By Russell Cocks, Solicitor
First published in the Law Institute Journal
Phillips v Abel is significant as it continues the march of the Retail Leases Act in terms of the application of the Act to premises that might not, in the past, have been thought to have been retail premises. The April 2017 column considered CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23, which was subsequently confirmed on appeal, and since that case there has been a general understanding that the Act applies to many more premises than retail shops servicing the public. Phillips v Abel concluded that the Act applies to a quarry that supplied sand and other soil products in bulk. VCAT concluded that, as the buyers of the sand products basically used that sand “for their own purposes” as opposed to being “passed on by the purchaser in an unaltered state”, the buyers were the “ultimate consumer” of the goods and the Act applied.
Having satisfied the jurisdictional question, VCAT then moved on to consider the ability of the landlord to recover outgoings. This question is going to be of considerable significance in the current situation of many leases that may previously been thought not to be retail, now being held to be retail.
A landlord of a non-retail lease that has a right to recover outgoings may seek to exercise that right in a number of ways:
- by giving rate notices and other outgoings documents to the tenant for payment during the rating year;
- by paying the outgoings as they fall due and seeking reimbursement from the tenant;
- by calculating the anticipated outgoings and adding a fixed amount to the recurring rental figure; or
- by estimating the annual outgoings and seeking payment in advance from the tenant.
The method is not particularly significant, the important point is that the landlord has the freedom to adopt any of these, or other, methods of recovery of outgoings. However, the unexpected application of the Act means that recovery of outgoings is subject to a far more prescriptive statutory regime.
Section 46 requires a retail landlord to give particulars of outgoings to the tenant prior to entry into the lease, which will be by way of the Disclosure Statement, and again in respect of each of the landlord’s accounting periods during the lease, at least one month BEFORE the start of that period. Assuming that the landlord adopts the financial year as the relevant accounting period, the landlord must give an estimate of outgoings at least one month BEFORE the commencement of each financial year. Failure to provide the estimate means that the tenant is not obliged to contribute to outgoings.
An unexpected retail landlord will now find that a tenant may refuse to contribute to outgoings if, as will be the case, a Disclosure Statement has not been given. This refusal will be extended to each subsequent year unless the landlord has given the prescribed estimates prior to the commencement of the accounting year, which will not have been given as the landlord was of the view that the Act did not apply. Exacerbating the problem for the landlord is the decision in Phillips v Abel that subsequently giving details of prior outgoings does not satisfy the requirement to give estimates in advance. The tenant had not paid land tax or outgoings and the landlord could not recover either, because recovery of land tax is prohibited and the landlord had not complied with s 46 in relation to outgoings.
Australian Asset Consulting P/L v Staples Super P/L [2016] VCAT 1726 held that subsequent provision of a s 46 estimate DID enliven the tenant’s obligation to pay previous outgoings but this case was distinguished, perhaps tenuously, on the basis that the tenant had in fact mistakenly paid the outgoings and was seeking recovery.
Richmond Football Club Ltd v Verraty [2011] VCAT 2104 held that a retail tenant who mistakenly pays land tax is entitled to a refund as recovery of land tax is prohibited, but that a landlord who fails to comply with s.46 is not obliged to refund the outgoings, as the landlord had given good consideration for those payments.
Disputes relating to land tax and outgoings are likely to be a feature of the ever-widening retail leasing landscape.
Tip Box
•retail landlords must provide estimates of outgoings in advance
•if a timely estimate is not given the tenant is not obliged to pay
•a tenant who has paid is not entitled to a refund