Posts Tagged Retail lease

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.

 

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Parties can agree to higher standard than that imposed by s.52 of Retail Leases Act

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

 

Section 52 of the Retail Leases Act 2003 implies into a “retail premises” lease an obligation on landlords to maintain “in a condition consistent with the condition of the premises when the retail premises lease was entered into” things such as the “structure of, and fixtures in” the premises, “plant and equipment at retail premises” and “the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water drainage or other services”.

When is the lease entered into if an option is exercised? Is it the date when the lease commenced or when the new lease arising by reason of the option being exercised commences?

In Ross-Hunt Pty Ltd v Cianjan Pty Ltd[1] the Tribunal held that that the relevant date was the date that the new term commenced following the exercise of an option and not the commencing date of the first term of the lease.

A further question then arose about whether a provision in a lease that imposes a higher standard on a landlord than that imposed by s.52 is void under s.94 on the ground that it is contrary to or inconsistent with s.52.

In Savers INC (ARB 075 452 185) v Herosy Nominees[2][the Tribunal held that if parties wished to contract for more than was provided for under s.52 they were free to do so; in that case the leases (and earlier leases to which the landlords and tenant were parties) contained terms that obliged the landlords to undertake repairs to the premises and imposed obligations that were more onerous than those imposed by s.52.

In the recent decision of Di & Li Australia Pty Ltd v Jin Dun Pty Ltd[3] Senior Member Riegler rejected an argument that lease provisions which imposed more onerous obligations on the landlord than those imposed by s.52 were void. The Senior Member said:

“[20] In my view, s 52 does not prohibit the parties from agreeing to extend the Landlord’s obligations to repair or maintain its installations. The situation might be different if s 52 was expressed as a provision limiting a landlord’s obligation to maintain plant and equipment to a condition consistent with its condition when the lease was entered into. However, the provision does not expressly limit a landlord’s obligations but rather, imposes what I consider to be a minimum obligation on a landlord.

[21] There is nothing inconsistent or contrary to s 52 for the parties to increase that obligation and in the present case, it made eminent sense for the Landlord to continue to have that obligation upon renewal, given that it held the reversionary interest in the plant and equipment.

Further, it is not the case that s 52 is devoid of any limitation. In particular, sub-section (3) sets out various circumstances which limit its operation.

Those circumstances do not include limiting the comparator to the commencement of the Lease.

In my opinion, it was open for Parliament to have limited the operation of s 52(2) of the Act to the current term by stating words to the effect that a lease is not to include a term which requires the landlord to maintain plant and equipment, other than in a condition commensurate with the condition of the plant and equipment at the commencement of the lease.

However, the section is not expressed in such prohibitory terms, nor is it expressed to indicate any intention on the part of the legislature to ‘cover the field’ in respect of a landlord’s repair liability.”

 

[1] [2009] VCAT 829.

[2]2011] VCAT 1160

[3] [2014] VCAT 349

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

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