Is a sand quarry ground lease a “retail premises” lease?

In the recent decision of Phillips v Abel (Building and Property) [2019] VCAT 1031 the Victorian Civil and Administrative Tribunal has once again considered the question of what is a “retail premises” for the purposes of Section 4(1) of the Retail Leases Act 2003 (“the Act”).

The case involved a lease of a quarry at which the tenant carried on business as an extractive industry, extracting and selling sand, clay and gravel to its customers.

In February 2007 the landlord’s predecessor in title leased the premises to the tenant for a term of 5 years, with 5 further terms each of 5 years. In February 2012 the landlord and tenant renewed the lease for the first further term, that option having been exercised by the tenant prior to the current landlord becoming registered proprietor.

In August 2016 the tenant attempted to exercise its option for the second further term but the landlord refused to grant the option on the basis that the tenant was in default for failing to pay land tax and outgoings as required by the lease.

Due to the nature of outgoings recovery under a retail lease, the Tribunal was once again faced with the question, was the premises a “retail premises” under Section 4(1) of the Act?

Leased premises

The leased premises comprised approximately 250 hectares of land, the majority of which was open pasture to be used for removal of stone from land provided that the primary purpose of the extraction was the sale or commercial use of the stone including use in construction, building, road or manufacturing works.

At the time the lease commenced however, the land had no buildings on it. The tenant installed buildings and infrastructure on the land after the initial term and continued to make improvements thereafter. Improvements included a homestead and other structures used for agricultural purposes.

Parties’ arguments

The landlord argued that because the lease was initially a ground lease without any buildings or structures erected upon the land the Act should not apply. It relied on multiple decisions supporting the contention that to be a “premises” the land in question required a structure to be erected upon it.

In contrast, the Tenant argued that Section 4(1) of the Act made no reference to a building or structure and did not expressly exclude ground leases. It argued that the popular meaning of the word “premises” should be adopted (which included bare land or land with structures erected upon it) and that in order to determine if the Act applied to the lease the Tribunal must instead examine the business activities undertaken from the premises when the lease was entered into.

Decision

The Tribunal held that it is possible for a retail business to be operated from bare land (for example a car park or racetrack) and that to interpret “retail premises” narrowly to exclude a lease of bare land upon which a retail business was being conducted would be contrary to the intent of the legislation and would require reading words into the Act that were not there.

Therefore, to determine if the premises are “retail premises” the Tribunal looked to the purpose of occupation rather than the character of the land itself. Following the decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, relevant factors included:

• the majority of the tenant’s customers were other businesses that ordered in excess of 200 or 300 tonnes of sand per day and used the sand as a component to be transformed into other products such as bitumen, concrete, roof tiles or building blocks;
• other customers used the sand in an unaltered state for various purposes including by private horse owners to create equestrian arenas and by the Department of Sustainability and Environment to deliver sand to beaches for renourishment and rehabilitation purposes;
• a small number of the tenant’s customers (for example garden supply companies) re-packaged the sand for on-sale in an unaltered state; and
• members of the public could attend at the premises and purchase sand provided that they had the necessary means of transporting it (for example a truck or a ute).

The Tribunal concluded that the business conducted by the tenant constituted the provision of retail goods or services and, as such, the Act governed the leasing relationship between the parties.

What does this decision mean?

The decision is an unsurprising one, but unquestionably expands the definition of “retail premises” for the purposes of the Act. We are once again reminded that the legislation which governs retail leases in Victoria was never intended to be limited to retail shops or retail shop leases. Instead, the Act governs a much broader retail sphere.

Will the expanded definition of “retail premises” lead to the inclusion of ground leases used for such purposes as:

• • grazing cattle that is ultimately sold to butchers or to members of the public who buy livestock for their own use; or
  • growing fruit and vegetables that are picked and sold to restaurants or to the public who come and pick themselves?

The landlord in this case raised these very questions.

And the answer? Perhaps.

Each factual scenario must be examined on its own merits but what has been made clear is that the existence of a building or other structure on the leased land is not indicative of whether or not the land can be used for a retail purpose.

Ground leases will fall within the purview of the Act if it can be shown the land is used wholly or predominately for the sale of goods by retail or the retail provision of services, unless they can be excluded on established grounds.