March 31, 2015

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New VSBC guideline on ‘What are “retail premises”?’

The Victorian Small Business Commissioner has recently re-published its guideline on the meaning of ‘retail premises’. A copy of the Commissioner’s new guideline is available here. The guideline discusses the following topics:

  1. Application of the Act
  2. Meaning of retail premises
  3. Guiding principles to determine ‘retail premises’
  4. Ministerial Determinations
  5. Lease or licence
  6. Application if lease term is less than a year
  7. Extended application – dispute resolution under the Act

The discussion about the ‘15 year’ determination is particularly interesting.  There has been a long-standing controversy over whether the word ‘or’ between sub-paragraphs (e) and (f) of the determination should be read as ‘and’. A copy of the 15 year determination is available here. The Commissioner’s guideline neatly summarises arguments in favour of the ‘or’ being treated as ‘and’ at paragraph 7.1.3. However, Croft and Hay in Retail Leases Victoria (looseleaf service) suggest a different view, stating that (at [30,080.15]):

It has been suggested that paras A (d), (e) and (f) are in some way interdependent as a result of some cross-referencing between them. However, as these paragraphs are clearly and expressly cast in the alternative throughout (the word “or” is used consistently) and, in terms of substance, each paragraph introduces a different, separate, circumstance for its application which is not, again in substance, dependent upon the circumstances addressed by the other paragraphs, it seems clear that they operate independently and any cross-referencing is merely a drafting device, for economy of words (and see Pearce and Geddes, Statutory Interpretation in Australia , 6th ed, LexisNexis, Sydney, 2006, at [2.12], in relation to the circumstances where “and” and “or” may be “modified”).

We are not aware of any decisions that consider the operation of this determination. Consequently, while the Commissioner’s guideline provides useful support for the proposition that the ‘or’ at the end of sub-paragraph A(e) of the determination should be read as ‘and’, the debate remains a live one.

Sam Hopper and Lisa Rennie

March 30, 2015

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Continuing problems with specialist retail valuers’ ‘no liability’ clauses

A continuing source of tension, particularly in the retail tenancies jurisdiction, is that valuers appointed to determine the market rent routinely refuse to accept an appointment unless the parties sign a particularly broad form of release, including releasing the valuer from a claim in negligence.

The standard form of release and indemnity is taken from the VSBC guidelines on current market rent reviews under the RLA 2003, which states that:

 RELEASE

The landlord and the tenant jointly and severally agree to release and forever discharge the valuer from all claims, suits, actions, damages, demands, costs and expenses of every description whatsoever (whether at common law, in equity or under any statute and including a claim in negligence) and however so arising which the landlord and tenant (whether collectively, or individually) may have had, may now have or but for this clause may have at any time against the valuer for or in respect of or arising out of or in connection with or in consequence of the appointment of the valuer as a determining valuer in respect of a rent review for the property or arising out of or in connection with that determination.

INDEMNITY

The landlord and the tenant jointly and severally indemnify and keep indemnified the valuer against any and all liabilities, claims, actions, suits, proceedings, demands, losses, damages, costs, fees, expenses incurred for or in respect of or arising out of or in connection with or in consequence of the appointment of the valuer as a determining valuer in respect of a rent review for the Property or arising out of or in connection with the determination of current market rent. Without limiting and in addition to the clause above, the landlord and the tenant jointly and severally agree to indemnify the valuer from:

(a) any costs incurred for legal advice reasonably obtained by the valuer in connection with or in furtherance of the determination of the current market rent;

(b) any common law or statutory liability that relates to that determination, including liability for negligence;

(c) all liability for legal costs and expenses incurred on a solicitor and/or own client basis for any proceedings the valuer may be obliged to defend or required to appear in respect of or arising out of or in connection with or in consequence of the appointment of the valuer as a determining valuer in respect of a rent review for the leased property or arising out of or in connection with that determination.

Valuers include these clauses because the grounds for setting aside a determination are extremely narrow (see Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314).  This means that the valuer him- or herself is the next target for the disgruntled party in a controversial determination.

The Court of Appeal considered whether a release and indemnity was appropriate when engaging an expert under a dispute resolution clause in 1144 Nepean Highway Pty Ltd v Abnote Australasia Pty Ltd [2009] VSCA 308. In that case, Dr Croft SC (as he was then), Michael Redfern and others had each refused to take instructions to act as expert in the determination if a release was not signed.  The Court of Appeal found that there was an implied term that the landlord and tenant would act reasonably to give effect to the agreement, that the expert’s immunity was reasonable and that the parties must sign it.

Although the context is slightly different, the principle behind that decision is applicable to the appointment of a valuer and parties can probably seek an order for specific performance if the other side refuses to sign a release to the valuer determining the rent.

Warranties implied by the ACL add a further complication.  Provided the valuer charges less than $40,000, there seems to be an implied warranty that the services will be provided with due skill and care (see s 60).  This warranty cannot be excluded by contract (see s 64).  I am not aware of any decisions at VCAT or in a Court considering this as a cause of action against a valuer.

As things stand, landlords and tenants have no real alternative to signing a valuer’s terms of engagement, but practitioners should advise their clients of a possible claim against the valuer under the ACL implied warranties if the determination is defective.

Practitioners should also be aware of s 64A(2) of the ACL.

The section says this:

(2)  A term of a contract for the supply by a person of services other than services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 64 merely because the term limits the person‘s liability for failure to comply with a guarantee to:

(a) the supplying of the services again; or

(b) the payment of the cost of having the services supplied again.

The standard clause does not limit liability in the way prescribed by s 64A(2) and I have not yet seen a release and indemnity from a valuer that does.

Also, s 64A(3) and (4) says that:

(3) This section does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the person who supplied the goods or services to rely on that term of the contract.

(4) In determining for the purposes of subsection (3) whether or not reliance on a term of a contract is fair or reasonable, a court is to have regard to all the circumstances of the case, and in particular to the following matters:

(a) the strength of the bargaining positions of the person who supplied the goods or services and the person to whom the goods or services were supplied (the buyer) relative to each other, taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply; …

It seems to me that there would be a good argument that such an exclusion is not fair and reasonable in circumstances where:

(a) the parties do not chose the valuer;

(b) the parties have no ability to negotiate the valuer’s terms;  and

(c) there is limited scope for challenging the determination.

Practitioners acting for a valuer and advising them on an exclusion of liability clause, consider advising them to use a clause that limits liability in the way suggested by s 64A(2) of the ACL possibly in the alternative to the standard form release and indemnity.  It does not provide complete protection to the valuer, but is the best the valuer could expect in the circumstances.

Sam Hopper and Lisa Rennie

February 18, 2015

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Lessor’s purpose for demolishing leased building is irrelevant

Sam Hopper:

Here is an interesting and useful blog post from Robert Hay about demolition clauses in retail leases. Lawyers advising tenants should alert them to a demolition clause in a retail premises lease. These are often overlooked or underestimated by tenants. In particular, provided that the proposed demolition is carried out within reasonable time, the tenant is only entitled to be compensated for the value of its fitout, and not for the value of its goodwill or other losses to the business caused by the demolition notice (see s 56(4)(b) of the RLA here).

Originally posted on The Property Law Blog:

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…

View original 678 more words

February 5, 2015

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Small Business Commissioner’s application for advice heard, Justice Garde has reserved

Those following the debate on the operation of s 52 of the RLA and s 251 of the Building Act 1993 (Vic) may be aware that the Victorian Small Business Commissioner made an application to the President of VCAT seeking an opinion on the landlord’s ability to pass on the act and/or cost of compliance with those sections (for more details, see here).

Justice Garde, sitting as the President of VCAT, heard the application today.  Oral submissions were made on behalf of the Real Estate Institute of Victoria and the Shopping Centre Council of Australia. Various other parties filed written submissions.

The President has reserved.  I will provide an update when the advice and reasons are published.

January 27, 2015

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Is a student accommodation business a retail premises lease under the Retail Leases Act 2003 (Vic)?

In the recent decision of Wang v Orion Holdings Australia Pty Ltd (Building and Property) [2014] VCAT 812, VCAT held that premises let as student accommodation was a retail premises, even though most guests stayed for six months.

In Stringer and Ors v Gilandos Pty Ltd [2012] VSC 361, discussed here, Croft J held that a lease of a serviced apartment complex was a retail premises lease.  However, his Honour gave the following caution:

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.[citation omitted] 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.

In Wang v Orion Holdings at [67] to [79], Senior Member Farrelly considered whether a lease of student accommodation was a retail premises lease.

Relying on the decision in Stringer, the landlord argued that the lease was not retail because most guests occupied their rooms for 6 months.

However, despite these apparently extended stays, Senior Member Farrelly found that the tenant was operating a retail business, partly because she was also:

  • providing personal advice and assistance on a range of daily issues to Chinese students;
  • selling meals;
  • providing tutoring services; and
  • letting rooms for short periods to visiting academics and others.

This represents the high water mark of medium to long stay accommodation businesses characterised as retail premises under the Retail Leases Act 2003 (Vic) (RLA).

The decision was considered in an application for leave to appeal.  However, although this issue was argued in the application, the Court refused to grant leave to appeal without needing to consider this point.

Practitioners should be aware of the decision when advising landlords and tenants of their obligations under leases in which the tenant provides medium term accommodation facilities, as a characterisation of the business as retail premises under the RLA may significantly alter their rights.

Practitioners should also bear in mind that every case turns on its own facts, and should have reference to Croft J’s decision in  Stringer and Ors v Gilandos Pty Ltd [2012] VSC 361, discussed here.

The Court’s reasons in refusing leave to appeal are not available on AustLii.  A copy of the Court’s reasons can be found at: Orion Holdings Pty Ltd v Wang (unreported, 4 September 2014, Supreme Court of Victoria, Mukhtar AsJ).

Sam Hopper and Thomas Steains

November 10, 2014

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Part 2 – Standard of repair under s 52 of the Retail Leases Act 2003 (Vic)

A number of VCAT decisions in recent years have found that:

  1. s 52(2) of the Retail Leases Act 2003 (Vic) creates a ‘baseline’ standard of repair that the landlord cannot contract out of;
  2. but that the parties can agree to put and maintain the premises in a higher standard than that required by s 52(2).

For a discussion of the earlier decisions, see here.

Whether the decisions are correct has been doubted in some quarters.

A recent VCAT decision followed that line of reasoning and the landlord sought leave to appeal to the Supreme Court. Associate Justice Mukhtar held last Friday that the correctness of the decision is not attended by sufficient to warrant the grant of leave to appeal.

While this is not necessarily the end of the matter, practitioners advising clients on repair and maintenance obligations under retail premises leases should be aware of the line of earlier decisions and the recent approval of those decisions by Mukhtar AsJ.

The background to the cases is set out below.

Decision at first instance

In Di & Li Australia Pty Ltd v Jin Dun Pty Ltd (Retail Tenancies) [2014] VCAT 349 (31 March 2014):

  1. the tenant operated a service station from the leased premises;
  2. the first term of the tenant’s lease ran from 31 August 2007 to 30 August 2012;
  3. in around October 2010, a defect in the petrol tanks was discovered that caused water to enter the tanks;
  4. the lease was then renewed for a further term commencing on 31 August 2012.

Section 52(2) of the RLA states that:

(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into

(a) the structure of, and fixtures in, the retail premises; and

(b) plant and equipment at the retail premises; and

(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

Section 94(1) of the RLA states that:

94 The Act prevails over retail premises leases, agreements etc.

(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between parties to a retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).

The lease stated that:

6.4 The landlord must keep the structure (including the external faces and roof) of the building and the landlord’s installations in a condition consistent with their condition at the start of the lease, …

However, the lease also contained the following definition:

Start of the lease the first day of the term but, if this lease is renewable under an option in an earlier lease (whether or not this lease is on terms that are materially different to those contemplated by the earlier lease), the starting date of the first lease to contain an option for renewal.

The landlord argued that, by operation of both ss 52(2) and 94 of the RLA:

  1. it was only required to maintain the premises in a condition consistent with the condition of the premises when the lease was renewed; and
  2. the definition of ‘Start of the lease’ was inconsistent with the RLA and void.

The necessary consequence of the argument is that the landlord would not be responsible for repairing the leaks to the petrol tanks.

The landlord relied on the decision of Deputy President Macnamara in Ross-Hunt  Pty Ltd v Cianjan Pty Ltd (Retail Tenancies) [2009] VCAT 829 (4 May 2009), in which the Tribunal held that:

[32] Since until 1 August 2007  Ross-Hunt  was in possession and was paying rent ‘under’ the previous lease term and not the now current lease term neither paragraphs (b) and (c) of Section 7 can have the effect of bringing the date upon which the relevant lease was entered into forward until before 1 August. Had the parties executed a new lease for the new term it may be that paragraph (c) would have had some operation and would have brought forward the date upon which the current lease could be regarded as having been entered into. Since no such new lease deed was executed paragraph (c) has no operation. The result then is that for the purposes of applying Section 52 the relevant lease is the current lease and it was entered into on 1 August 2007.

[33] Mr Strang sought to avoid this conclusion by arguing that the Retail Leases Act in general and Section 52 in particular should be regarded as ‘beneficial’ legislation and therefore given the benevolent construction in favour of the tenant. He referred to the well known authorities on ‘beneficial’ legislation. In my view this is not the appropriate approach to construing a provision such as Section 52. The Retail Leases Act and cognate legislation regulates the rights and liabilities between one another of landlords and tenants; it is a zero sum game. A right given to a tenant is an obligation imposed on the landlord. An immunity given to a landlord is a right removed from the tenant. The policy of a statute such as the Retail Leases Act is to draw what Parliament regards as a proper balance between the rights and liabilities of landlords and tenants in the particular area regulated by the Retail Leases Act. There is no broad outer area from which ‘beneficial’ principles can be drawn. The only way in which it can be determined exactly how the balance between the rights and liabilities of landlords and tenants has been struck by Parliament is to analyse in accordance with normal statutory maxims the words which Parliament has used. Carrying out that process leads me to the view that Mr Williams’ construction of Section 52 should be adopted. Hence it is only if it can be demonstrated on the balance of probabilities that there has been a deterioration of the state of these air-conditioning appliance since 1 August that the applicant  Ross-Hunt  will be entitled to any relief under Section 52.

The tenant, however, relied on the decisions Computer and Parts Land and Savers Inc v Herosy, discussed here, arguing that s 52(2) created a ‘baseline’ obligation, and that the parties are able to agree to put and maintain the premises in a higher or better condition.

Senior Member Riegler followed the decisions in Compueter and Parts Land and Savers Inc v Herosy, and held that the landlord was obliged to repair the tanks (see paras [9] to [22]).

Leave to appeal

In Jin Dun Pty Ltd v Di & Li Australia Pty Ltd [2014] VSC 562 (7 November 2014), Mukhtar AsJ considered the various arguments and the extract from Ross-Hunt above, then made the following findings:

[28] Great care must be taken with that general statement. It was there to dispel the proposition that a beneficent construction of s 52 ought to lead to the conclusion that despite the words of the statute, the relevant lease is not the current lease but the originating lease. In the present case, the Tribunal accepted that the relevant lease had to be the renewal lease. The difference in this case was that clause 6.4 of the original lease had the effect of placing into the renewed lease an obligation on the landlord not different in kind but which was referable to the condition of the installations at the start of the first lease. Ross-Hunt was unconcerned with s 94 of the Act and the issue in the present case.

[29] Despite that, on this application, Mr Mackay’s submission was:

By passing s 52 in combination with s 94, Parliament has laid down a compulsory and uniform standard of maintenance for all retail leases in Victoria. If it were possible to ‘extend’ the obligation in s 52 in ways that operated favourably to tenants by imposing a different and more expansive maintenance obligation in the express terms of the lease, then the ‘proper balance’ referred to by the learned Deputy President [in Ross-Hunt] would be altered, as an extension of a tenant’s rights commensurately increases the burden assumed by a landlord. The legislature has effected a compromise between these competing interests and has prohibited the parties to a particular lease from altering that compromise by forming a contradictory agreement.

[30] As is evident in the Tribunal’s reasons, the approach to that question can be an adoption from the field of public law which analyses inconsistency according to whether it is direct or indirect.[1] In essence, the technique of statutory construction looks to see whether the clause here would alter, impair or detract from the operation of section 52(2), or whether it is capable of concurrent operation in a supplementary or cumulative way. It will be detraction if section 52 was intended to be a complete and exclusive statement of the limits within which the terms of a lease concerning repairs are to be confined. The landlord’s submission was in effect that a ‘direct collision’ has occurred here because the clause puts a greater obligation (as far as timing is concerned) than that for which s 52(2) provides and the reasoning in Ross-Hunt is a sound basis for concluding a confinement or exclusivity to that section.

[31] The question is whether the enlargement of the landlord’s responsibility ― enlargement only in the sense of pushing back the comparator to the commencement of the original lease ― is contrary to or inconsistent with the comparator under s 52(2) and therefore forbidden under s 94.

[32] As matter of comparison, the clause is ‘inconsistent’ in one sense: a strict literal sense. But the enquiry does not stop there, as the landlord’s argument seems to do. The question is whether the different clause alters, impairs or detracts from the operation of section 52(2). The Tribunal in this case concluded that s 52 does not prohibit the parties from agreeing to extend the landlord’s obligations to repair or maintain its installations.[2] The Tribunal held in essence that s 52 does not limit a landlord’s obligations but rather imposes a minimum obligation on the landlord, and it was not ‘contrary or inconsistent’ for the landlord to agree to a greater obligation.

[33] I think it is clear textually that section 52 (2) is not a restriction on the responsibility of the landlord. That is not to beg the question. It is to look at the words and see, without obscurity, that it is not couched in the language of a restriction of responsibility. The words state a responsibility for something. And, as the Tribunal observed, the only restriction or limitation is one that qualifies that responsibility under sub section (3). If it is not a restriction on liability, then the enlargement of the timing of liability cannot be said to alter, impair or detract from the operation of s 52(2).

[34] Other factors fortify this view. First, the responsibility under the provision is there for the benefit of the tenant. If the landlord is willing to enlarge the statutory benefit, then to my mind, that does not negate or impair the statute. The two can operate consistently. It is in that sense I think the Tribunal’s view that the section imposes a minimum obligation can be endorsed. That is, nothing in the statute curtails the landlord’s freedom to agree to give more. If the statute had intended to go that far, there would need to be clear words to reveal such an intention.

[35] Thirdly, I think the consequences of the landlord’s contention in this demonstrate how an alternative construction can produce capricious results. A lease is a contract, like any other. A breach, which was conceded here by the landlord, sounds in damages. The damages here, from a breach in the initial term, were proven to have inured beyond the expiration of the first term as the breach had ongoing business effect on profits. On the modern purposive approach to statutory interpretation which looks to context in its widest sense (see CIC Insurance Ltd v Bankstown Football Club Ltd[3]) I cannot accept it as being faithful to the apparent objects of this legislation that having agreed to clause 6.4, the landlord can use s 52(2) to deprive justly the tenant of damages for that loss because of the fortuitous renewal of the lease.

Conclusion

It is not known whether the landlord will appeal Mukhtar AsJ’s decision.

The upshot of the decision is that, at this stage, it appears to be the law in Victoria that the parties to a retail premises lease are able to agree to put or maintain the retail premises to a higher standard than is required by that section.

Practitioners should be aware of this decision and its predecessors when advising clients of their repair and maintenance obligations under a retail premises lease.

[1] See amongst many authorities, Bow Ye Investments Pty Ltd v DPP [2009} VSCA 149 at 20, [70] ff.

[2] See reasons at 20-21.

[3] (1997) 187 CLR 384 at 408.

October 13, 2014

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A general update for the leasing community…

There have been four developments for the leasing community over recent weeks:

  1. leave was granted to appeal the decision in Serene Hotels v Epping Hotels;
  2. a hearing was scheduled for the Small Business Commissioner’s application for advice from the President of VCAT;
  3. the Minister for Small Business has made a new determination excluding certain leases to public, not-for-profit or charitable-type organisations from the RLA where the rent is less than $10,000 per annum and revoking a similar determination from 2008; and
  4. amendments have been passed that clarify the Tribunal’s jurisdiction to hear a dispute between the landlord of a retail premises lease and the tenant’s guarantor.

Leave to appeal Serene Hotels Pty Ltd v Epping Hotels Pty Ltd

Associate Justice Mukhtar in the Supreme Court last week granted leave to appeal the VCAT decision of Serene Hotels Pty Ltd v Epping Hotels Pty Ltd [2014] VCAT 97. See here for a discussion of the decision at first instance and its implications.

The VCAT decision suggests (on one view) that specialist retail valuers cannot use the profits method to determine the current market rent under s 37(2) of the Retail Leases Act 2003 (Vic). The Tribunal also found that it had a discretion to exclude a supplementary note prepared by the valuer.

The Court’s decision is only the first step in the appeal. His Honour determined that there was a question of law attended by sufficient doubt to warrant the grant of leave to appeal, but did not determine the appeal itself. However, his Honour expressed the view that the Tribunal did not find that the profits method contravened s 37(2) of the RLA and that the arguable error was more confined (see paragraphs [16] to [21] of the Court’s reasons).

For now, practitioners should note that the decision in Serene Hotels v Epping Hotels remains subject to an appeal. If your clients want to challenge a rental determination that used the profits method or make submissions to a determining valuer about the use of the profits method, consider waiting until after the appeal is heard and determined.

A date for the hearing of the appeal is yet to be set. A copy of the Court’s reasons is not yet on AustLii but can be viewed here.

Sam Hopper and Thomas Alomes

Hearing for SBC’s application for advisory opinion

An earlier post here recorded that the Small Business Commissioner has made an application for advice from the President of VCAT about the operation of s 251 of the Building Act 1993 (Vic) and s 52 of the RLA. The issues in the application are:

  1. whether a retail premises lease can pass on the costs of s 52 repair and maintenance as an outgoing; and
  2. whether a lease can pass on both the act and the cost of compliance with the Building Act 1993 (Vic) and regulations.

At a recent directions hearing, the President made order for oral argument to be heard on 5 and 6 February 2015. I will provide more updates on this issue as it develops.

New Ministerial determination

In July 2008, the Minister for Small Business published a determination excluding certain leases by a Council to public, not-for-profit or charitable-type organisations from the operation of the RLA. A copy of the 2008 determination is available here.

On 6 October 2014, the Minster for Small Business published a new determination, effective from 1 January 2015, revoking the 2008 determination and excluding from the operation of the RLA the following leases:

(a)   A lease of premises under which the rent payable is not greater than $10,000 per annum and under which the premises are used wholly or predominantly for any one or more of the following purposes:

(i)   public or municipal purposes;

(ii)   charitable purposes;

(iii)   the education and training or persons to be ministers of religion;

(iv)   as a residence of a practising minister of religion;

(v)   as a club for or a memorial to person who served in the First or Second World War or in any other war, hostilities or special assignment referred to in the Veterans Act 2005;

(vi)   the purposes of the returned Services League of Australia;

(vii)   the purposes of the Air Force Association (Victoria Division); or

(viii)   the purposes of the Australian Legion of Ex-Servicemen or Women (Victorian Branch).

(b)   A lease of premises under which the rent payable is not greater than $10,000 per annum and under which the premises are used wholly or predominantly by a body or association, whether incorporated or unincorporated:

(i)   that exists for the purposes of (and which uses the premises for) providing or promoting community, cultural, sporting, recreational or similar facilities or activities or objectives; and

(ii)   that applies its profits in promoting its objects; and

(iii)   that prohibits the payment of any dividend or other amount to its members;

The main differences between the 2008 determination and the new determination are that:

  1. the 2008 determination applied only to leases from a Council, but the new determination applies to a prescribed lease from any landlord; and
  2. the new determination only applies to leases where the rent is less than $10,000 per annum, whereas the 2008 determination had no financial limit.

The new determination also states that:

The revocation of the former Determination by this Determination does not affect the operation of the former Determination in relation to leases to which the former Determination applied. Accordingly, any leases to which the former Determination applied, that was in force immediately before 31 December 2014, continues to be excluded from the definition of retail premises in section 4 of the Retail Leases Act 2003 until:

(a)   the lease expires or is terminated under the Act; or

(b)   it is no longer possible, under the terms of the lease, for the tenant to exercise an option to renew the lease.

It is clear from that paragraph that the 2008 determination will continue to exclude from the RLA leases that were entered into between 1 August 2008 and 31 December 2014.  However, the effect of the new determination on options exercised after that time is not clear.

Practitioners advising clients entering low-rent leases for a public, not-for-profit or charitable-type purpose should be aware of the new determination and the possible exclusion of the lease from the RLA.

Practitioners advising clients entering higher-rent leases from a Council for a public, not-for-profit or charitable-type purpose should also be aware of the revocation of the 2008 determination.

A copy of the new determination is available here.

Clarification of VCAT’s jurisdiction

An earlier post here recorded a proposal to amend the RLA to clarify the ability of a landlord to sue a retail premises tenant’s guarantor in the Tribunal.

Those amendments have been passed and took effect from 10 September 2014.

July 16, 2014

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Landlords’ ability to sue retail tenants’ guarantors at VCAT to be clarified

A vexing issue in the retail tenancies list at VCAT has been whether and when a landlord can sue a retail tenant’s guarantor at the Tribunal.

This issue was addressed by the Cavanough J in Tucci v Victorian Civil and Administrative Tribunal & Anor [2010] VSC 425, in which the Court held that a landlord could sue a tenant’s guarantor in the Tribunal under the consumer and trader provisions of the Fair Trading Act 1999 (Vic).  

However, while the decision was a very useful one, identifying the Tribunal’s jurisdiction through this circuitous route has always been a source confusion in the legal and retail communities.

The Courts Legislation Miscellaneous Amendments Bill 2014 (Vic) has been tabled before Parliament and contains a proposed amendment to the Retail Leases Act 2003 (Vic) that expands the definition of ‘retail tenancy dispute‘ to include a claim by a landlord against a guarantor. 

The second reading speech states that:

The bill will also amend the Retail Leases Act 2003 to allow the tribunal to make orders against a guarantor or indemnifier of a tenant’s obligations under a retail premises lease and will allow a guarantor or indemnifier to refer a retail tenancy dispute to the small business commissioner for mediation. These amendments will allow parties involved in retail tenancy disputes to have their issues comprehensively addressed by mediation and, should it be necessary, at the tribunal, without the expense of a separate court proceeding.

The Tribunal’s jurisdiction is not exclusive.  At this stage, landlords will still be able to sue guarantors in a court if they elect to do so.

The second reading speech for the bill took place on 24 June 2014.

June 25, 2014

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Small Business Commissioner makes application for advisory opinion on the effect of s 251 of the Building Act and the costs of repair and maintenance under s 52 of the RLA

A hot issue for retail and commercial leasing practitioners over the last few years has been whether s 251 of the Building Act 1993 (Vic) prevents a landlord from recovering from its tenant as an outgoing under the lease the cost of essential safety measures or other steps required to comply with obligations under the Building Act.

A related issue is whether a landlord can recover the costs of repair and maintenance as an outgoing under s 52 of the RLA 2003.

In an interesting new development, the Small Business Commissioner has applied to the President of the VCAT for an advisory opinion on this issue.

The questions on which the Commissioner has sought advice are set out on the OSBC’s website as follows:

The matters referred to VCAT essentially seek to clarify:

  • the responsibilities of a landlord or tenant under a commercial lease concerning compliance with essential safety measures requirements under the Building Act 1993 and Building Regulations 2006;
  • who should pay for the costs of essential safety measures compliance under the Building Act 1993; and
  • who should pay for the costs of repairs and maintenance obligations under the Retail Leases Act 2003.

This is the first time the Commissioner has used his new power under the Small Business Commissioner Act 2003 (Vic) to seek an advisory opinion from the Tribunal.

The OSBC’s website also says that:

His Honour Justice Greg Garde AO RFD, President VCAT, has directed by Orders made at VCAT on 20 June 2014, that relevant peak industry bodies and government entities and other interested persons should have an opportunity to make, in the first instance, submissions in writing in relation to the matters referred to VCAT.  Any submissions in writing are directed to be provided to the VSBC and the VCAT’s Principal Registrar by 4:00pm on Wednesday, 27 August 2014.

Submissions should be forwarded to the VCAT at GPO Box 5408, Melbourne VIC 3001 or electronically at thomas.patereskos@supremecourt.vic.gov.au and to the VSBC at GPO Box 4509, Melbourne VIC 3001 or electronically at enquiries@vsbc.vic.gov.au .

Written notice of any application seeking the Tribunal’s leave to make oral submissions in addition to any written submissions previously made shall be provided in writing to the VSBC and the VCAT’s Principal Registrar on or before 4:00pm on Tuesday 1 October 2014.

For more information, refer to the OSBC’s website here.

For background to the issue about s 251 of the Building Act, see an earlier post here and the links within that post.

For background on the issue about the recover of the costs of repair and maintenance under s 52 of the RLA, see here.

Thanks again to Jamie Bedelis of Moray & Agnew for alerting me to the note on the OSBC’s website.

June 25, 2014

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When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)?

A number of Supreme Court decisions have confirmed that the supply of services business-to-business governed by the RLA 2003, provided that the second business is the ‘ultimate consumer‘ of the services.

However, the cases also suggest that:

  1. the nature of the premises and the degree to which the premises is ‘open to the public’ may also influence whether the premises will be considered retail premises under the Act; and
  2. we are yet to see the extent to which those elements influence a determination of whether the premises is a retail premises.

Background to the ultimate consumer test

A lease is a governed by the RLA 2003 if it is a lease of a retail premises.  Section 4 of the RLA defined a retail premises as (relevantly):

(1)  In this Act, retail premises means 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 retail provision of services; or

There are some exceptions in s 4 that are not relevant to this note. The scope of the permitted use is also important, but is not relevant to this note.

It is now generally accepted that the Courts and the Tribunal will determine whether the sale of goods or the provision of services is retail by reference to the ‘ultimate consumer test’. The usual formulation of that test is the following from Nathan J in Wellington v Norwich Union Life Insurance Society Ltd – [1991] 1 VR 333:

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. In support of this conclusion, I call in aid not only commonsense but the Macquarie Australian Dictionary which defines retail as being a sale to an ultimate consumer, usually in small quantities. When the verb is used in the transitive form, it is to sell directly to the consumer.

Accordingly, it is generally accepted that the end user does not need to be a member of the public, provided that they are the ultimate consumer of the relevant services.

As a result, and perhaps contrary to general expectations in the marketplace, leases conducting the following businesses have been held to be retail premises:

  1. a patent attorney, where the patent attorney’s advice is provided to an intermediary before being provided to the ultimate client (see Wellington v Norwich Union Life Insurance Society Ltd – [1991] 1 VR 333; see also Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 at [16]);
  2. a logistics business consisting of shipping/transport and storage/warehousing (see Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported, VCAT, Member L Rowland, 8 November 2012)); and
  3. a convention centre where the convention space was supplied by the tenant to convention organisers who ‘on-supplied’ the space to delegates attending the convention (see Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344).

These findings suggest that all providers of services are probably providing retail services. In Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported, VCAT, Member L Rowland, 8 November 2012), Member Rowland held that:

[17]   Given the ultimate consumer test I find it difficult to conceive of any sale of a service which would be other than retail. I find that the provision of logistic services is a retail activity, as it is a sale of services to an ultimate consumer within the meaning of the ultimate consumer test. The test does not distinguish between a commercial or private consumer.

The decision in Fitzroy Dental has also led my friend and colleague Robert Hay to conclude that most tenants who provide services engage in ‘retail provision of services’ (see Robert’s blog post here).

Justice Croft in Fitzroy Dental stressed the need to consider the services provided and determine who is the ‘ultimate consumer’ of those services. However the proposition remains that many, and perhaps most, service providers will be conducting a retail business for the purposes of the RLA 2003.

The nature of the premises and whether they are ‘open to the public’

In the early decision of 536 Swanston Street Pty Ltd v Harbrut Pty Ltd (1988) V ConvR 54-323, Kaye J said (emphasis added):

I have been referred to several definitions by authorities of what is described as retail shop and retail trade. Perhaps the most succinct statement from which assistance is to be derived is from that made by Viscount Dunedin in his speech in Turpin v Middlesbrough Assessment Committee and Kaye & Eyre Brothers, Limited, [1931] AC p.451 at p.474. His Lordship then said, referring to buildings, that they were buildings to which the public can resort for the purpose of having particular wants supplied and services rendered to them.

It is, in my view, clear that the demised premises fall within that description of being available to members of the public for the purposes of having their food and drink requirements supplied and services of discotheque entertainment provided to them. Accordingly, in my view, the demised premises are retail premises within the meaning of the Act.

The ultimate consumer test from the later decision of Wellington v Norwich Union Life Insurance Society Ltd – [1991] 1 VR 333 (set out above) does not make reference to the premises being ‘open to the public’ and the text of the decision seems to suggest that this requirement has been overshadowed.

However, in the recent case of Stringer v Gilandos [2012] VSC 361 (discussed here), Croft J made the following remarks:

[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.[citation omitted] 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.

In Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344, his Honour went further and spent a substantial portion of his judgment considering the nature of the premises and the extent to which it is ‘open to the public’ (see paragraphs [29] to [42]), making the following informative comments after considering the evidence:

[30] Nevertheless, the Plaintiffs submit, in opposition to the application, that the evidence establishes that the Premises do not have the hallmarks of being open to the public. The Plaintiffs submit that because the Premises are used predominately as a conference centre, it is only open when booked for the purposes of a conference and, when operating as a conference centre, is only provided to conference attendees – not the members of the public as a whole. There is, however, no evidence that conference attendance is in any way limited to any section or class of the public. The Plaintiff also submits that the café/restaurant in the Premises is only used for the purposes of providing refreshment to conference attendees as an adjunct to a booked conference; and so is not a café/restaurant in the usual sense.

[32] In significant respects the evidence of the parties is not in conflict. The differences between the parties arise in relation to the consequences of the factual position with respect to the operation of the Act. In particular, the Plaintiffs do not say that the Premises is not being used for its permitted use under the Lease, rather that it is not open for business very much – on the basis of their observations from the street or by sight from their own premises across the street, outside the premises, at various, unspecified times. Additionally, the parties agree that a member of the public could not “walk in off the street” at any time – much as one might otherwise walk into a convenience store or a café/diner of the kind one sees around the suburbs and country towns – or in American films.

[33]   For the reasons I have indicated I am not satisfied that there is any basis in the provisions of the Act or the authorities for constraining the concept of “open to the public” with respect to premises to the extent that the Plaintiffs would have it constrained. True it is that it would be very difficult to imagine a situation where commercial premises which were accessible on a “walk in off the street” basis could, in the absence of specified and unusual circumstances, be said not to be “open to the public”. It does not, in my view, follow that the converse position indicates that premises are not “open to the public”.

[34]   In the present circumstances I am satisfied that the Premises is “open to the public”. There is no evidence to suggest that any person or class of persons is prohibited or otherwise prevented from being able to utilise the conference and function services provided by the Defendants at the Premises. The use of the conference and function services, and those provided by the café/restaurant (which is licenced), are available and open to any member of the public subject to booking the conference or function facilities and the payment of a fee. The fact that the Premises may not be “open” for the provision of services during usual ordinary business, such as apply to ordinary retail shops or restaurants and bars, does not detract in any way from the Premises being “open to the public” in the relevant sense. It appears from the evidence that booking requests for the Premises and booking arrangements are made to and at the Adjoining Premises. This does not, however, detract from the use of the Premises itself in accordance with the Lease and so the position with respect to the application of the Act is not affected.

We must wait for further decisions before we know the extent to which the nature of the premises or whether it is ‘open to the public’ affect the determination of whether a particular premises is a retail premises under the RLA 2003.

However, it is not difficult to imagine a case in which services are provided to the ultimate consumer from a premises that is neither ‘open to the public’ nor presents as a traditional shop in any meaningful way. For example:

  1. a warehouse or cold storage facility leased by a tenant who provides storage and transport services to other businesses. Often the premises will be locked and the consumer will have no real access to the storage space;  and
  2. a service provider whose business is conducted solely over the internet and the telephone.

Although Member Rowland considered a logistics business in Global Toger Logistics, the decision pre-dated Croft J’s decision in Fitzroy Dental and it appears that arguments about the nature of the premises and whether they were ‘open to the public’ were not put to the Tribunal.

What to do now?

It is prudent for the time being, so far as possible, to treat leases as governed by the RLA where the business conducted on the premises is predominantly the provision of services business-to-business.

For example, practitioners should consider advising their clients to:

  1. negotiate commercial terms for any lease of premises where the tenant provides business-to-business services on terms that are consistent with the RLA 2003. For example, landlords should consider excluding land tax from recoverable outgoings in the their leases in exchange for a proportionate increase in rent;
  2. comply with procedural requirements under the RLA, such as giving an estimate of outgoings in accordance with s.46 of the RLA and providing six to twelve months’ notice of the last date to exercise the option in accordance with s.28 of the RLA;  and
  3. when faced with a dispute, issue proceedings in VCAT, rather than the courts.  VCAT has a general landlord and tenant jurisdiction under consumer protection legislation (see Zeus & Ra Pty Ltd v Nicolaou [2003] VSCA 11; see also Tucci v Victorian Civil and Administrative Tribunal [2010] VSC 425).

This may not be possible commercially, in which case practitioners should advise their clients:

  1. that there may be an arguable case that a lease to a tenant that supplies services business-to-business is not a retail premises if:

(a)   the premises is not open to the public in any meaningful way; and/or

(b)   the nature of the premises suggests overwhelmingly that it is not a traditional shop; and

  1. the above notwithstanding, there is a significant risk that such a lease would be treated as a retail premises lease.

Thanks to Jamie Bedelis at Moray & Agnew for his input into this note.

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