Is a serviced apartment a retail premises lease?

ED – readers referring to this post should also refer to the later, related post here.

I am often asked whether a lease to a serviced apartment operator is a retail premises lease for the purposes of the Retail Leases Act 2003 (Vic) (RLA).

At this stage, the only indication we have from the Tribunal was in the case of  Meerkin v 24 Redan Street Pty Ltd [2007] VCAT 2182, where Deputy President Macnamara said (at 33):

In light of the conclusions that I have reached on the renewal issue, I believe it would be inappropriate for me upon the limited argument that I have heard to express a view on the difficult question as to whether a lease by a landlord of a serviced apartment for use as such by a tenant who will be offering the apartment to its own customers as a serviced apartment is governed by the Retail Leases Act 2003.

Consequently, there is no certain answer to this question.

There is an argument that the lease of a serviced apartment is excluded from the RLA by the operation of s 4(1), which says (emphasis added):

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… [the supply of goods or services by retail]

As a serviced apartment is a form of residence (so the argument goes), it is excluded from the RLA.

This argument is supported, at least in part, by the decision of Deputy President Macanamara in Bay Street Rose Pty Ltd v Christopoulos (unreported, VCAT, 30 March 2011).  In that case:

1. the Deputy President considered that “hotel” in modern parlance included both a traditional hotel that included accommodation and also a pub that did not offer any accommodation;
2. a guest staying at a traditional hotel could be described as a “resident” of that hotel;  and
3. the lease in question permitted use of the premises as a “hotel” but prohibited use of the premises “for any residential purpose whether temporary or permanent”;  and
4. the Tribunal found that this prevented guests from staying at the hotel but permitted use of the premises as a hotel in the modern sense of a bar and/or restaurant.

On the other hand:

1. the exclusion of any area intended for use as a residence appears to be directed towards the excluding the small business operator’s residence when considering the ‘whole or predominant purpose‘ for which the premises is used.  Consider the once-common example of a fish and chip shop where the tenant and his family live upstairs and the whole building is leased under one lease.  That would appear to be the classic small business that Parliament intended to protect when passing the RLA.  Is the predominant purpose of the lease to conduct a fish and chip shop or to be the tenant’s home?  The exclusion in s 4(1) appears to direct a court or the Tribunal to ignore the upstairs residence when considering whether the premises is let wholly or predominantly for the sale or supply of goods or services by retail;
2. this is consistent with s 95 of the RLA, which implies a condition into a retail premises lease requiring the landlord to maintain the residential area in good repair if the retail premises lease confers a right on the tenant to occupy a residential area in the building in which the retail premises are located;
3. there seems to be no material difference between a serviced apartment on the one hand and hotels, motels and caravan parks on the other, all of which provide accommodation services, usually on a short- to medium-term basis (although both have been known to provide long-term accommodation also).  When the RLA was enacted in 2003, one of the key areas of reform was certainty of the operation of the legislation.  Both the Retail Tenancies Act 1986 (Vic) and the Retail Tenancies (Reform) Act 1998 (Vic) (both predecessors to the current RLA) excluded from the operation of those Acts premises with a floor area in excess of 1,000 square metres.  This created uncertainty over whether caravan parks were excluded from the operation of those Acts.  It would appear from the discussion paper and issues paper published prior to the RLA being passed that Parliament was particularly concerned to extend to caravan park operators the protections offered by the RLA.  This suggests that Parliament did not want to exclude from the operation of the RLA premises used for the supply of short- to medium-term accommodation services.  This would appear to include serviced apartments;  and
4. the serviced apartment operator does not itself use the serviced apartment as a residence – it uses the apartment to conduct a business for the supply of accommodation services to its customers.   While this at least partially inconsistent with the finding in the Bay Street Rose decision, the different interpretations may be explained by the different contexts of the lease on the one hand and the statute on the other.

Although there is no certainty until a court or the Tribunal rules on the question, it appears that the better view is that a lease to a serviced apartment operator is a retail premises lease.

Premises above the third floor will probably be excluded from the operation of the RLA by the Ministerial determination made 29 April 2003, a copy of which is located here, because a serviced apartment probably provides retail accommodation services (as opposed to the sale or hire of goods by retail).

Thanks to my colleague Paul Duggan for his valuable input into this post.