 and 76 to be exercised only by a State court. Chapter III would be undermined were a State Parliament able to confer adjudicative authority concerning any of the matters referred to in ss 75 and 76 on a State tribunal that was not a State court.

Parties to current litigation in VCAT need to consider whether the proceeding can continue in the Tribunal.

 

 

 

 

[1]See s.89(4) of the Retail Leases Act2003.

Real estate agents face claims for recovery of commissions

Vendors of properties who have paid commissions to real estate agents are gearing up to recover the commissions on the ground that they were paid by mistake following the Court of Appeal’s decision in Advisory Services Pty Ltd v Augustin [2018] VSCA 95. Agents are in turn likely to take action against the party that drafted the standard form real estate agent’s authority which was found not to comply with the Estate Agents Act 1980.

Advisory concerned an appeal from the County Court where the trial judge decided that a real estate agent’s authority from its client (the vendor of land) did not contain the precise wording of s.49A(4)(c) of the Act with the consequence that the authority was unenforceable pursuant to s.50.

Section 50(1) provides, among other things, that an estate agent is not entitled to sue for or recover or retain any commission or money in respect of any outgoings unless the agent has complied with s.49A(1) with respect to the engagement or appointment.

Section 49A(1) says:

(a) An estate agent must not obtain, or seek to obtain, any payment from a person in respect of work done by, or on behalf of, the agent or in respect of any outgoings incurred by the agent unless:the agent holds a written engagement or appointment that is signed by the person (or the person’s representative); and

…; and

(c) the engagement or appointment contains –

  (i) details of the commission and outgoings that have been agreed; and

         …; and

(iii) a rebate statement that complies with subsection (4).

(emphasis added)

Section 49A(4) says:

A rebate statement complies with this subsection if it is in a form approved by the Director and it contains-

(a)   a statement of whether or not the agent will be, or is likely to be, entitled to any rebate in respect of –

(i) any outgoings;

….; and

(c)        a statement that the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses.

(emphasis added)

Section 48A(1) says that an estate agent is not entitled to retain any amount the agent receives from another person as a rebate in respect of –

(a) any outgoings; or

(b)  any prepayments made by the client in respect of any intended expenditure by the agent on the client’s behalf; or

(c) any payments made by the client to another person in respect of the work.

Section 48B(1) says:

An estate agent must not seek to obtain from the client an amount for any outgoings or proposed outgoings (the expenses) that is more than the amount paid, or payable, by the agent for those expenses.

The agent’s authority provided for the agent to be paid a commission but did not require the client to pay  outgoings. However,  the authority did not contain a statement in the exact words set out in in s.49A(4)(c). The language used in the authority was based on one of the two forms approved by the Director of Consumer Affairs Victoria and available for download by real estate agents. One of the forms contained the words used in s.49A(4)(c) and the other did not. In accordance with the latter form, the authority stated:

 Item 6: Rebate Statement – No Rebate will be received

“The Agent will not, or is not likely to be, entitled to any rebate. A rebate includes any discount, commission or other benefit, and includes non-monetary benefit, and includes non-monetary benefits.”

(*If entitled to a rebate, complete and attach the rebate statement approved by the Director of Consumer Affairs Victoria, at the time of signing this Authority. The statement can be downloaded at www.consumer.vic.gov.au)

Item 8 of the authority provided, under the heading “Agent’s role”, that the “Agent will advertise, market and endeavour to sell” the property.

In the Particulars of Appointment that formed the front page of the authority, there appeared a section headed “Marketing Expenses” which included spaces for “Advertising”, “Other Expenses” and “Total” which were filled in with a dashe that the parties agreed meant that there were no Marketing Expenses payable by the client.

The trial judge held that whether or not an agent was entitled to a rebate, s.49A(c) applied but that substantial compliance with the section would suffice. However, the judge held that the authority did not comply with s.49(4)(c) because it did not convey the information that the estate agent was not entitled to retain any rebate and must not charge the vendor an amount for any expenses that is more than the cost of those expenses. The judge also rejected an argument that a rebate statement would comply with s.49A(4) if it was in a form approved by the Director. The Authority did not make it clear that no rebate could arise.

The Court of Appeal held that ss48A and 48B were explicit prohibitions on certain conduct by estate agents and viewed in that light, the requirement in s.49A(1)(c) that the statement be contained in the engagement or appointment could be seen as ensuring that the client was advised as to the existence of the prohibitions. The Court said that the relevant question was whether the Act required notice to the client in circumstances where the prohibitions could not, by virtue of the arrangement between the estate agent and the client, be breached in any event? The Court answered this question “yes”. The Court  said that that it was apparent that Parliament intended the client be aware of the prohibitions in the context of being able to negotiate the terms of commission and payments in respect of outgoings. The Court held that the correct construction of s.49A(4)(c) was that the statement it describes must be contained in the rebate statement required by s.49A(1) irrespective of whether the agent would be, or likely to be, entitled to any rebate or charge any amount by way of expenses.

 

 

 

 

 

 

 

 

‘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.

 

 

 

 

 

Content of default notices under s27 of Retail Leases Act

At general law the question of whether a tenant has validly exercised an option for a further term depends upon whether the tenant has met the conditions contained in the lease for the exercise of the option. The general law has been altered by the Retail Leases Act 2003. Section 27(2) provides that:

” If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term the only circumstances in which the option is not exercisable is if –

(a)the tenant has not remedied any default about which the tenant has been given written notice; or

(b)the tenant has persistently defaulted under the lease throughout is term and the landlord has given the tenant written notice of the defaults.

Section 27 raises a number of questions: what does a notice need to say to be be a “notice” of default (ss.27(2)(a) and (b)) and how many defaults must there be for the defaults to be “persistent” and when in the term of the lease do they need to occur to be defaults “throughout the term”  (s.27(2)(b)).

In Leonard Joel Pty Ltd v Australian Technological Approvals Pty Ltd [2017] VCAT 1781 VCAT had to consider s.27(2)(a). The dispute concerned whether the tenant was in default by not furnishing the landlord with “as built” plans following alterations to the premises and whether the purported notices of default constituted “notice” of the default.  After deciding that the tenant had not been in default at the time it exercised the option, the Tribunal went on to consider whether the purported default notices given by the landlord constituted “notice” of the default. The landlord’s letters requesting “as built” plans made no mention of a “default” under the lease or a “breach” of the lease.

In determining that the landlord’s letters were not “notices” of a default, Member Josephs said [140]:

“….the potential consquences to the tenant of the landlord not being required to grant the option to renew are significant and serious and as such I find that a more narrow interpretation has to be applied to the sufficiency of the notice any default under the lease “about” which the landlord has given. It is necessary therefor that the landlord applies some rigour in its giving of notice which should make it expressly clear that a breach by the tenant is alleged and should be clear and consistent in its description of the nature of the breach, all of which is alleged to constitute the default.”

And at [142]:

“..the landlord’s letters do not in any way refer to the possible consequence of the landlord not granting the renewal option if the alleged default is not remedied.”

While the latter statement could be interpreted as requiring that a notice refer to a possible consequence of the breach as being that any option might not be exercisable, the Member does not appear to have intended that outcome because he refers to the notice given in Computer & Parts Land Pty Ltd v Property Sunrise Pt Ltd [2012] VCAT 1522 as being an example of “a very appropriate example of a notice”; the notice in that case did not refer to the possibility that an option might be exercisable.

What the decision does highlight is that for a notice to constitute “notice” of  a default under s.27 it must communicate with “obvious clarity and sufficiency” that there is a default or a breach which must be rectified. The default or breach should be identified clearly,  the relevant lease provision referred to and a request made to rectify the default. The notice should be given as soon as possible after the landlord becomes aware of the default.

 

 

 

 

 

 

 

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”.

Controversy resolved – but more tenants under 15 year leases lose protection of Retail Leases Act 2003 (Vic)

Leased premises that are “retail premises” within the meaning of s.4(1) of the Retail Leases Act 2003 are excluded from the operation of the Act where the lease term is 15 years or longer and other conditions are met. See: ss.5(1)(c) and 4(2)(f) and the Ministerial Determination dated 23 August 2004.

The Ministerial Determination has the effect of removing premises from the operation of the Act where:

“Premises which are Leased under a Lease:

(a)        the term of which (excluding any options for renewal) is 15 years or longer; or

………..

and which contains any provisions that –

(d)       impose an obligation on the tenant or any other person to carry out any substantial work on the Premises which involves the building, installation, repair or maintenance of:-

(i)        the structure of, or fixtures in, the Premises; or

(ii)       the plant or equipment at the Premises; or

(iii)      the appliances, fittings or fixtures relating to a gas, electricity, water, drainage or other services; or

(e)        impose an obligation on the tenant or any other person to pay any substantial amount in respect of the cost of any of the matters set out in sub-paragraphs (d)(i), (ii) or (iii); or

(f)        in any significant respect disentitles the tenant or any other person to remove any of the things specified in paragraph (d) at or at any time after the end of any of the leases to which paragraphs (a), (b) or (c) apply.

……………..”

The purpose of the Determination is unclear. Apart from statements by the Small Business Commission, there are no public documents that explain its purpose. The SBC says that the “purpose of the Determination is to exempt long term leases which impose substantial obligations on the tenant from the operation of the Act, where such exemption would be beneficial to both the landlord and the tenant”; the SBC refers, as an example of such a lease, to long term Crown leases for a low or peppercorn rent where substantial works are imposed on the tenant. See: the SBC “Guidelines to the Retail Leases Act 2003 – What are ‘retail premises’” dated 1 December 2014.

But it is unclear why the Determination applies only where it benefits both the landlord and the tenant. The application of the Determination is not restricted  to where the lease provides for a low or peppercorn rent: rent is not mentioned. Why should a tenant under a 15 year lease lose the protection of the Act where the tenant is required by the lease to undertake substantial work or pay for substantial work? Why should a tenant lose the benefit of the Act where it does substantial work and the lease disentitles the tenant from removing the work?

There has long been a debate about whether the “or” that appears between (e) and (f) should be read as an “and”. The issue is important because if “or” is the correct interpretation the number of leases excluded from the operation of the Act will increase. The SBC has said that the “or” should be read as an “and” and that this interpretation had been confirmed by the Victorian Government Solicitor’s Office. See: the SBC’s Guidelines referred to above. Croft, Hay and Virgona in Retail Leases Victoria take a contrary view and say at [30,080.15] that (d), (e) and (f) “are clearly and expressly cast in the alternative…”.

The “or”/”and” controversy was considered and determined by VCAT in Luchio Nominees Pty Ltd v Epping Fresh Food Market Pty Ltd [ 2016] VCAT 937. In that case the tenant argued that for the Determination to apply (d) and (f) had to apply or (e) and (f) had to apply. Member Edquist rejected the tenant’s arguments saying at [52]:

“I do not agree that sub-paragraph (f) in the Determination assumes the prior application of either sub-paragraph (d) or sub-paragraph (e). This is because sub-paragraph (f), which defines the breadth of the prohibition against removal of things, is expressed to relate back to ‘any of the things specified in paragraph (d)’, rather than ‘any of the things specified in paragraphs (d) or (e)’.

As to the purpose of the Determination, the Tribunal held

[58]      …..The purpose of the Determination is, in my view, to clarify that certain long term leases or retail premises are to be deemed not be covered by the RLA…..

[59]      …..a construction of the Determination which requires the existence of both a provision of the type identified by sub-paragraph (d) and sub-paragraph (f), or both a provision of the type identified by sub-paragraph (e) and sub-paragraph (f), would necessarily reduce, potentially substantially, the number of leases caught by the Determination. Such a construction would, in my view, be inconsistent with the presumed purpose of the Determination.”

The real puzzle is why long term leases should be excluded from the Act.