ByLawyers News and Updates

Retail Leases – VIC

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The Retail Leases Regulations 2023 (Vic) came into operation on 15 April 2023. They are made under s 99 of the Retail Leases Act 2003 (Vic) and prescribe certain matters that are required to be prescribed under the Act. They repeal the Retail Leases Regulations 2013 (Vic) and the Retail Leases Amendment Regulations 2022 (Vic).

The provisions of the new regulations largely replicate those of the previous regulations, while:

  • making updated provisions for the monetary amounts of occupancy costs for the purpose of excluding certain retail premises from the disclosure obligations under the Act;
  • prescribing the outgoings payable by a tenant, by reference to a percentage of the rent; and
  • updating the forms for the disclosure statements that must be issued under the Act. Disclosure obligations apply to new leases, renewals of leases, and assignments of leases.

The prescribed forms are now contained in Schedules 1 to 4 of the 2023 regulations.

From 15 April landlords and their agents need to be aware of the changes to the prescribed forms and only issue disclosure statements in the new form for leases that fall under the provisions of the Act.

The By Lawyers Lease (VIC) and 1001 Conveyancing Answers (VIC) publications have been updated accordingly. They include the prescribed forms of disclosure statement for all retail leasing scenarios, as well as commentary about time frames for landlords issuing disclosure statements to tenants, and the consequences of non-compliance.

Retail leases – NSW

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Certain COVID-19 related arrangements for retail leases have been made permanent.

The COVID-19 and Other Legislation Amendment (Regulatory Reforms) Act 2022 No 5 preserves temporary protections for certain lessees impacted by COVID-19. This is achieved by inserting a savings provision, s 88(1A), into the Retail Leases Act 1994. This has the effect of retaining the relevant provisions of the Retail and Other Commercial Leases (COVID-19) Regulation 2022 even though it is to be otherwise automatically repealed on 14 July 2022.

The COVID-19 protections in question include:

  • Landlords cannot act against an impacted lessee failing to pay rent, failing to pay outgoings, or not being open for business during the hours required under the lease;
  • Rents cannot be increased, except for parts of rents that are calculated based on turnover;
  • Any breaches of a lease which are caused by the tenants’ compliance with Commonwealth or State COVID-19 laws are excused;
  • An obligation on both parties to retail leases to renegotiate in good faith the rent payable under the lease, based on the economic impacts of COVID-19.

The protections reflect those of the National Code of Conduct’s leasing principles. Impacted lessees are generally those who have received government assistance during COVID-19.

The amending Act also creates a new s 89, generally empowering creation of savings or transitional regulations on leases in response to COVID-19.

The commentary in the By Lawyers Leases guide and the relevant section of the 1001 Conveyancing Answers (NSW) publication has been amended to reflect these arrangements, including links to these new sections.

Retail lease outgoings

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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:

  1. by giving rate notices and other outgoings documents to the tenant for payment during the rating year;
  2. by paying the outgoings as they fall due and seeking reimbursement from the tenant;
  3. by calculating the anticipated outgoings and adding a fixed amount to the recurring rental figure; or
  4. 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

Retail Lease Summary – VIC

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By Lawyers Leases guide in Victoria now includes a summary precedent for the By Lawyers Retail Lease.

This helpful document is similar to the LIV Schedule, however this precedent is not intended to form part of the lease – it is strictly a summary of the central terms.

Amendments and additions are to be made in Item 24 of the Disclosure Statement.

This Retail lease Summary is particularly useful when explaining the lease to the client.

The corresponding item number from the disclosure statement and/or relevant clause of the terms and conditions is displayed on the left.

This precedent was created as a result of a user request. By Lawyers loves to respond to feedback from our users.

 

Retail repairs revisited

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 52 Retail Leases Act 2003 makes the landlord of retail premises responsible for maintaining the structure, fittings, plant & equipment and appliances. But for how long?

Traditionally leases were drawn by the landlord’s lawyer and offered to a prospective tenant on a ‘take it or leave it basis’. All the power lay with the landlord. However such a disproportionate relationship is anathema to the consumer protection society and retail tenants, like their residential cousins before them, have become the beneficiaries of protection designed to create a more balanced relationship between landlord and tenant.

Section 52 implies into every retail lease a maintenance obligation on the landlord. This may be contrasted with the traditional approach of foisting repair obligations (excluding the euphemistic ‘structural’ repairs) on to tenants. In a retail environment the obligation to maintain (and therefore repair) primarily falls on the landlord, although leases continue to try to pass ‘residual’ repair obligations on to the tenant.

A number of cases have considered the length of time of the maintenance obligation. From the beginning of the lease the landlord must maintain the premises. For a relatively short term lease, such as 2 years, it might be expected that the premises might not deteriorate substantially and this maintenance obligation might not be too burdensome. However for a long term lease, such as 10 years, it might be expected that substantial maintenance may be required. Indeed, a tenant may take advantage of a number of options to extend the lease to a period of 15 or 20 years. The landlord could expect that the level of maintenance required in such circumstances will involve a substantial cost that needs to be taken into account when negotiating rental.

Ross-Hunt P/L v Cianjan P/L [2009] VCAT 829 considered the landlord’s obligation to repair the air conditioning in a retail office. Air conditioning falls within s 52 and is a facility that deteriorates over time. The cost of maintaining the air conditioning system can be significant and the replacement cost at the end of the life of the equipment can amount to a substantial proportion of the annual rental. The lease had been renewed and the Tribunal concluded that the need for repairs to the air conditioning arose early in the renewed term and was the landlord’s responsibility. The Tribunal concluded that the ‘comparator’ date was the date of renewal. This means that the condition of the premises at the date that complaint is made is compared with the condition of the premises at the last renewal and the landlord is responsible for maintaining the premises in the condition that they were at the time of the last renewal.

Versus v ANH Nominees P/L [2015] VSC 515 however cast doubt on this ‘comparator’ date, at least in respect of damage to the premises requiring repair that arose during the previous term and had not be repaired before the expiration of the previous term. The landlord had argued that the renewal created a new comparator, that the premises after renewal were in precisely the same condition that they were in at the time of renewal and that the landlord therefore had no obligation to improve the premises. Croft J. rejected this argument on the basis that the landlord cannot be permitted to be in a better position after renewal precisely because the landlord had failed to fulfill its s 52 duties during the previous term. Such an outcome would also be contrary to the ameliorating and remedial intention of the Act.

Croft J. also commented that there is no basis to suggest that Parliament could not have intended the landlord to have a continuing repair obligation in a particularly long term lease, such as 20 years. Provided that the landlord observes the repair obligation during the term, the premises should be in a similar state of repair after 20 years, fair wear and tear excepted, and the continuing obligation to repair should not be excessively onerous.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Retail repairs

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Victorian Civil and Administrative Tribunal (VCAT) has published an advisory opinion on the interaction between the obligations created in respect of essential safety measures by the Building Regulations 2006 and the landlord’s repair obligations pursuant to s 52 Retail Leases Act 2003. Whilst nominally only an advisory opinion and therefore not binding, the fact that the opinion was given by the President of VCAT, Justice Greg Garde, makes it reasonable to expect that it will carry significant weight if these matters come to be considered by VCAT or the Supreme Court in the future.

Building Regulations 2006 and preceding regulations create obligations to maintain essential safety measures in respect of various categories of premises. These regulations in turn rely on s 250 of the Building Act 1993 to allocate responsibility for the carrying out of those works on the owners of the premises and s 251 provides that if the owner does not carry out the work, the occupier may do so and recover the cost from the owner.

Section 52 Retail Leases Act 2003 creates repair obligations on the owner of the premises in respect to the structure, the fixtures, the equipment and the fittings. The obligation is to maintain the premises in a condition consistent with the condition of the premises when the lease was entered into, however if the lease was renewed the relevant comparative condition is the condition at the time of renewal Ross-Hunt P/L v. Cianjan P/L [2009]VCAT 829.

At first blush it would appear that these two obligations are entirely consistent and place those obligations firmly on the owner/landlord. However it was suggested that whilst the obligation to perform the work fell upon the landlord, the lease might nevertheless allow the landlord to recover the cost of those works from the occupier/tenant as ‘outgoings’. The Advisory Opinion decided that such a provision in a lease would be inconsistent with s 251(6) that provides that the s 251 applies ‘despite any covenant or agreement to the contrary’. This principle would apply equally to a lease that was covered by the Retail Leases Act as to one that was not covered by the Act.

Further, the Advisory Opinion concluded that s 52 Retail Leases Act 2003 strengthened the argument that the landlord was responsible for the maintenance of essential safety measures and is prohibited from seeking to pass those costs on to the tenant.

It may therefore be concluded that any attempt in a lease of commercial premises to pass to the tenant the cost of compliance with the landlord’s obligations under the Building Regulations will be void. This is because such a provision is inconsistent with s 251 Building Act and in respect of premises subject to the Retail Leases Act, is also contrary to s 52 of that Act.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Retail lease – Predominant use

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Predominant Use

By Russell Cocks, Solicitor
First published in the Law Institute Journal

Section 4(1)(a) of the Retail Leases Act 2003 provides that the Act applies to premises:

wholly or predominantly for –

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

The Act was designed to protect retail tenants, specifically tenants of large shopping complexes where there was a perception of disproportionate bargaining power. However the Act is not limited to large complexes, although some of the provisions apply to a ‘retail shopping centre’, which is defined as five premises owned by the one landlord, and additional restrictions apply to such premises.

As the Act applies to retail premises generally, it may apply to shops and offices in strip shopping centres and even to stand alone premises in residential or industrial areas that have a retail use. Thus a solicitor who provides services to the public from a suburban office and a panel beater in an industrial estate may be entitled to the benefit of the protections provided by the Act.

It is important to understand that it is the use of the particular premises that determines the applicability of the Act, not the character of the tenant. Thus a solicitor is no doubt engaging in retail services and the solicitor’s office will be subject to the Act, but a separate storage facility rented by the solicitor as part of the legal practice will not be covered by the Act as those premises are not used for the provision of retail services to the public.

This distinction between retail and non-retail premises is simple when separate premises are used, but the distinction is less clear when the same premises are used for both retail and non-retail purposes. Such a situation might arise, for instance, where a business rents a large warehouse facility to manufacture furniture but also has a ‘front of house’ retail sales component. Determining whether the premises are ‘retail’ will depend upon whether the ‘predominant use’ of premises is retail and two obvious tests for determining the predominant use in such a situation are the comparative area occupied by the various uses and the proportion of income derived by each use. In the present example it is likely that the manufacturing facility would occupy the majority of the area and the income derived from retail sales would be a small proportion of total income and thus the predominant use is manufacturing, and so the Act will not apply.

The dictionary meaning of ‘predominant’ is ‘greatest’ or ‘most important, powerful or influential’. However the question is not so much what is ‘predominant’ but rather ‘predominant’ what? Consideration of whether the retail component of the business occupies the ‘greatest’ amount of the area of the premises or generates the ‘greatest’ proportion of income would appear to be relevant tests, but they are not the only factors to be taken account: see Elmer v Minute Wit Enterprises P/L [2002] VCAT 1101.

That case concerned a shop in a strip shopping centre that was rented by a tenant who sold antique furniture, a scenario that would ordinarily be retail premises. However the tenant’s principal business was conducted from nearby premises and the shop was used only for display and storage, only being opened when an inquiry was directed to the principal place of business. This, in addition to other reasons, justified a finding that the premises were not retail premises within the meaning of the Act and introduced a ‘time’ test into the mix.

A similar ‘time’ test was adopted in Evans & Ors v Thurau P/L [2011] VCC 1354. The subject property was an apartment in a ski lodge which was subject to a requirement in the head lease that the apartment be available for rental through the head tenant to members of the public when not in use by the subtenant. It was argued that this meant that the property was ‘holiday accommodation’ and therefore ‘retail premises’ and that the dispute should therefore be before VCAT. Judge Anderson concluded that the fact that the snow season was limited and that the subtenant could, if they choose, occupy the premises for the whole of that season to the exclusion of the public meant that the predominant use was not retail. The fact that a retail use was one of the possible uses was not enough.

It can been seen from these cases that the determination of whether the ‘predominant use’ of premises is retail will depend upon a number of possible factors, some or all of which may play a greater or lesser role in the determination in each case. Apart from what the lease itself may provide, the courts may consider the area occupied by the retail component, the income earned by that component and the time that the retail component is utilised.

It will be interesting to see how these factors will come into play when an inevitable question comes up for determination. That will be a dispute arising from premises used for retail sales conducted entirely by phone, fax or internet, a typical call centre environment. Such premises do not include physical access to the premises by members of the public, but certainly involve retail sales. No doubt one party will argue that public access is an integral part of retail sales within the meaning of the Act, an argument that appears to have some merit when the purposes of the Act are considered.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Lease – Retail lease

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One for the Little Guy

By Russell Cocks, Solicitor
First published in the Law Institute Journal

The recent case of Xiao v Perpetual Trustee Company Limited and Macquarie Office Management Limited [2008] VSC 412 is a typical ‘David versus Goliath’ scenario, with the outcome complying with biblical expectations.

Xiao (the tenant) operated a café/restaurant in the ground floor of a substantial office building that was owned by Perpetual (the landlord) and managed by Macquarie (the manager), which employed an estate agent to manage tenancies (the agent). The tenant had paid $320,000 for the business in 2006, taking over a lease due to expire on 30 September 2008. Importantly the lease provided for an option of five years and the question to be decided by the Court was whether the tenant had validly exercised the option. If not, the tenant would be obliged to vacate the premises on 30 September 2008.

Jurisdiction

Most disputes involving retail premises, as these premises were, are heard in VCAT. An exception exists if the tenant is seeking relief against forfeiture and the Court was satisfied that a claim for relief against forfeiture of an option came within this exception. Once the jurisdiction of the Court is enlivened, appropriate remedies, such as a declaration or specific performance, become available.

The option

The central issue was whether the tenant had exercised the option within the applicable time limits. Certainly the tenant had exercised the option, on 19 June 2008, but the landlord argued that this was inoperative as it was outside of the applicable time limit. The provisions in the lease required the tenant to exercise the option ‘not less than six (6) months prior to the expiry of the Term’. The term was due to expire on 30 September 2008, so the lease required the tenant to exercise the option prior to 31 March 2008 and there is no doubt that the tenant’s notice on 19 June failed to comply with this time limit. However the tenant sought to rely upon the landlord’s overriding statutory obligation (s 28 Retail Leases Act) to give notice to the tenant of the need to exercise the option. The Act requires the landlord to give this notice to the tenant between 6 and 12 months before the last day for exercise of the option; in this case between 30 September 2007 (6 months before the last day) and 30 March 2007 (12 months before the last day). Failure by the landlord to give notice within these time limits results in the tenant being entitled to exercise the option at any time within 6 months of the landlord in fact giving the notice.

Notice

The landlord was ‘late’ with the option notice. The agent purported to send the option notice to the tenant on 4 December 2008, meaning that the ‘statutory extension’ gave the tenant 6 months from that date (4 June 2008) to exercise the option. On 12 June the lawyers for the landlord wrote to the tenant advising that the tenant had lost the right to exercise the option, as the tenant had failed to exercise the option within 6 months of the option notice and that the tenant was required to vacate the premises at the expiration of the term, namely 30 September 2008. The tenant gave notice of exercise of the option on 18 June and shortly after issued these proceedings seeking enforcement of the option.

At this point the judgment entered ‘the twilight zone’ as far as practising lawyers (and agents) are concerned – an intimate analysis of the minutia of service. Nobody wants to think that a document that they have served may in fact be held to have not been served, but that was the outcome in this case. The landlord’s responsibility was to ‘notify’ and the Court held that that meant that the information had to in fact come to the attention of the tenant. It was not the act of the landlord ‘serving’ the document that was the touchstone; rather it was proof of the fact that the information had reached the tenant that was necessary. The agent gave evidence that the notice had been posted to the tenant, both in the normal mail and by registered mail, on 4 December 2007. But the Court was not satisfied that the normal mail letter had been received (or indeed posted) and was satisfied that the tenant had not collected the registered mail until 31 December 2007, which was when the landlord had fulfilled the obligation to ‘notify’. This made the tenant’s exercise of the option on 19 June 2008 within the 6 months extended period for exercise and thus enforceable.

The Court drew the crucial distinction between ‘service’ and ‘notification’, placing a higher onus in respect of the latter. However it also concluded that even if the lower threshold of ‘service’ was all that was required, then ‘service’ had not been achieved as the letter referred to 3 June 2008, whereas 6 months from ‘service’ would have been 6 or 7 June, depending upon the definition of ‘service’ adopted. As Maxwell Smart would say, ‘Missed by that much!’

The outcome was a win for the little guy, who would have, perhaps unfairly, lost a business that had cost a significant amount of money. No doubt that did not influence the outcome, but nevertheless it is a pleasing happenstance.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

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