Is a serviced apartment a retail premises lease? Part 2

August 27, 2012

Property / leasing

In the next development in the debate over whether a serviced apartment is a retail premises lease, Justice Croft last week held that the lease of a ‘serviced apartment’ as part of a ‘resort accommodation facility’ was a retail premises lease, but sounded a note of caution against applying the finding to all leases of ‘serviced apartments’.

The judgment in Stringer v Gilandos Pty Ltd [2012] VSC 361 considers a series of leases from registered proprietors of a strata titled building to the operator of a resort complex in Bright, near Victoria’s snow fields.  The resort operator conducted various management and house-keeping functions, rented the units to members of the public and paid rent to each of the registered proprietors of the units.

Croft J considered the apartments and their use in some detail and, importantly, found that, from at least 2007 to January 2012, no member of the public stayed at the units on a permanent or semi-permanent basis.

His Honour went on to find that the apartments formed part of a resort complex that are used for short term accommodation that is difficult to distinguish from the manner in which hotel or motel rooms are used (see [41] to [42]).

His Honour held that:

47 The term or description “serviced apartments” seems to be a relatively modern one; which probably accounts for the lack of assistance from dictionaries. Thus it cannot be assumed that this term or description has any settled meaning. Consequently it is only a term or description that derives meaning – other than in a very general sense – from the particular circumstances in which it is used; and, in most cases with respect to particular premises. This is, in my view, clear from the cases in which the term or description has been considered.

After considering the authorities, his Honour concluded that:

52 Thus these cases indicate that there may be very fine distinctions between use of premises as a motel on the one hand or as a serviced apartment or serviced apartment complex on the other hand. The observations by the various courts and tribunals with respect to motels and serviced apartments indicate that the characteristics of both types of premises can overlap, thus adding to difficulties in characterising the mode of usage. A clear example is to be found in St Kilda City Council v Perplat Investments Pty Ltd [(1990) 72 LGRA 378] where Young CJ observed that, while it was open to the Tribunal to make a finding of fact based on the evidence before it that the proposed building would be used as serviced apartments, in his view, the proposed buildings looked more to be a motel.

His Honour then went on to find that the lease in that case was a retail premises lease (see [65]).

However, readers should be careful not to simply assume that any lease in which the permitted use is described as ‘serviced apartment’ will be a retail premises lease.

His Honour stated that:

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 light of his Honour’s findings, solicitors considering whether a lease of ‘serviced apartments’ is a retail premises lease should:

  1. consider his Honour’s judgment carefully;
  2. examine the terms of the lease closely;
  3. consider the nature of the property itself;
  4. consider the use to which the premises are put during the term of the lease;  and
  5. pay particular regard to the length of stay by actual or anticipated guests during the terms of the lease.

Finally, an earlier post here discussed the argument that a serviced apartment is not a retail premises lease because of the exclusion in s 4(1) of the RLA of an area intended for use as a residence.

His Honour made the following remarks:

64 For the sake of completeness I observe that the Retail Leases (Amendment) Act 2005 amended the 2003 Act to include the words “not including any area intended for use as a residence” in the provisions defining the meaning of “retail premises”. In my view, the expression residential accommodation connotes accommodation of this type which is occupied with a degree of permanence. I observe that, consistent with this view, the Full Federal Court of Australia said, in Marana Holdings Pty Ltd v Commissioner of Taxation[1] (“Marana Holdings”) that:[2]

“It may be that the expression “residential accommodation” is sometimes used to describe short-term accommodation in an hotel or a motel. We are not sure that any such usage is as common in Australia as the Court of Appeal in Owen v Elliott [(Inspector of Taxes) [1990] 1 Ch 786] considered it to be in England. We would have thought that such accommodation is more often described as “temporary accommodation”, “holiday accommodation” or perhaps as “hotel accommodation” or “motel accommodation”.”

Although Marana Holdings was not a retail leases case this statement is, in my view, one of general application. In the present case the agreed facts are that the Plaintiffs’ Units have been used as only temporary accommodation by its occupants,[citation omitted] so no issue arises with respect to the possibility of residential use.

The judgment (particularly paragraphs [64] and [68] set out above) leave open whether head lease of the following are retail premises leases:

  1. backpackers’ accommodation, where residents regularly stay for months;
  2. aged care facilities, where residents often stay for many years but receive a high level of service from the facility operator;
  3. caravan parks in which some guests permanently reside;  and
  4. apartment buildings that combine permanent and temporary residents.

Each of these will need to be considered on a case-by-case basis.

His Honour also discussed the agency exception in s 4(2)(b) of the RLA, which I will discuss in a later post.

[1] (2004) 141 FCR 299; 214 ALR 190; [2004] FCAFC 307.

[2] [2004] FCAFC 307; (2004) 141 FCR 299, at 310; [2004] FCAFC 307; 214 ALR 190, at 201; [2004] FCAFC 307, at [51] (Dowsett, Hely and Conti JJ). Cf Bay Street Rose Pty Ltd vChristopoulos (unreported, VCAT, 30 March 2011) where Deputy President Macnamara took the view that a hotel could refer to both a traditional hotel which offered accommodation and the modern concept of a hotel which offered restaurant and drinking services only. In this case, a lease was entered into in relation to the latter concept of a hotel which prohibited the premises “for any residential purpose whether temporary or permanent”. Deputy President Macnamara held that, in the context of the relevant lease, a person staying at the premises – even for a short period of time – could be viewed as a “resident”.

About Sam Hopper

Sam is a property and insolvency barrister.

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  1. Is a serviced apartment a retail premises lease? | Sam Hopper Barrister - August 27, 2012

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

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