A general update for the leasing community…

October 13, 2014

Uncategorized

There have been four developments for the leasing community over recent weeks:

  1. leave was granted to appeal the decision in Serene Hotels v Epping Hotels;
  2. a hearing was scheduled for the Small Business Commissioner’s application for advice from the President of VCAT;
  3. the Minister for Small Business has made a new determination excluding certain leases to public, not-for-profit or charitable-type organisations from the RLA where the rent is less than $10,000 per annum and revoking a similar determination from 2008; and
  4. amendments have been passed that clarify the Tribunal’s jurisdiction to hear a dispute between the landlord of a retail premises lease and the tenant’s guarantor.

Leave to appeal Serene Hotels Pty Ltd v Epping Hotels Pty Ltd

Associate Justice Mukhtar in the Supreme Court last week granted leave to appeal the VCAT decision of Serene Hotels Pty Ltd v Epping Hotels Pty Ltd [2014] VCAT 97. See here for a discussion of the decision at first instance and its implications.

The VCAT decision suggests (on one view) that specialist retail valuers cannot use the profits method to determine the current market rent under s 37(2) of the Retail Leases Act 2003 (Vic). The Tribunal also found that it had a discretion to exclude a supplementary note prepared by the valuer.

The Court’s decision is only the first step in the appeal. His Honour determined that there was a question of law attended by sufficient doubt to warrant the grant of leave to appeal, but did not determine the appeal itself. However, his Honour expressed the view that the Tribunal did not find that the profits method contravened s 37(2) of the RLA and that the arguable error was more confined (see paragraphs [16] to [21] of the Court’s reasons).

For now, practitioners should note that the decision in Serene Hotels v Epping Hotels remains subject to an appeal. If your clients want to challenge a rental determination that used the profits method or make submissions to a determining valuer about the use of the profits method, consider waiting until after the appeal is heard and determined.

A date for the hearing of the appeal is yet to be set. A copy of the Court’s reasons is not yet on AustLii but can be viewed here.

Sam Hopper and Thomas Alomes

Hearing for SBC’s application for advisory opinion

An earlier post here recorded that the Small Business Commissioner has made an application for advice from the President of VCAT about the operation of s 251 of the Building Act 1993 (Vic) and s 52 of the RLA. The issues in the application are:

  1. whether a retail premises lease can pass on the costs of s 52 repair and maintenance as an outgoing; and
  2. whether a lease can pass on both the act and the cost of compliance with the Building Act 1993 (Vic) and regulations.

At a recent directions hearing, the President made order for oral argument to be heard on 5 and 6 February 2015. I will provide more updates on this issue as it develops.

New Ministerial determination

In July 2008, the Minister for Small Business published a determination excluding certain leases by a Council to public, not-for-profit or charitable-type organisations from the operation of the RLA. A copy of the 2008 determination is available here.

On 6 October 2014, the Minster for Small Business published a new determination, effective from 1 January 2015, revoking the 2008 determination and excluding from the operation of the RLA the following leases:

(a)   A lease of premises under which the rent payable is not greater than $10,000 per annum and under which the premises are used wholly or predominantly for any one or more of the following purposes:

(i)   public or municipal purposes;

(ii)   charitable purposes;

(iii)   the education and training or persons to be ministers of religion;

(iv)   as a residence of a practising minister of religion;

(v)   as a club for or a memorial to person who served in the First or Second World War or in any other war, hostilities or special assignment referred to in the Veterans Act 2005;

(vi)   the purposes of the returned Services League of Australia;

(vii)   the purposes of the Air Force Association (Victoria Division); or

(viii)   the purposes of the Australian Legion of Ex-Servicemen or Women (Victorian Branch).

(b)   A lease of premises under which the rent payable is not greater than $10,000 per annum and under which the premises are used wholly or predominantly by a body or association, whether incorporated or unincorporated:

(i)   that exists for the purposes of (and which uses the premises for) providing or promoting community, cultural, sporting, recreational or similar facilities or activities or objectives; and

(ii)   that applies its profits in promoting its objects; and

(iii)   that prohibits the payment of any dividend or other amount to its members;

The main differences between the 2008 determination and the new determination are that:

  1. the 2008 determination applied only to leases from a Council, but the new determination applies to a prescribed lease from any landlord; and
  2. the new determination only applies to leases where the rent is less than $10,000 per annum, whereas the 2008 determination had no financial limit.

The new determination also states that:

The revocation of the former Determination by this Determination does not affect the operation of the former Determination in relation to leases to which the former Determination applied. Accordingly, any leases to which the former Determination applied, that was in force immediately before 31 December 2014, continues to be excluded from the definition of retail premises in section 4 of the Retail Leases Act 2003 until:

(a)   the lease expires or is terminated under the Act; or

(b)   it is no longer possible, under the terms of the lease, for the tenant to exercise an option to renew the lease.

It is clear from that paragraph that the 2008 determination will continue to exclude from the RLA leases that were entered into between 1 August 2008 and 31 December 2014.  However, the effect of the new determination on options exercised after that time is not clear.

Practitioners advising clients entering low-rent leases for a public, not-for-profit or charitable-type purpose should be aware of the new determination and the possible exclusion of the lease from the RLA.

Practitioners advising clients entering higher-rent leases from a Council for a public, not-for-profit or charitable-type purpose should also be aware of the revocation of the 2008 determination.

A copy of the new determination is available here.

Clarification of VCAT’s jurisdiction

An earlier post here recorded a proposal to amend the RLA to clarify the ability of a landlord to sue a retail premises tenant’s guarantor in the Tribunal.

Those amendments have been passed and took effect from 10 September 2014.

About Sam Hopper

Sam is a property and insolvency barrister.

View all posts by Sam Hopper

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