Posts Tagged Retail Leases Act 2003

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”.

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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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Valuers must furnish detailed reasons for rental determinations under Retail Leases Act

Valuers determining the “current market rent” rent under leases concerning retail premises must ensure that the valuation:

  • contains “detailed reasons” for the determination; and
  • “specify the matters to which the valuer had regard in making the determination”.

See: s.37(6)(b) and (c) of the Retail Leases Act 2003.

Both requirements must be met; a determination that specified the matters to which the valuer had regard but failed to provide detailed reasons for the determination would not comply with s.37(6).

In Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244 Justice Croft had to consider what was required of a valuer in “giving detailed reasons” and “specifying the matters” to which he or she had regard in making the determination. Higgins concerned an application for leave to appeal from a decision given in VCAT.

After reviewing case law concerning provisions in New South Wales similar to s.37(6), His Honour said at [40] that it was not sufficient for a valuer to “leap to a judgment”: the valuation “must disclose the steps of reasoning” and that both the Victorian and NSW provisions “eschew and do not entertain any ‘blinding flash or light’ as satisfying their ‘requirements’”.

In Higgins the valuer examined the tenant’s financial records and determined the rent using the “profits method” of valuation for determining the rent. The tenant had a 24 hour liquor licence but traded only to 11pm. The valuer referred to the tenant’s actual sales and determined that an additional $536,782 was achievable in annual turnover for the business, being a 26% increase over the actual sales. The only indicator as to how that figure was arrived at was in comments made by the valuer in a document furnished after the valuation was made where he said the figure was derived:

“Based on the liquor licence in place, and comparable venues in the region which I hold on file.”

No details of the comparable venues were furnished.

The landlord sought to defend the valuation on the basis that it was an opinion of an expert and, given the valuer’s experience, that was sufficient in terms of reasoning for the purpose of s.37(6).

Justice Croft rejected the landlord’s argument and refused refused leave to appeal. His Honour referred to and agreed with the following analysis of the valuation given by the Tribunal:

“One might speculate that the Valuer placed considerable emphasis on the fact that the Tenant traded up until 11 pm in circumstances where the 24 hour liquor licence allowed it to trade well beyond that time. However, having to speculate as to how the Valuer formed his opinion is, in my view, contrary to what is required under s.37(6) of the Act. Moreover, no detail was provided as to what other venues were used as a comparator. That, of itself, raises a number of questions: Did those other venues have similar GLAR? Did they have the same type of liquor licence? Were they also being operated as a restaurant/bar? Was their location proximate or did they cater for the same demographic clientele? Without those details, I consider the reasoning to be deficient and not in accordance with the Act.”

His Honour said at [44] that the valuer’s reference to an undisclosed file of material upon which he had made an assessment was “worse than a mere ‘blinding flash of light’” and that the reasoning process was “entirely opaque”.

When a valuer is engaged the parties should refer the valuer to the requirement in s.37(6) to both provide detailed reasons and specify the matters to which the valuer had regard. A determination based on an opinion that does not disclose the valuer’s reasoning will not comply with s.37(6).

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Hopeless proceeding can result in a cost order under Retail Leases Act 2003 (Vic)

The weakness of a party’s case in a retail tenancy dispute can be taken into account in determining whether or not it has “conducted” a “proceeding in a vexatious way” that would entitle the other party to a cost order under s.92(2) of the Retail Leases Act 2003 (Vic).

Part 10 of the Act contains the dispute resolution provisions. Except as provided in s.92(2) the Act requires each party to a retail tenancy dispute  to bear its own costs of the proceeding. See: s.92(1). Costs may be awarded in a retail tenancy dispute under s.92(2) if:

“…the Tribunal is satisfied that it is fair to do so because;

(a)   the party conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding; or

(b)   the party refused to take part in or withdrew from mediation or other form of alternative dispute resolution under this Part.”

(underlining added)

Judge Bowman in State of Victoria v Bradto Pty Ltd and Timbook Pty Ltd [2006] VCAT 1813 referred to the distinction in s.92(2)(a) between a proceeding which is conducted in a vexatious way and the bringing or nature of the proceeding being vexatious. His Honour held that a proceeding is conducted in a vexatious manner “if it is conducted in a way productive of serious and unjustified trouble or harassment, or if there is conduct which is seriously and unfairly burdensome, prejudicial or damaging”.

In 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216 the Court of Appeal considered an appeal from a decision by VCAT in which costs had been awarded on an indemnity basis pursuant to s.92(2)(a). The Tribunal’s decision was based in part on a finding that the applicant had commenced an action for damages in circumstances where the applicant, properly advised, should have known it had no chance of success and persisting in what should, on proper consideration, have been seen to be a hopeless case. The applicant contended that there was a difference between instituting a proceeding that was vexatious, or making a claim that fails, and the conduct of the proceeding which is vexatious. It argued that the Tribunal focused more on what were perceived to be the prospects of success than on the actual conduct of the proceeding.

The Court of Appeal rejected the applicant’s contentions holding that the Tribunal had considered the conduct of the proceeding in addition to the “hopelessness of the applicant’s claim” and that there was no error in also considering the hopelessness of the claim because “the strength of the applicant’s claim for damages was a relevant factor to take into account”.

At [29] the Court of Appeal said:

“It would be artificial to attempt to evaluate the manner in which the proceeding was conducted without having regard to the strength of that party’s case. In the present circumstances, it was relevant that the applicant pursued the damages claim, in circumstances where it was bound to fail.”

If it appears that a proceeding is hopeless the applicant should be notified at an early stage that the application is hopeless and should be withdrawn.

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Lessor’s purpose for demolishing leased building is irrelevant

Leases commonly permit a landlord to terminate a lease if the landlord intends to demolish the building located on the leased premises. Section 56 of the Retail Leases Act 2003 (Vic) implies terms into a retail premises lease that provides for the termination of lease on the grounds that the building is to be demolished. Section 56(2) of the Act says:

The landlord cannot terminate the lease  on that ground unless the landlord has—

(a)        provided the tenant with details of the proposed demolition that are sufficient to indicate a genuine proposal to demolish the building within a reasonably practicable time after the lease is to be terminated; and

(b)       given the tenant at least 6 months’ written notice of the termination date.

Tenants often claim that a proposal is not a “genuine proposal” because the landlord intends to demolish the building so that the new building constructed on the site can be used for the landlord’s own purpose or for the purpose of leasing to a new party. However, the claim is misconceived because the purpose for which a landlord wishes to “demolish” leased premises is irrelevant to the question of whether there is a “genuine proposal”.

Assuming that enough detail is provided in the notice of termination concerning the proposed demolition, the only question is whether there is a genuine proposal to demolish. The term “demolish” is widely defined in s.56(7). In Blackler v Felpure Pty Ltd (1999) 9 BPR 17,259 Bryson J said at [31] that the lessor “should have a genuine proposal to demolish the building within a reasonably practical time after the lease is to be terminated.” Blackler concerned s.35 of the Retail Leases Act 1994 (NSW) which contained a demolition clause in similar terms to s.56 of the Act. Bryson J identified the question for determination as whether the notice itself provided sufficient details to indicate a genuine proposal.

At [37] His Honour said:

The requirement to provide details is not merely a formal step imposed in the lessor’s path, but the details are to be provided so that the lessee can come to a conclusion about whether the termination will be effective, and whether the lessee should accept that it will be effective or dispute it. The sufficiency of details provided should be tested in relation to that purpose. The question is whether the details provided are sufficient to indicate a genuine proposal to demolish the building; if they are not the termination cannot take place and if they are it will be effective no matter what other details of the proposed demolition exist or could have been provided.

And at [61]:

It is not in my view open to contention by the lessee whether the lessor’s decision to demolish, repair, renovate or reconstruct the building is reasonable or appropriate; it is sufficient if there is a genuine proposal. Nor in my opinion is it open to debate whether the lessor could in some way modify the lessor’s proposal so as to continue to accommodate the lessee after the premises have been demolished, repaired, renovated or reconstructed. The opportunity to break a lease, retake possession of take advantage of the demolition clause is a contractual opportunity made available to the lessor by the terms of the lease itself, ……, it is not injurious to the lessor’s position whether the lessor has decided to take advantage, and it is not relevant that the lessor has in view occupying the premises itself, or selling them after reconstruction, or leasing them again, even if the lease should be a business similar to the lessee’s. The demolition clause is a reality of the party’s relationship, and so is its potential operation to end the lease.

See also [62].

In Skiwing Pty Ltd v Trust Company of Australia [2006] NSWCA 276 the Court of Appeal held that a proposed “refurbishment redevelopment or extension” did not lose the character of a “genuine proposal” because the commercial motivation of the lessor was to attract a tenant or particular kind of tenant. See: Skiwing at [22] (Spigelman CJ (with whom Hodgson JA and Bryson JA agreed). Skiwing concerned a relocation notice given under s.34A of the Retail Leases Act 1994 (NSW) which provision was described at [22] as a “parallel formulation” to that considered by Bryson J in Blackler. The Court of Appeal at [22] said that Bryson J in Blackler was “correct”.

In Blackler Bryson J also accepted at [32] that there was an implied duty of good faith in the exercise of the contractual right to terminate the lease. However, the duty of good faith was not breached where the landlord had an intention to occupy the premises itself or lease them out to an identified person after the works had been carried out. His Honour said at [32]:

The defendant can exercise its power to terminate the lease with a view to its own advantage; it is for purposes of that kind that contractual entitlements generally exist.

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

 

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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

 

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No easy answers to whether premises are “retail premises”

It is often difficult to determine whether premises are “retail premises” within the meaning of s 4 of the Retail Leases Act 2003 Act. Section 4(1) provides that “retail premises” means premises 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 retail provision of services.”

One difficulty that arises is that the definition excludes premises that are “intended for use as a residence” with the result that it is not always clear  whether premises such as motels, serviced apartments and caravan parks are “retail premises”.  In the recent decision of String v Gilandos Pty Ltd [2012] VSC 361 Croft J highlighted that there are no easy or broad brush answers: in each case the terms of the lease and the nature of the premises needs to be examined carefully.

His Honour was required to decide whether leases by owners of units in an apartment/resort  complex to the operator of the resort were “retail premises leases” within the meaning of the Retail Tenancies Act 1986, the Retail Tenancies Reform Act 1998 and the 2003 Act. The operator paid rent to the owners and rented the units to members of the public. The units were used as “serviced apartments” and the members of the public did not know who the owners were. From at least 2007 to January 2012, no member of the public had stayed at the units on a permanent or semi-permanent basis and members of the public had only occupied the units for a day or few days at a time. His Honour determined (at [42]) that the units were used for short-term holiday accommodation in a manner difficult to distinguish in any meaningful way from the manner in which motel and hotel rooms were used.

At [47] His Honour considered the meaning of “serviced apartments” and said:

The term or description “serviced apartments” seems to be a relatively modern one; which probably accounts for the lack of assistance from dictionaries. Thus it cannot be assumed that this term or description has any settled meaning. Consequently it is only a term or description that derives meaning – other than in a very general sense – from the particular circumstances in which it is used; and, in most cases with respect to particular premises. This is, in my view, clear from the cases in which the term or description has been considered.

After reviewing the authorities, Croft J said at [52]:

Thus these cases indicate that there may be very fine distinctions between use of premises as a motel on the one hand or as a serviced apartment or serviced apartment complex on the other hand. The observations by the various courts and tribunals with respect to motels and serviced apartments indicate that the characteristics of both types of premises can overlap, thus adding to difficulties in characterising the mode of usage. A clear example is to be found in St Kilda City Council v Perplat Investments Pty Ltd [(1990) 72 LGRA 378] where Young CJ observed that, while it was open to the Tribunal to make a finding of fact based on the evidence before it that the proposed building would be used as serviced apartments, in his view, the proposed buildings looked more to be a motel.

Following Wellington v Norwich Uniton Life Insurance Society Limited [1991] 1 VR 333 and similar cases (at [58]), His Honour held that that the “ultimate consumer” test was the “touchstone of retailing, whether goods or services” and (at [65]) that members of the public were ultimate consumers for fee or reward (being fees paid for accommodation) and the units were used “wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services”.  Thus, each of the leases were “retail premises leases”.

At [65] His Honour said:

Motels, hotels or resort complexes, generally speaking, provide retail services for fee or reward, including the hiring out of rooms. They may also sell food, liquor and other beverages, by retail, at any restaurant faculty provided. In any event, the hiring out of rooms or units for fee or reward to members of the public clearly constitutes the provison of retail services.

His Honour stressed that in each case the nature of the premises had to be analysed together with the manner in which the occupancy was provided. His Honour said at [68]:

I should, however, sound a note of caution in relation to this finding by emphasising that whether or not premises described as “serviced apartments” is to be characterised as “retail premises” depends upon the particular circumstances, including the nature of the premises, the manner in which occupancy is provided and the nature of that occupancy (see Meerkin v 24 Redan Street Pty Ltd [2007] VCAT 2182 (Deputy President Macnamara); though see Bradfield & Ors v QOB Tenancy Pty Ltd (Retail Tenancies) [2012] VCAT 755 (Senior Member Davis) where the parties took the common view that the serviced apartments ought to be considered as retail premises for the purposes of the 2003 Act (see paragraph [82]) .  As I have said, the term or description, “serviced apartments”, is not a term of art. Rather, it is a term or description of premises which connotes a range of possibilities. At one end of the range one would find premises managed and occupied in a manner indistinguishable from a motel or hotel and at the other end premises indistinguishable from long term residential accommodation, separately let but with the attribute of being serviced. In the former case it would be expected that the Acts would apply on the basis that the premises are “retail premises” and in the latter case they would not, any more than they would to any block of residential units. In between there are a range of possibilities each of which may have different consequences in terms of the application of the Acts.

As to the exclusion from the definition of “any area intended for use as a residence”, His Honour said at [64]:

For the sake of completeness I observe that the Retail Leases (Amendment) Act 2005 amended the 2003 Act to include the words “not including any area intended for use as a residence” in the provisions defining the meaning of “retail premises”. In my view, the expression residential accommodation connotes accommodation of this type which is occupied with a degree of permanence. I observe that, consistent with this view, the Full Federal Court of Australia said, in Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR; 214 ALR 190; [2004] FCAC 307 (“Marana Holdings”) that: [citation omitted]

“It may be that the expression “residential accommodation” is sometimes used to describe short-term accommodation in an hotel or a motel. We are not sure that any such usage is as common in Australia as the Court of Appeal in Owen v Elliott [(Inspector of Taxes) [1900] 1 Ch 786] considered it to be in England. We would have thought that such accommodation is more often described as “temporary accommodation”, “holiday accommodation” or perhaps as “hotel accommodation” or “motel accommodation””.

Although Marana Holdings was not a retail leases case this statement is, in my view, one of general application. In the present case the agreed facts are that the Plaintiffs’ Units have been used as only temporary accommodation by its occupants,[citation omitted] so no issue arises with respect to the possibility of residential use.

The agency exception

His Honour also considered a claim by the operator the units were not “retail premises” because the employee or agency exception applied. Section 4(2)(b) of the 2003 Act exempts premises where the tenant is “carrying on” a business “on behalf of the landlord as the landlord’s employee or agent”. After a comprehensive consideration of the terms of the leases His Honour at [69] – [95] rejected the operator’s claim that it was carrying on a business as the landlord’s agent.  Helpfully, His Honour at [94] said:

….in my view, the agency exception only applies if the tenant and landlord relationship is merely incidental to the agency relationship. So even if I am wrong in finding that there is no agency relationship, it cannot be said that the landlord and tenant relationship between the Plaintiffs and the Defendant is incidental to the agency relationship.

(italics added)

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What is the tenant to do if the landlord unreasonbly withholds consent to an assignment?

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Where a landlord refuses consent to an assignment of the term of the lease the tenant’s usual remedy is to seek a declaration that the landlord has unreasonably withheld consent.

Damages are not normally available because in the absence of clear words provisions requiring the landlord’s consent are construed as merely amounting to a qualification of the covenant not to assign. See: Bradbrook, Croft & Hay Commercial Tenancy Law, para 15.9.

Vickery J’s decision in Xiao  v Perpetual Trustee Company Limited & Anor [2008] VSC 41 poses real problems for tenants because at [21] he held that s.124(1) of the VCAT Act only empowered VCAT to grant a declaration instead of an order it could make or in addition to an order it could make. His Honour said:

“Given that Mr Xiao does not claim damages, in order to enliven the jurisdiction of VCAT to grant a declaration, he would have needed to claim, or demonstrate that he was entitled to claim, other relief, for example by way of a permanent injunction pursuant to s 123 of the VCAT Act, before a declaration could be granted.”

Because the tenant is not usually seeking other relief or not entitled to other relief what is it to do?

The same problem will arise if a tenant and landlord seek a declaration that moneys to be paid by a tenant are not key money (see s.23 of the Retail Leases Act 2003)

Parliament needs to clarify VCAT’s powers to grant declarations.

 

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

 

 

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