July 12, 2019


Sand quarry is a lease of retail premises and late provided s 46 estimate does not revive liability for old outgoings under RLA 2003

In the decision of Phillips v Abel [2019] VCAT 1031, handed down last week, VCAT held that:

  1. a lease of a quarry where the tenant processed and sold to members of the public sand extracted from the site was a lease of retail premises under the Retail Leases Act 2003 (Vic) (RLA 2003); and
  2. late provision of an estimate of outgoings under s 46 of the RLA 2003 did not retrospectively revive the tenant’s liability to pay outgoings that accrued before the estimate was provided.

I will expand on the two findings below.

Sand quarry is a retail premises lease

The application of the RLA 2003 and the definition of ‘retail premises’ under that Act was the subject of substantial litigation in 2017 (see here).

In this latest application of the test of ‘retail premises’, the Tribunal heard argument from the tenant that:

  1. the tenant used the leased premises to extract, process, clean and sell to the public sand found in a quarry at the leased premises;
  2. the vast majority of the sand sold from the premises was either:

(a) used directly by the tenant’s customers (such as equestrian centres who used the sand on their arenas);  or

(b) used by the tenant’s customers in a process to create other products (such as concrete, bitumen or tiles);

  1. only a small number of customers re-packaged or re-supplied the sand unchanged to their customers;
  2. any member of the public could attend the leased premises to purchase sand, provided they had a vehicle to remove it. If they did not have the right vehicle, one could be arranged for them at cost; and
  3. accordingly, the leased premises satisfied the test of retailing endorsed by the Court of Appeal in IMCC Group (Australia) Pty Ltd v C.B.Cold Storage Pty Ltd [2017] VSCA 178.

The landlord argued that the RLA 2003 did not apply because:

  1. the lease was primarily a ground lease without a building on it and the RLA 2003 should be construed as not applying on a ground lease.The landlord relied on a number of decisions that had construed ‘premises’ in other statutes as requiring a building and various provisions of the RLA 2003 that contemplate buildings on retail premises; and
  2. an argument that the RLA 2003 is a primarily an urban statute that should not apply to premises in a rural setting.

The tenant argued in response that the RLA 2003 should not be limited to exclude ground leases or leases in a rural setting, in part because the 1,000m2 rule in the statutory predecessors to the RLA 2003 was abolished in the RLA 2003 due to conceptual difficulties created by caravan parks, nurseries, second hand car yards and other retail businesses that are conducted primarily outside.

In finding that the sand quarry is a retail premises under the RLA 2003, the Tribunal held that:

[35]  In my view, the references to a building in various parts of the RLA does not necessarily mean that the word premises is to be construed as land having some form of infrastructure built on it. Each of the provisions of the RLA that reference a building have their own purpose, which deal with a circumstance that might arise where there is a building or plant and equipment located on the demised land. For example, where the building is damaged. However, that, of itself, does not mean that the word premises must be defined as only including land that includes some form of building. In my view, the fact that there are numerous references to a building simply reflects the fact that most retail premises will include some form of a building.

[36]  It is still possible for a retail business be conducted on bare land. For example, a car park (without an attendant’s kiosk), a paddock for the purposes of horse agistment or a race track which the public can hire for hosting racing events. In my  view, interpreting retail premises narrowly to exclude a lease of bare land upon which a retail business is being conducted would require reading words into the RLA that are not there.

[37]  …  In my view, the fact that the RLA is silent on whether bare land falls within the definition of retail premises mitigates against finding that the definition should be narrowly construed to exclude bare land.

[38]  Further, I do not consider that the authorities relied upon by Ms Porter greatly assist in interpreting the word premises, as it relates to the RLA. This is because those authorities concern different legislation to what is currently under consideration. …

[39]  In my view, the definition of retail premises in s 4(1) of the RLA appears to be directed towards the purpose of occupation; namely, the provision of retail goods or services, rather than the character of the demised land. … 

[40]  …. [The RLA 2003’s] main purpose is to enhance:

(a) the certainty and fairness of retail leasing arrangements between landlords and tenants; and

(b) the mechanisms available to resolve disputes concerning leases of retail premises.

[41]  Clearly, retail leasing arrangements between landlords and tenants do not necessarily require that a building be erected upon the demised land. As indicated above, there are many retail leasing arrangements which concern ground leases, absent any building.

[42]  Ms Porter submitted that it could not have been the intention of Parliament to extend the operation of the RLA to bare agricultural land surrounded by acres or hundreds of acres of grazing and agricultural land, kilometres from any town or shop. She argued that such an expanded definition of retail premises would mean that a lease of bare land used for:

(a) grazing cattle or other livestock that is sold to butchers who get them slaughtered or to members of the public who buy livestock for their own use;

(b) growing fruit vegetables that are picked and sold to restaurants for use in their business or to the public who come and pick themselves;

(c) growing wheat or grain that might be sold to flour mills and made into flour; or

(d) the extraction of coal sold to a power station and used to make energy,

are retail leases which would fall under the RLA.

[43]  I do not accept that the definition of retail premises is readily informed or ascertained by reference to those fact scenarios, assuming that they constitute the retail provision of goods and services. All those scenarios could equally apply to a property which had a building erected upon it and from which the supply of goods or services was conducted. If the definition excluded a ground lease, then the retail activity conducted from bare land would not be governed by the RLA; while the same retail activity conducted from land which contained a building would fall within the RLA. I do not accept that this was the intention of Parliament. In my opinion, that outcome would be contrary to the purposes of the RLA, which includes enhancing the certainty and fairness of retail leasing arrangements between landlords and tenants.

This first aspect of the decision stands as another example of the broad application of the RLA 2003, often in unexpected circumstances.

Section 46 estimates

Section 46 of the RLA 2003 states that (emphasis added):

(2) The landlord must give the tenant a written estimate of the outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings.

(3)   The tenant must be given the estimate of outgoings—

(a)  before the lease is entered into; and

(b)  in respect of each of the landlord’s accounting periods during the term of the lease, at least one month before the start of  that period.

(4)   The tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant as set out in this section until the tenant is given that estimate.

It is well-established that a tenant cannot claw back from its landlord outgoings paid without a s 46 estimate (see Richmond F.C. v Verraty Pty Ltd [2011] VCAT 2109; see also Australian Asset Consultant Pty Ltd v Staples Super Pty Ltd [2016] VCAT 1726).

However, there has been a long-standing question over whether a tenant becomes liable to pay outgoings that accrued prior to the late provision of a s 46 estimate.

In Dovastand Pty Ltd v Mardasa Nominees Pty Ltd [1991] 2 VR 285, Marks J held that time limits in s 17 of theRetail Leases Act 1986 (Vic)(the statutory predecessor to s 46 of the RLA 2003) were not mandatory and that late provision of an estimate did not affect the tenant’s obligation to pay.  However, s 17 of the 1986 Act did not contain the equivalent to sub-s 46(4) of the RLA 2003.

The Tribunal in Phillips v Abel held that:

[62]  Both Richmond Football Club and Australian Asset Consulting deal with a different factual matrix. In both those cases, the tenant was seeking reimbursement of outgoings already paid. Although not specifically argued in Australian Asset Consulting, the basis for refusing the claim in Richmond Football Club was that the landlord’s counter?restitutionary claim prevailed. In other words, it was held that the tenant had received good consideration for the payment of outgoings and on that basis, equity would not come to the tenant’s aid to recover monies had and received.

[63]  The present case is different. Here, outgoings were not paid during the period that the Landlord had failed to comply with his obligations under s 46 of the RLA. Here, it is the landlord that seeks to recover those outgoings, rather than resisting a claim by a tenant for reimbursement of outgoings already paid.

[65]  … I am of the opinion that the purpose of s 46(4) would be rendered somewhat otiose if the Landlord’s interpretation of the provision was accepted. The corollary is that an interpretation which does not revive an entitlement to claim outgoings incurred prior to the giving of the statement of outgoings best accords with the main purpose of the· RLA; namely, to enhance the certainty and fairness of leasing arrangements. In my view, this is best achieved by construing the provision against the Landlord, given that he ultimately has control over this situation. If outgoings are not paid because the Landlord has failed to give the Tenant a statement of outgoings, then that situation is easily remedied by the provision of a statement of outgoings. The landlord is only penalised to the extent that it continues to fail to comply with its obligations under the RLA.

[66]  On the other hand, I accept that it would be unfair and create uncertainty if a landlord was able to retrospectively claim for historical outgoings many years ahead of when they were actually incurred. It is not difficult to imagine that such a scenario would place a tenant in a financially difficult position, having assumed that what had been charged historically represented its liability to pay outgoings. It is also not difficult to imagine that such an impost could be financially burdensome and place a tenant in a precarious situation if it were unable to make payment within what might be a relatively short default period following service of a default notice. Indeed, the failure to pay may lead to an early termination of the lease or deprive a tenant from being able to exercise an option to renew. In my view, neither of those outcomes would enhance the certainty and fairness of retail leasing arrangements.

[67] In forming that view, I accept that there may be situations where a tenant takes advantage of a landlord’s failure to comply with s 46(4) of the RLA. However, as I have already indicated, a landlord ultimately has control over that situation. It can immediately remedy the non-payment or short payment of outgoings by giving its tenant the statement of outgoings. On the other hand, apart from protesting or litigating, a tenant cannot force a landlord to give the statement of outgoings. Therefore, when balancing the rights and obligations of each of the parties to a lease agreement, I believe the object and purpose of the RLA is best met if the self-regulating provision did not operate in the manner suggested by the Landlord.

[69] Accordingly, I accept the Tenant’s submission as to the proper interpretation of s 46(4), which I consider best reflects the main purpose of the RLA. As indicated above, the provision is intended to self-regulate compliance with s 46. To the extent that it imposes a burden on a landlord in not being able to recover outgoings, that burden is mitigated or extinguished once a landlord complies with its obligations under the RLA. In my view, that best reflects striking a balance between the interests of tenants and landlords and importantly, enhances the certainty and fairness of retail leasing arrangements between landlords and tenants.

This second aspect of the decision is particularly significant in light of the broad application of the RLA 2003, often in unexpected circumstances, as landlords might not discover that they are subject to the RLA 2003 until after the outgoings are substantially in arrears.

Sam Hopper and Callum Dawlings

April 30, 2019


New decision and the cost of s 52(2) RLA 2003 repairs

Deputy President Lulham at VCAT has on 12 April 2019 handed down a decision that is potentially significant in the ongoing issue over the operation of both s 52 of the Retail Leases Act 2003 (Vic) and s 251 of the Building Act 1993 (Vic).

For background to that issue, see here.

Since President Garde J’s opinion in Small Business Commissioner: reference for advisory opinion [2015] VCAT 478 (Opinion), many landlords have maintained that the Opinion does not create a binding precedent and was merely advisory, and have continued to recover from their tenants both the costs of repair and maintenance under s 52 of the RLA 2003 and the costs of essential safety measures under the Building Act and Regulations.

In Deputy President Lulham’s recent decision of Cheng v Wang [2019] VCAT 496, the Tribunal considered claims by a tenant that his landlord is responsible for certain repairs at his cost. The terms of the lease deed required the tenant to be responsible for certain repairs, but the Deputy President found that most of the relevant clauses in the lease deed were inconsistent with the landlord’s repair and maintenance obligations sub-s 52(2) of the RLA 2003. The Deputy President referred to both the Opinion and the decision in Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd [2017] VCAT 2111 (discussed here) and held that the landlord was not able to pass on to the tenant the obligation or cost of repairs under s 52(2) of the RLA 2003. Essential safety measures under the Building Act were not discussed.

The case of Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd [2017] VCAT 2111 was the first application of the Opinion to a case decided at VCAT (see footnote [41] to that decision). The Opinion was also referred to with apparent approval by Croft J in Koga Nominees Pty Ltd v Loscam Australia Pty Ltd & ors [2018] VSC 455; (Building and Property) [2018] VCAT 1274 (see paragraph [18]), but in relation to a different issue.

So far, Cheng v Wang [2019] VCAT 496 appears to be the first application of the reasoning from the Opinion to a repair and maintenance case.

November 14, 2018


Landlord held to have repudiated a lease by not repairing a defective air conditioning unit

In the significant recent decision of S3 Sth Melb Pty Ltd v Red Pepper Property Group Pty Ltd [2018] VCAT 1684, Deputy President Riegler held that a landlord’s failure to repair an air conditioning unit was a repudiation of the lease by the landlord, allowing the tenant to accept that repudiation and terminate the lease. The tenant used the premises as a pilates and barre studio.

The Deputy President found that (emphasis added):

[70]     In the present case, I accept Mr Norris-Ongso’s evidence that air-conditioning was critical for the financial success of the Tenant’s business. He said that clients were moving to other premises because the Premises could not be properly warmed during the colder months of the year. Although no data was provided evidencing the migration of clients from one fitness centre to another, I accept that it is likely that customers of a fitness centre require and expect a comfortable ambient temperature in which to work out. Consequently, I find that the obligation to provide air-conditioning to service the Premises is a fundamental term of the Lease.

[71]     With that in mind, I further find that the refusal or failure to repair the air-conditioning system, if fallen into disrepair so that it cannot service the Premises, may constitute a repudiation of the Lease.

[83]     Although I accept that some time should be afforded to allow the Landlord to engage its technicians to inspect the air-conditioning system and carry out repairs, 10 weeks is an unreasonably excessive period, especially so when compared to other occasions when the Landlord arranged for its technicians to inspect air-conditioning system after complaints were raised by the Tenant.


[86]     In my view, the failure on the part of the Landlord to do anything to make the air-conditioning system function, so that it serviced the Premises, after receiving written notice on 15 May 2017 until the Lease was eventually terminated on 1 August 2017, is a fundamental breach of the Lease. It meant that the Tenant was effectively left without air-conditioning to service the Premises for more than two and a half months, before eventually terminating the Lease. This was an intolerable situation and, according to Mr Norris-Ongso, led to customers migrating to other fitness centres.

[87]     In my view, the Landlord’s procrastination or non-performance would convey to a reasonable person in the shoes of the Tenant that the Landlord had disavowed itself of its obligation to repair the air-conditioning system, notwithstanding repeated requests being made by the Tenant for the Landlord to honour its obligations under the Lease.

[88]     Therefore, I find that the Landlord repudiated its obligations under the Lease and that the Tenant was entitled to accept that repudiation, which it did by correspondence dated 1 August 2017. I find that the Lease came to an end on that day.

This finding is significant because tenant’s faced with a landlord who refuses to repair a property are faced with an un-palatable choice between:

  1. effecting the repairs themselves and suing for the repair costs;
  2. suing for an order for specific performance of the landlord’s repair obligations; or
  3. accepting the landlord’s repudiation, ending lease and suing for damages.

Options 1 and 2 are time consuming and expensive, particularly in a no-cost jurisdiction like VCAT. Option 2 also leaves the tenant in a defective premises until the repairs are completed.

Option 3 is risky and tenants have historically been slow to take that option because:

  • there are very few reported cases where a landlord has been found to have repudiated a lease; and
  • if the tenant cannot show that the landlord has repudiated the lease, then the tenant’s purported termination could itself be a repudiation of the lease and could expose the tenant to a significant damages claim from the landlord.

As an example of the Tribunal finding that a landlord repudiated a lease by failing to adequately repair and maintain the premises, the Tribunal’s decision in S3 Melb v Red Pepper offers some comfort to tenants who are considering that option.

September 11, 2018


New “ipso facts” provisions in the Corporations Act and their application to landlords and tenants

Legislation came in force on 1 July 2018 that prevents a party terminating a contract under an insolvency clause, also known as an “ipso facto” clause if the other party is a company and has a receiver appointed or is placed into administration.

Much has been written about the legislation. However, one of the most significant barriers to the reconstruction of an insolvent or financially distressed business, particularly a retail shop, is to secure tenure of leased premises after the reconstruction.

This note aims to:

  1. show that the new legislation removes some, but not all, of the hurdles that face a tenant trying to implement an insolvent reconstruction when faced with a hostile landlord; and
  2. give some tips to practitioners trying to give effect to a reconstruction.

Reconstruction for leases pre – 1 July 2018

Imagine tenant, ABC Pty Ltd, who runs three restaurants. Two of them are not profitable, but one of them is. Although the profitable restaurant has kept the company afloat for some time, the debts of the other two restaurants have weighed down the company and it is now insolvent.

In order to avoid trading whilst insolvent, Craig, the director and shareholder of ABC Pty Ltd, appoints an administrator. Craig then purchases the successful restaurant business from the administrator and asks the landlord’s consent to assign the lease for that restaurant from ABC Pty Ltd to a new company that he has incorporated, XYZ Pty Ltd.

However, the landlord reacts badly and:

  1. terminates the lease based on an insolvency clause in the lease; and
  2. states that he will not consent to the assignment of the lease to an entity associated with Craig.

Craig suspects that the landlord wants to take control of the successful restaurant and sell if for his own profit, but Craig cannot prove it.

Under the law pre-1 July 2018, the landlord’s termination of the lease would succeed, but the administrator can remain in possession of the premises during the administration under the hiatus provisions of the Corporations Act. However, the administrator’s right to possession only lasts for the duration of the administration or until a Court orders otherwise, at which point the tenant has no tenure (see s 440B of the Corporations Act, previously s 440D; see also Re Java 452 Pty Ltd (1990) 32 ACSR  507).

Consequently, in order to successfully take over the lease from ABC Pty Ltd, Craig and XYZ Pty Ltd need to:

  1. obtain relief from forfeiture of the lease; and
  2. show that the landlord is wrongly withholding consent to the assignment of the lease to XYZ Pty Ltd.

Obtaining relief from forfeiture in these circumstances faces two major hurdles:

  1. recent authority suggests that termination under an insolvency clause is not a forfeiture, so may not be amenable to relief from forfeiture, although the issue is not resolved at appeal level (see here; see also Sky Communications Aust Pty Ltd v 38 Pacific DR Pty Ltd [2018] VCAT 781); and
  2. the tenant’s insolvency is usually a defence to an application for relief from forfeiture, so Craig will need to show that XYZ Pty Ltd is solvent and will be able to comply with the obligations in the lease.

To obtain an order that the landlord is wrongly withholding consent to an assignment of a lease, the tenant needs to show that the landlord does not have a proper basis under the terms of the lease to withhold that consent. In a lease of retail premises under the Retail Leases Act 2003 (Vic) (RLA 2003), such as ABC Pty Ltd’s lease, the landlord may withhold its consent to assignment if the landlord considers that the proposed assignees does not have the financial resources or business experience to meet the obligations under the lease (see s 60(b) of the RLA 2003). Similar restrictions appear in many commercial leases.

XYZ Pty Ltd may have trouble showing the Tribunal that it has sufficient experience and resources to meet the obligations under the lease given that ABC Pty Ltd was unable to do so.

Consequently, Craig’s proposed reconstruction faces significant hurdles that it must overcome if ABC Pty Ltd’s landlord is not friendly to the reconstruction.

New legislation

The new ‘ipso facto’ provisions of the Corporations Act mean that a lease cannot be terminated under an insolvency clause solely because the company has been placed into administration, unless ordered by the Court (see ss 451E and 451F). Similar provisions apply if a receiver has been appointed or if certain other insolvency events occur (see ss 415D and 415E; and see ss 434J, 434K and 434L), but these rarely occur in retail leases.

Consequently, if ABC Pty Ltd had entered into its lease on or after 1 July 2018, the landlord could not terminate the lease solely due to the appointment of administrators to ABC Pty Ltd. As a result, Craig and XYZ Pty Ltd would not be required to seek relief from forfeiture and would not need to overcome the legal and practical barriers associated with that remedy.

However, Craig and XYZ Pty Ltd would still need to show that the landlord was wrongfully withholding consent to the assignment.

This is still a substantial hurdle, as they would need to satisfy the Tribunal that XYZ Pty Ltd has sufficient financial resources and business experience to conduct ABC Pty Ltd’s old business successfully, despite ABC Pty Ltd’s insolvency.

Tips for practitioners

Practitioners involved in a reconstruction should note that:

  1. the new legislation does not apply if a liquidator is appointed. This is significant, as the two most common forms of insolvency administration, particularly for retail tenants, are the appointment of an administrator or the appointment of a liquidator. If a tenant considering a reconstruction in the face of a hostile landlord is at risk of having a liquidator appointed by a Court or is considering a voluntary winding up, steps should be taken to appoint an administrator before a liquidator is appointed;
  2. while the new legislation removes the legal hurdles associated with relief from forfeiture, the new company will (assuming that the lease is a retail premises lease, or otherwise depending on the terms of the lease) still need to show that it has the necessary experience and resources to meet its obligations under the lease. While this saves on some argument in Court or the Tribunal, the proofs are still substantially the same. Consequently, while the conceptual complexity of the process is reduced, there may be little or no cost saving for the assignee tenant, and as a result a reconstruction in the face of a hostile landlord remains an expensive and risky process; and
  3. the good news for the landlords is that a well-drafted lease that gives the landlord scope to withhold consent to an assignment and s 60(b) of the RLA 2003 leave the landlord in a good position to negotiate better security or other protections if the tenant requests consent to assignment to effect an insolvent reconstruction.

April 27, 2018


VCAT jurisdiction over interstate residents

The High Court last week in Burns v Corbett [2018] HCA 15 held that a state tribunal does not have jurisdiction over residents of other states.   This may be raised at VCAT if either landlord or tenant are interstate residents.

There are, at this stage, two apparent answers to this problem:

  1. it appears that the High Court’s reasoning only applies to natural people (i.e. humans), not to corporations (see Australasian Temperance and General Mutual Life Assurance Society Limited v Howe (1922) 31 CLR 290 (‘Howe’s Case’); affirmed in Crouch v Commissioner for Railways (Qld) (1985) 159 CLR 22, 34 (refusing to reopen Howe’s Case); and confirmed again in obiter in British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30, 51 [37]); and
  2. if the dispute cannot be determined in the Tribunal, then it can probably be determined by a State Court. There is an established, albeit relatively little known, procedure in the Supreme Court and County Courts where the Courts can resolve jurisdictional issues by having a proceeding issued in both VCAT and a relevant Court, then have a member of the Court also appointed as a member of the Tribunal to hear and determine the proceedings together. The President of VCAT is a Supreme Court Judge and Vice Presidents of VCAT are County Court Judges, so there are already judges who sit in both jurisdictions. We also know of cases where special appointments have been made to allow a particular Judge to continue hearing a case issued in his or her Court while wearing two jurisdictional “hats”. For an example of a Judge in the County Court sitting also as a Vice President of VCAT, see Access Solutions International Pty Ltd v Gamet Pty Ltd [2017] VCC 1563.

The authorities holding that ‘resident’ in s 75(iv) of the Constitution only refers to natural people have been criticised (eg, Isaacs and Starke JJ dissented in Howe’s Case). Justice Kirby observed and predicted in British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30, 72–3 [109]–[110] (citations omitted, emphasis added) that:

The decisions establishing that principle involved a remarkable narrowing of the constitutional language. In my view, it is a narrowing unjustified by the text or the context. In many ways it is reminiscent of judicial holdings in Australia and elsewhere at the same time to the effect that a ‘‘person’’, when referred to in legislation (for example for the purpose of admission to professional practice) did not include a woman. The only justification for such a narrow interpretation of s 75(iv) of the Constitution was the expressed judicial fear about an extension of the jurisdiction of this Court that might result in an inundation of work that this Court could not easily deflect to other courts in the views then held concerning the obligation of this Court to discharge a jurisdiction conferred on it by the Constitution.

In a proper case, this Court should reconsider the early determination that corporations, including statutory corporations, cannot be ‘‘residents’’ of a different State for the purposes of s 75(iv) of the Constitution. Self-evidently, corporations are, and were at the time when the Constitution was made, legal persons. They were then, and still are, frequent litigants in the courts. Their existence was contemplated by the Constitution itself. Although in 1985 in Crouch v Commissioner for Railways (Q) this Court declined to reopen its early holding on the meaning of s 75(iv), the decision is open to the strongest doubt and criticism. In my view it is wrong. One day this Court will say so.

Sam Hopper and Callum Dawlings

Callum is a reader at the Victorian Bar and is available to take briefs from 11 May 2018.  

February 7, 2018


Challenging rental determinations because the valuer did not provide ‘detailed reasons’

Clients often want to challenge a determination of the current market rent under a retail premises lease.

The grounds for setting aside a rental determination are quite narrow. However, three recent cases have seen rental determinations under the RLA 2003 set aside because the specialist retail valuer failed to provide ‘detailed reasons’ as required under s 37(6) of that Act. These cases highlight that:

  1. valuers undertaking a determination should be careful to ensure that their written reasons fully detail the reasoning processes; and
  2. those looking to challenge a determination should consider whether the specialist retail valuer’s written reasons are adequate.

A summary of the three recent cases is set out below.

First, in Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property) [2015] VCAT 1687, a valuer’s reasons were held to be inadequate because the specialist retail valuer used the ‘profits method’ as an alternative means of determining the rent. When using that method, he looked at the sitting tenant’s turnover figures and formed the view that another hypothetical tenant bidding for the lease could generate over $500,000 more revenue than the sitting tenant was currently generating.

The determination was set aside for a number of reasons. One of the reasons was that the valuer did not provide detailed reasons that explained how he calculated the higher turnover figures that he projected for the new term.

The decision was upheld on appeal before Croft J in Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd [2016] VSC 244.

Both cases discuss in depth the principles surrounding detailed reasons.

Secondly, in Dalmatino Pty Ltd v Creative Laser Pty Ltd (Building and Property) [2017] VCAT 875, the landlord challenged a rental determination on the basis that the specialist retail valuer took into account rent paid for properties that were put to a different use to the use that the tenant was allowed to put the property under the lease. The Tribunal rejected the grounds on which the landlord sought to challenge the determination.

However, the Tribunal went on to criticise of the specialist retail valuer’s reasons and set aside the determination of the basis that the determining valuer’s reasons were inadequate.

In particular, the Tribunal held that (see paras [69] to [76]):

  1. s 36 of the RLA 2003 requires the valuer to have regard to the rent paid for properties that are put to the same or a substantially similar use to which the leased property is being put. The valuer had regard to some leases that were for the same or a similar use and some that were not. His reasons did not allow the reader to determine what consideration (if any) was given to the properties that were being put to the same or a similar use as the leased property; and
  2. having identified a range of rents payable for comparable properties, the valuer made “inevitable adjustments for all factors which influence market rental value” but did not provide any particulars of those adjustments.

Thirdly, in the case of Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd (Building and Property) [2017] VCAT 2111, handed down last just before Christmas, Member Edquist at VCAT made orders setting aside a rental determination on the grounds that (among others):

  1. the determining valuer did not explain in his reasons how he dealt with the unusual amount of fitout that the landlord provided to the tenant under the terms of the lease; and
  2. the determining valuer incorrectly assumed that, except for fair wear and tear, the tenant was responsible for repair and maintenance at the leased premises and did not give reasons for explaining his consideration of the landlord’s obligations to repair and maintain the premises under s 52(2) of the RLA 2003.

Sam Hopper and Callum Dawlings

Callum will be a joining the Victoria Bar this year and will be available to take briefs from May 2018.

January 19, 2018


Two interesting findings – the RLA 2003 permits a ‘late exit’ from the Act and occupancy costs pre-2013 are GST-inclusive

In an interesting decision handed down this week Senior Member Riegler at VCAT considered whether the $1M occupancy costs exclusion applied to exclude a lease from the operation of the RLA 2003 and found that:

1. while sub-s 11(2) of the RLA 2003 prevents late entry into the Act, it allows a late exit, that is, a lease that starts as a retail premises lease may fall outside the Act if a statutory exclusion to the operation of the Act is triggered during the lease term; and
2. when considering the $1M occupancy costs exclusion, occupancy cost included GST payable under the lease on rent and outgoings prior to 22 April 2013.

A copy of the decision is available at William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd (Building and Property) [2018] VCAT 15.

The case was about a lease entered into in 2006. The tenant had been paying land tax for many years. The tenant, an accounting practice, found an argument that it was the tenant of retail premises regulated by the RLA 2003 and tried to recover $251,234.68 of land tax that it said was wrongly paid.

For discussion of a similar case about the recovery of land tax, see Richmond Football Club Limited v Verraty Pty Ltd [2011] VCAT 2104, discussed here.

GST on rent

The landlord in the William Buck case argued that the $1M occupancy costs exclusion applied, taking the lease outside the operation of the Act.

If you are not familiar with the $1M occupancy costs exclusion, have a look at paragraphs [4] and [5] of the Tribunal’s reasons.

Rent in the first year was $802,795, plus GST. Outgoings were estimated at $150,209. Consequently, the threshold issue was whether rent and outgoings were to be considered inclusive or exclusive of GST for the purposes of determining whether the $1M occupancy costs exclusion was invoked, as this was (or was close to) enough to take the occupancy costs over the $1M mark.

The Tribunal concluded that the amount of rent payable under the lease was to be considered as a GST-inclusive sum. The Tribunal’s reasoning on this question is detailed and are set out at paragraphs [11] to [29] of its reasons.

This finding may be significant where occupancy are approaching to $1M, as GST under those leases pushes up the occupancy costs by a significant amount.

A few landlords may be pleasantly surprised to find that their leases are in fact outside the operation of the Act, which may allow them to bring a claim for unpaid land tax and have other advantages.

However, the impact of the decision is likely to be limited. The Retail Leases Regulations 2003 that established the $1M threshold were replaced by the Retail Leases Regulations 2013, which commenced operation on 22 April 2013, state that occupancy costsunder those Regulations are calculated as $1M exclusive of GST (see paragraph [24] of the Tribunal’s reasons).

Consequently, this part of the decision only really affects leases entered into before the Retail Leases Regulations 2013 took effect on 22 April 2013, and many of those claims will be wholly or partly barred by the Statute of Limitations.

Late exit from the RLA 2003

The Tribunal also considered that it is possible for a lease that is regulated by the RLA 2003 at the start of its term to subsequently fall out of the Act if a statutory exclusion is later invoked. This finding is likely to be more significant.

After finding that the rent was GST-inclusive for the purposes of determining occupancy costs, the Tribunal considered the ‘late exit’ issue and held that:

52. Although my findings set out above do not require me to make any determination on this issue, I consider it appropriate to set out my observations concerning this issue, having regard to the submissions filed by the parties.

53. Section 11(2) of the RLA states:

11 Application generally
(1) …
(2) Except as provided by Part 10 (Dispute Resolution), this Act only applies to a lease of premises if the premises are retail premises (as defined in section 4) at the time the lease is entered into or renewed.

54. In my view, s 11(2) of the RLA prevents fluctuation to prevent late entry into the Act. Therefore, if the premises are not retail premises at the time the lease is entered into (because the occupancy costs exceed $1 million), then the premises cannot become retail premises later (if the occupancy costs fall below $1 million).

55. However, I do not consider that the reverse scenario applies. In particular, I am of the opinion that a plain reading of the provision does not prevent late exit from the Act. As submitted by the Landlord, to construe the provision so as to disallow late exit from the Act would require the word ‘only’ to be positioned differently within the provision, as follows:

this Act applies to a lease of premises only if the premises are retail premises at the time the lease was entered into [or] renewed.

56. If the provision was expressed in that manner, then it would make no difference that the disqualifying characteristic subsequently arose, such as the occupancy costs increasing to over $1 million during the term of the lease because the characterisation of the lease is made at the time the lease is entered into.

57. Therefore, if leased premises do not fall within the definition of retail premises at the time that the parties entered into the lease (or its renewal), the premises cannot become retail premises later (for example if the occupancy costs reduced to under $1 million during the term of the lease). However, that does not prevent the reverse scenario. For example, if the occupancy costs were under $1 million at the time the parties entered into the lease, then the premises fall within the definition of retail premises. However, if the occupancy costs subsequently increased to over $1 million during the term of the lease, then the premises would no longer fall within the definition of retail premises.

See also the balance of the discussion at paragraphs [51] to [62].

There will be debate over whether this finding is obiter. However, even if it is, it is fully reasoned obiter from a Senior Member of VCAT who regularly hears retail leasing matters, so should not be dismissed lightly.

The finding is significant, as leases may ‘exit’ from the RLA 2003 if, during the term:

1. the total occupancy costs exceed $1M;
2. the tenant or its parent company become listed; or
3. the status of an overseas listed company’s exchange is altered (see my earlier post here).

An ‘exit’ from the Act can have a number of effects. For example: it may allow the landlord to recover land tax from the tenant, it removes the prohibition on a ‘ratchet clause’ and other restrictions governing a market rent review and affects whether proceedings can be issued in court or are limited to VCAT, which is a ‘no cost’ jurisdiction.

Consequently, practitioners should be aware of this development as it has the potential to affect a significant number of leases in Victoria and disputes under those leases, particularly since the Court of Appeal confirmed the breadth of the ‘ultimate consumer’ test under the RLA 2003.

December 15, 2017


The High Court has refused special leave to appeal the CB Cold Storage case – When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)? Part 5

The High Court of Australia this morning refused special leave to appeal the decision of the Victorian Court of Appeal in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178.

For a discussion of that decision, see my earlier post here. If you are really keen, you can follow the links in that post to read some of the history of the debate.

The upshot of special leave being refused is that:

  1. the ‘ultimate consumer’ test of retailing is cemented as part of the test of whether a premises is a retail premises under the Retail Leases Act 2003 (Vic) for the foreseeable future (or unless Parliament intervenes);
  2. a substantial number of leases in Victoria are likely to be retail without the parties realising (see, for example, the discussion here); and
  3. litigation on some of those leases is likely, such as by tenants seeking to recovery the payment of land tax made under the mistaken belief that their lease was not regulated by the RLA 2003 (eg see here).

November 15, 2017


Contents of notice of default under s 27 of the RLA 2003

Robert Hay QC has written an excellent blog post here commenting on a recent VCAT case about the requirements of a notice of default under s 27 of the RLA 2003.

You should read Robert’s note before reading post any further.

Whether a tenant has validly exercised an option in a retail premises lease often turns on whether the tenant has been given notice in writing of the default or defaults under s 27 of the RLA 2003.

However, while s 27 requires the tenant to have been given notice in writing of the default or defaults, it does not prescribe the form or contents of that notice.

This has given rise to a number of issues.

Landlord, relying on invoices and monthly statements to satisfy s 27 of the RLA 2003

I often see landlords trying to rely on an invoice or a monthly statement of account to say that the tenant was on notice of default for the amount set out in the invoice or statement.

While it has been tolerably clear for some time that a mere invoice or statement was unlikely to satisfy s 27 of the RLA 2003, we have not had a definitive statement from the Tribunal to rely on.

As a result, it was open to mount an argument that the tenant had not validly exercised its option under s 27 based only an invoice or a statement.

This, in turn, requires the tenant to issue proceedings for a declaration and other orders for the execution of a new lease.

Even if the tenant and its lawyers think the tenant will win, the time, distress and cost of litigation (particularly in a ‘no cost’ jurisdiction) creates significant leverage for the landlord. That leverage can then be used for various purposes, such as pressing the tenant to agree on a higher rent for the new term instead of having the rent reviewed to market. That leverage is amplified if the tenants wants to sell its business as the tenant needs a lease deed before it can assign.

For practitioners acting for tenants, the passages of Leonard Joel Pty Ltd v Australian Technological Approvals Pty Ltd [2017] VCAT 1781 that Robert has set out in his post would be useful to address that approach if taken by a difficult landlord.

Drafting notices under s 27 of the RLA 2003

Drafting notices under s 27 of the RLA 2003 has been an uncertain exercise.

Prior to the Leonard Joel decision, the safest course in the circumstances was to draft a notice of default under s 146(1) of the RLA 2003. However, as that notice is a statutory precursor to re-entry, service of a s 146 notice could cause the tenant to run off to VCAT for an injunction, which can be expensive and time-consuming for all parties. Also, using a default notice when you don’t intend to re-enter can reduce the impact of a default notice when you do – much like the boy who cried ‘wolf’.

Member Josephs identified the notice used in the earlier case of Computer and Parts Land and said that:

  1. … it provided a very appropriate example of a notice given on behalf of the landlord by its solicitors which had been prepared with an appropriate level of care resulting in a communication of obvious clarity and sufficiency.

Practitioners acting for landlords who want to prepare notices that will later be relied on to resist the exercise of an option under s 27 of the RLA 2003 should consider using the notice in Computer and Parts Land as their precedent.

The text of that notice is set out in and discussed in paragraphs 120 to 123 of Leonard Joel Pty Ltd v Australian Technological Approvals Pty Ltd [2017] VCAT 1781, which also provide references to the Computer and Parts Land decision.

November 2, 2017

1 Comment

Another application of the “ultimate consumer” test

His Honour Judge Macnamara in the County Court of Victoria recently handed down a decision that considers and applies the controversial “ultimate consumer” test under s 4 of the RLA 2003.

For some background, see my earlier post here.

In the recent case of Access Solutions International Pty Ltd v Gamet Pty Ltd [2017] VCC 1563, his Honour considered whether a lease was a lease of retail premises in circumstances where:

  1. the lease contained an acknowledgement by the parties that the RLA 2003 did not apply;  and
  2. the tenant was in the business of manufacturing and installing custom gates.   Most of the tenant’s work (by dollar value) involved the supply of gates to builders, not to the owner of the land on which the gate was eventually installed.

In summary his Honour concluded that:

  1. the acknowledgement that the RLA 2003 did not apply was of no effect because of s 94 of the RLA 2003;
  2. the product that was supplied by the tenant was similar in nature to the product sold or supplied by a builder and, on the basis of English authority, cannot properly be construed on the supply of ‘goods’.   As a result, the tenant’s product was properly characterised as the supply of ‘services’;
  3. the provision of those services was an ‘input’ into the builders businesses and was, accordingly, consumed by the builders;  and
  4. as a result, the ‘ultimate consumer’ from Fitzroy Dental and CB Cold Storage was applied and the lease was found to be a lease of retail premises.

Without deciding the matter, his Honour left open the possibility that the analysis may have been different if the supply was of goods, not services.

Readers are referred to paragraphs [128] and following of the decision for further reading.

This decision is significant, as it suggests that premises occupied by the tenants in the building trades may be considered retail premises under the RLA 2003.