Surrender and re-grant leading to recovery of land tax

November 17, 2011

Property / leasing

In an interesting recent judgment, Richmond Football Club was able to recover a significant amount of land tax paid under a retail lease.

The Tribunal held that a deed of variation constituted a surrender and re-grant of the lease and that the re-granted lease was a retail premises lease under the RLA 2003.  Consequently, there was no liability to pay land tax and amounts previously paid could be recovered from the landlord.  However, the landlord was entitled to retain outgoings wrongly paid by the tenant.

Practitioners for both landlords and tenants should consider reviewing any leases of retail premises entered before the commencement of the RLA 2003 for deeds of variation that may constitute a surrender and re-grant.

A copy of the decision can be found here.

The landlord and tenant entered a lease in 1998 and a deed of variation in early 2004.  The deed of variation made various changes to the lease, including extending the term by 10 years, altering the rent payable and imposing an obligation to pay GST.  The tenant kept paying land tax and outgoings under the terms of the old lease.

VCAT held that the changes were so significant that the deed of variation constituted and surrender and re-grant of the old lease, and that the re-granted lease fell under the RLA 2003.

The tenant argued that:

  1. land tax was not payable under s 50 of the RLA 2003;  and
  2. as the landlord had not served an estimate of outgoings under s 46 of the RLA 2003, the tenant was not liable for outgoings paid under the term of the re-granted lease.

The landlord argued that the tenant was estopped from departing from the assumption that land tax and outgoings were payable under the lease.  However, the Tribunal found that the estoppel could not be made out because neither party was aware that the lease was in fact governed by the RLA 2003 until 2009, when it was first raised by the Richmond Football Club.

The landlord also argued that the Ministerial determination of 24 August 2004 excludes leases for a term of over 15 years and that imposes certain obligations on the tenant to conduct structural works.  The Tribunal found that, among other things, the re-granted lease commenced in 2004 and had a term of less than 15 years.

The landlord argued that the tenant was acting unconscionably and received a windfall gain, and that this breaches the unconscionable conduct provisions of the Fair Trading Act.  However, the Tribunal found that the tenant was acting honestly and that there was no unconscionable conduct.

The landlord also argued that there was good consideration for the payments and that the landlord had a counter-restitutionery claim, drawing an analogy to the Court of Appeal’s reasoning in Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd.  (2006) VSCA 6.

Tribunal found that:

  1. the tenant’s occupancy of the premises increased the outgoings payable and the tenant has received a benefit from the outgoings that it has paid for, so the payment of rent is analogous to the payment of rent considered in The Dog Depot.  Consequently, the tenant’s claim for outgoings must fail;  and
  2. there is a disconnect between the benefit enjoyed by the tenant and the imposition of land tax.  Land tax represents a cost connected to the landlord’s wealth and not the tenant’s use of the land.  Also, in The Dog Depot, there was an underlying contractual obligation to pay rent, but there was no similar contractual obligation to pay land tax as the covenant to pay land tax is excluded by the RLA 2003.

The Tribunal accepted the unchallenged submission from the landlord that any payment made outside the limitation period under the Statute of Limitations cannot not be recoverable.

About Sam Hopper

Sam is a property and insolvency barrister.

View all posts by Sam Hopper

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