Application of RLA

The recent decision in CB Cold Storage Pty Ltd v IMCC Group Pty Ltd [2017] VSC 23 (CB Cold Storage) could mean that for landlords leasing premises to industrial or warehousing businesses in Victoria, land tax may not be recoverable from the Tenant, market rent reviews that do not allow the rent to decrease may be void and on assignment, tenants and their guarantors may be released.

The CB Cold Storage case follows a line of recent cases which have the effect of broadening the application of the Retail Leases Act 2003 (Vic) (RLA). In CB Cold Storage, Croft J overturned the Victorian Civil and Administrative Tribunal’s decision. He determined that the lease in question was in fact a retail lease and thus covered by the RLA. The tenant’s business in CB Cold Storage provided cool storage services to individuals and companies out of the Landlord’s warehouse.

While “retail” is not defined in the RLA, “retail premises” is defined as:

“… 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—

1.  the sale or hire of goods by retail or the retail   provision of services;…”

The decision in CB Cold Storage used the ‘ultimate consumer’ test to characterise the lease. After considering the nature of the service provided by the Tenant and the “ultimate user or consumer”, the Supreme Court concluded that the Tenant’s business was “retail”.

The ‘ultimate consumer’ test comes from the decision in Wellington Union Life Insurance Society Limited [1991] 1 VR 333 (Wellington), where Nathan J stated 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.”

Croft J referred to Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 at [18], where it was stated that a lease for a business which provided “inputs” in another business for the purpose of producing or providing a different good or service, may nevertheless be found to satisfy the ‘ultimate consumer’ test and be subject to the RLA.

In addition Croft J provided that:

“… it may be difficult to contemplate circumstances where the provision of services world be other than “retail””.

Given the characterisation of the Tenant’s business in CB Cold Storage and the test in Wellington, other industrial and warehousing leases could also be subject to the RLA. Parties cannot contract out of the RLA and its effect is retrospective from the start of the Lease. Some of the more immediate consequences of a lease being governed by the RLA are stated above.

In order to determine whether the RLA applies in any given lease, it will be necessary to assess all relevant facts and circumstances. Landlords and Tenants may well be party to a lease covered under the RLA without knowing and be unaware of their rights and obligations.

For further discussion on how you may be affected as a Landlord or Tenant, please contact Andrew Kennedy or Lui Scipioni.