There is a construction issue that keeps coming up in retail and commercial leasing cases about whether a market rent review is required at the commencement of a new term in the standard LIV copyright lease when the Schedule says there are no market reviews.  Different versions of the same issue keep cropping in different version of the LIV lease.

In MD & S Griggs Pty Ltd v DWH Pty Ltd (Building and Property) [2016] 1718, Senior Member Riegler (as the Deputy President was then) considered the 2006 revision of the LIV lease.  

Clause 11 is the market review clause.

Clause 12 of the LIV lease deals with renewals, and in the 2006 revision it states that (underlining added):

12.2       The renewed lease –

12.2.1    starts on the date after this lease ends,

12.2.2    has a starting rent determined in accordance with clause 11, and

12.2.3    must contain the same terms as this lease but with no options for renewal after the last option for a further term stated in item 18 has been exercised.

Accordingly, clause 12.2.2 suggests that the starting rent for a new term is to be determined by market review under clause 11.

However, Item 16 of the Schedule to the lease considered by Senior Member Riegler states that (underlining added):

Item 16                Review date(s):

[2.1.1, 11, 18]

Market review:               Not applicable

CPI review:                     Not applicable

Fixed review:                  Not applicable 

Item 17                Who may initiate reviews:

[2.1.1, 11, 18]

Market review:               Not applicable

CPI review:                     Not applicable

Fixed review:                  Not applicable

The tenant in that case argued that the lease did not provide for market reviews because of the text in the Schedule, and the landlord argued that clause 12.2.2 prevailed.  The Senior Member held that:

16.       In my view, the words market review date in Clause 11 refer to a point in time during the currency of the lease. Similarly, Items 16 and 17 of the lease schedule refer to mid-term reviews, not the process of fixing the initial rent at the commencement of each renewal. 

17.       I am of the view that Clause 12.2.2, which states that the renewed lease has a starting rent determined in accordance with clause 11, means that the mechanical provisions of Clause 11 are to be utilised to determine what the starting rent is to be for the renewed lease. This is because the opening words of Clause 11.1 contemplate that the review period will cease either at the next review date (if there is one) or alternatively, at the end of this lease. Therefore, the market review date refers to a point of time during the currency of the lease. The failure to specify a market review date in the lease schedule simply means that there will be no market review during the currency of any specific term. However, it does not therefore follow that there will be no market review to determine the starting rent of any renewal. Such an interpretation would be inconsistent with Clause 12.2.2 which requires that there be a determination of the starting rent of any new term.

…

23.       … Clause 11 has two functions. The first is to provide the mechanical provisions for rent review during the currency of a term, subject to Item 16 of the lease schedule stipulating a market review date. The second function is to provide mechanical provisions to establish the starting rent of any renewed term.

24.       In my view, such an interpretation avoids the apparent disharmony between the two provisions and gives effect to what was intended. I am reinforced in this view by a review of the following authorities, which examine how a conflict between two clauses may be reconciled

The same issue arose last year in the case of Baroud Nominees Pty Ltd v Mereland Technology Pty Ltd(Building and Property) [2022] VCAT 516, in which Member Nash considered the same provisions in the May 2009 revision of the LIV lease.  In that revision, clauses 11 and 12 were in materially the same form as the 2006 Revision.  Items 16 and 17 of the Schedule in that case stated that (underlining added):

Item 16

[2.1.1, 11, 18]

Review date(s):

Term

(a) Market Review date(s);                      Not Applicable

(b) CPI review date(s):                               On the first anniversary of the commencement date and upon each anniversary of the commencement date thereafter in accordance with the increase in the CPI of the rent payable in the year preceding each such review date.

(c) Fixed review date(s) and percentage

of fixed amount increases:             Not Applicable

Item 17

[2.1.1, 11, 18]

Who may initiate reviews:

Market review:                                        Not applicable

CPI review:                                               Review is automatic

Fixed review:                                            Not applicable

Member Nash referred to the decision in Griggs and adopted and applied the same reasoning.

The same issue has arisen in a number of cases that I have been involved with recently and, given the recent volatility in rent, may well arise in other case, so practitioners should be aware of the decisions. 

Relevantly, the decisions suggest that:

1. if Eleanor has already leased a property to her tenant Fraser with options for a further term, and they used one of the the LIV standard leases, the rent for the new term will probably be determined by a market review, even if they have have marked ‘not applicable’ to market reviews in the Schedule (or words to that effect);  and
2. if Eleanor and Fraser want to use the LIV standard lease and specify a different mechanism for determining the rent for the commencement of a new term, they should expressly state that intention in their lease.  The easiest way to do that is to draft an additional provisions that expressly overrides the operation of clause 12.2.2.  They will also need to ensure that the proposed rent review complies with sub-s 35(2) of the RLA 2003 (see here).

However, practitioners should also be aware that the each lease is construed on its own terms.  While the decisions above are a good indication of how the LIV standard lease will be construed on this issue in the future, the decisions are not binding and there may be other indications in the documents that a different construction is applicable.  

Also, the LIV lease may well change – so make sure you read the whole lease before adivising clients!

Justice Quigley, sitting as the President of VCAT, sitting with Deputy President Wilson confirmed on Friday that VCAT is bound by the decision of Lanigan v Circus Oz & Ors [2022] VSC 35, in which McDonald J held that proceedings in VCAT were not an ‘action’ for the purposes of s 5 of the Limitation of Actions Act 1958 (Vic)(Limitation Act).  

The President and Deputy President’s decision is available at Steedman v Greater Western Water Corporation[2023] VCAT 128. 

For a discussion of the earlier decision in Lanigan and its implications for the leasing community, refer to my earlier post here.

The upshot of the Tribunal’s recent decision in Steedman is that, in the absence of a successful appeal or a statutory amendment, limitation periods imposed by s 5 and other sections of the Limitation Act will not apply to proceedings in VCAT.

However, there was another interesting development in the decision.  The issue arose out of a claim for damages under s 157 of the Water Act 1989 (Vic).  In addition to holding that it was bound by the decision in Lanigan v Circus Oz & Ors [2022] VSC 35, the Tribunal held that the claim under the Water Act was neither: 

1. a claim in contact or tort for the purposes of the limitation period under sub-s 5(1)(a) of the Limitation Act (see paragraphs [99] to [111]);  or 
2. a claim for the recovery of any sum by virtue of an enactment for the purposes of sub-s 5(1)(d) of the Limitation Act (see paragraphs [112] to [117]).  

Critically, the Tribunal found that that a claim for compensation or damages under statute was not a claim for the recovery of a sum of money, so was not subject to a limitation limited even if the Limitation Act applied at VCAT.

I suspect that this is not the last we will hear on this topic.  In addition to finding that the Tribunal was bound by the decision in Lanigan, the President and Deputy President also indicated that they were inclined to the view that the limitation periods imposed by the Limitation Act do apply at VCAT, but that the Tribunal was bound the decision Lanigan until there was either a successful appeal or statutory intervention (see paragraph [78]). Consequently, practitioners should keep an eye out for either an appeal on this question or a statutory amendment.

In the meantime, I think the application of the Limitation Act is likely to affect only a small number of retail leasing disputes for the following reasons.

First, most leasing litigation starts with a landlord making a claim for rent arrears.  A claim for rent in a court usually has a 6 year limitation period under s 19 of the Limitation Act.  However, it is unusual for a landlord to allow rent arrears to accrue for more than 6 years before taking action, so the decision will not affect many rent cases.

Secondly, the issue is more likely to arise when a tenant seeks to press an old counterclaim as a way to defend a rent arrears claim.  However:

1. many counterclaims arise by operation of the lease deed which generally has a 15 year limitation period under s 5(3) of the Limitation Actions Act 1958 (Vic);
2. many counterclaims arise under the Australian Consumer Law (eg for pre-contractual misrepresentations or unconscionable conduct by the landlord).  The ACL usually has its own limitation periods that do not rely on the Limitation Act; and
3. other common counterclaims arise from alleged dilapidations to the leased premises.  However, these claims are generally brought under either or both of ss 52 and 54 of the RLA 2003.  Both of those sections take the form of an implied covenant in a retail premises lease, which probably has a 15 year limitation period.

Thirdly, the limitation periods from the Limitation Act may be applied in circumstances where one party to a retail tenancies dispute claims breach of an agreement to lease (as opposed the terms of a lease deed), or trespass, nuisance or other tort, either by the landlord or the tenant.  Although these types of claims are not unheard of in retail leasing disputes and would usually have a six-year limitation period under sub-s 5(1)(a) of the Limitation Act, they are quite rare.

Fourthly, it is unclear whether a claim for a retrospective rent review under either s 37 or sub-s 35(7) of the RLA 2003 would be construed as a claim for the recovery of a sum of money that would otherwise be limited by sub-s 5(1)(d) the Limitation Act.  It is difficult to see how it could in circumstances where the amount to be recovered or paid is not known until the rent review is completed.  However, so far as I am aware, the question currently untested.

Fifthly, it is also unclear whether a claim for restitution for land tax paid by mistake would otherwise have been limited by either sub-s 5(1)(a) or 5(1)(d) of the Limitation Act.  

In one sense, the claim is a claim for recovery of a sum of money under a statute, so would normally have a 6-year limitation under sub-s 5(1)(d) of the Limitation Act.

However, a claim for money had and received used to be treated by the courts as a form of implied contract wit a 6-year limitation period under sub-s 5(1)(a) of the Limitation Act.  A claim for money had and received is now based in restitution rather than contract, and the courts have applied the 6-year limitation period by analogy and because that limitation period was already established by precedent.  It is unclear whether this limitation would continue to be applied at VCAT in light of the decisions in Lanigan and Steedman.

No doubt, we will see these and new issues evolve from cases as they unfold. 

In the meantime, I will try to write a post on this blog about any significant developments in this area.

Remember when all we had to think about was whether or not a lease was retail and there was no such thing as the CTRS to occupy our minds on a Friday afternoon?  Well, as we return to a post-Covid normal we can start thinking about these things again.

For those who need a refresher, have a look at my earlier (ancient?) posts here.

One of the issues that was referred to by the Court of Appeal in C B Cold Storage was the requirement for a retail premises to be ‘open to the public’.  This was also discussed in some detail in Fitzroy Dental (see here).

Until now, there was only one case that I was aware of where a lease was held to not be retail because it was not open to the public.  That case was Bulk Powders Pty Ltd v Seicon Pty Ltd [2018] VCAT 2000 discussed in an earlier post here.  In that case, the tenant occupied a warehouse with an office from which it sold protein powders and other supplements.  It did not allow customers to attend the premises other than customers already known to management, there was no signage and most sales took place online.

VCAT has this week ruled in Eastcombe Pty Ltd v Fagersta Steels Pty Ltd (Building and Property) [2022] VCAT 780 on another case in which a lease was held not to be a lease of retail premises under the RLA 2003. The Tribunal held that the evidence did not satisfy the ultimate consumer test when the lease was entered into.  However, the finding that might interest practitioners in this area was that the premises also was not open to the public in the required sense.   

After reviewing the authorities, the Tribunal held that:

48   Business signage is one factor to take into account in classifying the retail aspect of a lease. 

49   There is limited signage for the Tenant on the Premise. I accept Ms Taranto’s evidence that when she inspected the Premises in February 2021 the Tenant’s name did not appear on the list of tenants in the industrial park on the directory sign at the front of the park. 

50   A photograph of the sign outside the warehouse roller door shows the sign is about the height of an A4 sheet and length of about three A4 sheets. It is located around head height on the wall to the left of the roller door. From only a short distance it appears illegible in one of the photographs, the pale blue colour of the name blending into the silver background of the sign. The sign sits above other small signs advising that safety vests, foot protection and head protection must be worn in the area. 

51   The Tenant’s opening submissions state that the evidence will show that business signs are placed outside the warehouse doors and at the warehouse stores inviting the public to enter. The evidence does not go this far. The signage does not invite the public to enter. The signage only references the Tenant’s name. 

52   One photograph of unknown origin and date, relied upon by the Tenant, shows a sign printed on a sheet of A4 paper sticky taped to a corner of one of the front windows of the portable office with the words “Cash Sales”. 

53   A photograph taken of the same window on 30 October 2017 during the Crabtree inspection shows no such sign. 

54   Ms Taranto’s evidence which I accept is that there was no sign for cash sales on the portable office during her inspection in February 2021. 

55   The temporary nature of the cash sales sign and the lack of evidence about when it was taped to the window are not persuasive. 

56   At its highest the Tenant’s evidence establishes that: 

(a) it sells stainless steel products to customers including members of the public from the Premises; 

(b) the products are sold to the public by prior appointment, or by attending the Premises during business hours; 

(c) members of the public gain entry to the Premises through the warehouse doors of the Premises; 

(d) the warehouse doors are open between 6.30am and 3.30pm, Monday to Friday except on public holidays; 

(e) products can be purchased at the warehouse store and at the office; and 

(f) on at least one occasion a paper sign reading “cash sales” was taped to the portable office. 

57   The Tenant’s evidence goes no further than establishing that members of the public can attend and buy steel from the Premises. The frequency of such visits is unknown. The percentage of sales directly to members of the public is unknown. 

58   The evidence in support of the Premises not being open to the public in the retail sense includes: 

(a) members of the public gain access through the warehouse roller door;

(b) attendance by customers is restricted. Customers must be accompanied by a staff member when in the warehouse. Signs state people entering must wear special clothing and be accompanied by a member of staff to enter the Premises;

(c) the absence of signage at the entrance to the business park to identify that the Tenant is an occupant of the business park; 

(d) a small discreet sign beside one of the warehouse roller doors with the Tenant’s name; 

(e) the external office/reception area door of the Premises is kept locked; 

(f) there is no contact number displayed at the front office/reception area door; 

(g) the nature of the business being a wholesaler although the customer base is unclear; 

(h) the lay out of the warehouse depicted in photographs showing huge racks of product sometimes stacked to the ceiling and stacks of large steel sheets and overhead cranes; and 

(i) no obvious sales area or showroom other than the portable office. 

59   Unlike in Fitzroy Dental and FP Sunshine where customers are required to pay a hire fee or an entrance fee to gain entry, a member of the public cannot enter the Premises and walk around unaccompanied. Their access remains restricted. 

60   While I accept the Tenant’s evidence that it is possible for a member of the public to attend the Premises during business hours and make a purchase, I am not persuaded that the Premises operate or have ever operated since the commencement of the Lease as a retail premises in the sense required by the RLA. 

This, coupled with the decision in Bulk Powders, suggests that:

1. the Tribunal is taking a practical approach to the assessment of whether a premises is ‘open to the public’ in the required sense;
2. the question will be assessed on a case-by-case basis taking into account the circumstances of the particular tenancy;
3. signage at the premises is an indicator of whether the premises is open to the public;  and
4. the extent that visitors can freely walk around the premises unsupervised is also an indicator of the extent to which the premises is open to the public.

A copy of the decision has not found its way onto Austlii yet.  Those who cannot wait to read it can download a copy here:

In the recent decision of Lanigan v Circus Oz & Ors [2022] VSC 35, McDonald J in the Supreme Court of Victoria held that VCAT was not a Court for the purposes of the Limitation of Actions Act 1958 (Vic)(Limitation Act) and, as a result, the limitations periods imposed by that statute did not apply to proceedings issued at the Tribunal.  

His Honour was considering whether a proceeding was statute barred by operation of sub-s 5(1)(a) of the Limitation Act, which states that (emphasis added):

(1)        The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued—

(a)        Subject to subsections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;

Sub-section 3(1) of the Limitation Act defines ‘action’ as follows:

action includes any proceeding in a court of law;

His Honour said:

[20]     Ms Lanigan advances two submissions as to why the VCAT Proceeding is not subject to s 5(1)(a).  First, the VCAT Proceeding is not a ‘proceeding in a court of law’ for the purposes of the definition of ‘action’ in s 3(1) of the Limitations Act.  In the alternative, if the VCAT Proceeding is a proceeding in a court of law, a claim alleging a contravention of the EO Act is not an ‘action founded on tort’ for the purposes of s 5(1)(a).  I accept both of these submissions.  

…

[21]     It is common ground in the present proceeding that no Victorian court has previously considered the question of whether the Tribunal is a court of law for the purposes of ss 3(1) and 5(1)(a) of the Limitations Act.  For the reasons which follow, this question is to be answered in the negative. 

After considering a number of authorities on the issue at paragraphs [22] to [34], his Honour concluded that:

[35]     The Tribunal is not a court for the purposes of the definition of ‘action’ in s 3(1) of the Limitations Act.  Ms Lanigan’s VCAT Proceeding is not a proceeding in a court of law.

This finding may affect leasing cases for the following reasons.

First, leases are usually evidenced by a deed and the limitation period for suing under a deed is 15 years (see s 5(3) of the Limitation Act).  However, there are exceptions to this such as when the lease is not formalised into a deed and only recorded as an agreement to lease and when the tenant exercises its option by notice in writing but no deed of renewal is executed.  In those cases, the parties probably only have a contract and the limitation period is probably six years under sub-s 5(1)(a) of the Limitation Act.

Secondly, s 18 of the Limitation Act limits actions for the recovery of rent to six years, stating that:

No action shall be brought to recover arrears of rent or damages in respect thereof after the expiration of six years from the date on which the arrears became due.

It is unusual for a landlord to allow rent to accrue in arrears for more than six years, but I have seen it from time to time.

Thirdly, tenants often respond to a landlord’s attempt to re-enter premises by setting up a counterclaim that the tenant then seeks to set off against the landlord’s claimed rent.  It is not unusual for tenants in these circumstances to press counterclaims that are quite old.  

For example, in the recent case of BWS Hospitality Pty Ltd v DGA Australia Pty Ltd (Building and Property)[2022] VCAT 233 (3 March 2022) the tenant pressed a counterclaim based on alleged misleading and deceptive conduct that took place as far back as 2013-14.  While the tenant in that case found another way to overcome the limitation period, the case illustrates how an old counterclaim can be used to prevent re-entry based on current arrears.

Another example is the recovery of the cost of essential safety measures under s 251 of the Building Act 1991 (Vic) or the cost of landlord’s repair and maintenance under s 52 of the Retail Leases Act 2003 (Vic).  The usual limitation period for the recovery of these sums is six years under sub-ss 5(1)(a) and (d) of the RLA 2003.^[1]  Tenants facing re-entry for non-payment of rent may seek to recover old ESM and s 52 repair and maintenance costs paid by the tenant and seek to set off those costs against rent arrears.  The decision in Lanigan allows a tenant to reach back further into time and potentially claim a larger sum. 

^[1] Although there is also an argument that s 52 of the RLA 2003 implies a covenant into a lease deed, which has a 15 year limitation – but that is a debate for another blog post! 

The new CTRS Regulations are based on the Commercial Tenancy Relief Scheme Regulations 2021 (Vic) and largely mirror those regulations.  However, there are some notable changes.

My first comments on the new CTRS Regs are:

1. The new regulations cover the period 16 January 2022 to 15 March 2022.
2. The extension applies only to tenants or corporate groups with a turnover of less than $10M, down from $50M in the previous versions of the CTRS.
3. The definition of ‘turnover’ continues to include Victorian government COVID-19 business support grants received by the tenant during the relevant period (which caught out a few tenants last time around).
4. The new CTRS Regs apply to leases that were in effect from 16 January 2022, so will apply to very new lettings.
5. Generally, the turnover test period and the comparison period are January 2022 and January 2020 respectively, but there are exceptions and alternative comparison turnover methods prescribed.
6. The most notable exception is if the tenant’s business was unexpectedly closed for more than a week in January 2020 (ie the January before COVID), in which case the tenant’s trading figures for December 2021 and December 2019 are used.
7. The form and content of a tenant’s request for rent relief is largely unchanged.  Last time, requests for rent relief would only apply retrospectively if they were made before 30 September 2021.  There appears to be no equivalent in this version of the CTRS Regs.  However, it is still prudent for tenants to make their requests for rent relief as soon as possible.  
8. The new regulations do not expressly address whether a new request for rent relief must be made if the landlord and tenant are still negotiating about rent relief for the period 28 July 2021 to 15 January 2022.  There was some suggestion that a new request was not required in similar circumstances under the CTRS back in 2020 (does anyone still remember it?).  However, that was because the CTRS in 2020 was extended by varying the then-existing regulations.  The new CTRS Regs take the form of a whole new piece of delegated legislation, so the same reasoning might not apply.  Consequently, it is prudent for tenants who are still negotiating rent relief for 28 July 2021 to 15 January 2022 to make a fresh request under the new regulations as soon as possible.
9. Payment of deferred rent under previous agreements for rent relief has been pushed back to 15 March 2022.
10. The prohibition on rent increases from the previous version of the CTRS has been retained without change, so under the new regulations landlords cannot apply a rent review that would have occurred between 16 January 2022 and 15 March 2022.  

As always, my friend Paul Nunan at Eastern Bridge Lawyers has produced a note summarising the contents of the new regulations with breathtaking speed.  A copy of his discussion is available here: https://www.easternbridge.com.au/post/ctrs-2022-regulations-released

Paul’s note identifies some confusion caused by regulation 14(b).  For those looking at this issue, Paul and I have discussed this with Jamie Bedelis of Bedleis Lawyers and we think the answer is probably to read reg 14 with reg 21. This, in turn, leads to the exception referred to in paragraph 6 above.

Thanks also to Mark Schramm from the VSBC for alerting me to the new regulations and his input in our discussions.