Application of the third storey exclusion in Aqua Greenland Pty Ltd v Max Therapy School Pty Ltd (Building and Property) [2023] VCAT 449

Most practitioners will be aware that the RLA 2003 does not apply to leases predominantly for the provision of services above the third storey, generally known as the Third Storey Exclusion.  

However, the definition of ‘storey’ has caused consternation within the leasing community, as ‘storey’ does not equate to ‘floor’ or ‘level’. 

This issue was considered earlier this year by Deputy President Riegler in the context of a costs dispute in a rent relief case.  In short, the Tribunal found that:

• Ground floor = Storey 1
• Level 1 = Storey 2
• Level 2 = Storey 3
• Level 3 = Storey 4 and so on…

This is consistent with earlier decisions in this area, such as Evans & Ors v Thurau Pty Ltd [2011] VCC 1444 and gives a good indication of how to apply the Third Storey Exclusion.

A copy of the Tribunal’s decision can be found here: Aqua Greenland Pty Ltd v Max Therapy School Pty Ltd (Building and Property) [2023] VCAT 449.

A copy of the Third Storey Exclusion is found here: Ministerial Determination No. S 75 dated 30 April 2003.

For those looking for more detail about the case, Eli Fryar (who will be at the Bar taking retail leasing briefs from May next year) has provided the following detailed summary.

Background

The tenant, Max Therapy School Pty Ltd leased a premises located on Level 3, 310 King Street, Melbourne, from the landlord, Aqua Greenland Pty Ltd.

The tenant’s business (a training facility delivering diploma courses in remedial massage) was severely affected by the Covid-19 pandemic and as result, the tenant made a number of requests for rent relief under both the COVID 19 Omnibus Act & Regulations and the CTRS Regulations.

The landlord ended up making several offers for rent relief, some of which were accepted.  In relation to the unaccepted offers, the tenant alleged that they were deemed to be accepted and therefore binding on the parties whilst the landlord contended that it was forced to initiate the proceeding to seek a declaration that rent relief be determined in accordance with the unaccepted offers.

The matter ultimately resolved by consent, save that both parties sought their costs against the other.

Costs dispute and Third Storey Exclusion

The landlord argued that it was entitled to its costs under s 109(3)(e) of the VCAT Act on the basis that the landlord was forced to commence the proceeding because the tenant failed to agree on an appropriate level of rent relief.

The tenant submitted that the unaccepted offers for rent relief were not in dispute and were therefore deemed to have been accepted by the tenant under the relevant regulations.

It was not in dispute that the tenant operated a retail business from the premises.  Ordinarily in such circumstances s 92 of the RLA 2003 (that each party bear their own costs of the proceeding unless the circumstances in s 92(2) are engaged) would apply.

However, the landlord further submitted that the RLA 2003 did not apply because the premisses were located on the “fourth storey” of the building.

Sub-section 4(2)(f) of the RLA 2003 provides that certain premises which are the subject of a Ministerial Determination are to be excluded from the operation of the RLA 2003.  

The Third Storey Exclusion itself states that (emphasis added): 

Acting under Section 5(1)(c) of the Retail Leases Act 2003, I determine that the following kind of premises to which Section 4(2)(f) applies:  

Premises that are located entirely within a building which, under the terms of the lease relating to the premises, or part of the premises, are used, or are to be used, wholly or predominantly for the retail provision of services, other than premises located entirely on any one or more of the first three storeys in a building, excluding any basement levels. 

In determining whether or not the premises was located on the fourth storey of the building, Deputy President Riegler referred to the definition of “storey” in the Building Code of Australia 2019 – Volume One (emphasis added):

19.       As indicated in the Ministerial Determination, the exclusion of the RLA 2003 does not apply to retail premises which wholly or predominantly occupy the first three storeys in a building. It is unclear from the affidavit material whether the Premises fall within this description. Neither the RLA 2003 nor the Ministerial Determination define what constitutes a storey, for the purposes of the Ministerial Determination. This is regrettable because it is sometimes unclear whether the reference to a building ‘Level’ or ‘Floor’ corresponds to the same number of storeys. In relation to Class 2 to Class 9 buildings, the Building Code of Australia 2019 – Volume One defines a storey as:

Storey means a space within a building which is situated between one floor level and the floor level next above, or if there is no floor above, the ceiling or roof above but not – 

• a space that contains only – 
• a lift shaft, stairway or meter room; or 
•  a bathroom, shower room, laundry, water closet, or other sanitary compartment; or 
• accommodation intended for not more than 3 vehicles; or 
• a combination of the above; or 
• a mezzanine.

20.       On the assumption that the ground floor of the building in which the Premises are situated is described as the Ground Floor and having regard to the definition of a storey in the BCA, I am satisfied that the Premises are located on the fourth storey. I have formed that view based on the following: 

• Ground floor to Level 1 (the Ground Floor) being the first storey; 
• Level 1 to Level 2 (Level 1) being the second storey; 
• Level 2 to Level 3 (Level 2) being the third storey; and 
•  Level 3 to Level 4 (Level 3) being the fourth storey. 

However, despite finding that the premises were located on the fourth storey and that the RLA 2003 didn’t apply due to the Third Storey Exclusion, Deputy President Riegler did not make an order as to costs, holding that:

21.       However, notwithstanding my finding that the space between Level 3 and Level 4, occupied by the Premises, is the fourth storey and as a result, s 92 of the RLA does not apply, I am not satisfied that it would be fair in the circumstances to order costs in this proceeding… 

This case serves as a reminder that retail premises located above the third “storey” will be excluded from the operation of the RLA 2003.  When considering whether or not a premises is located above the third “storey” don’t forget to include the ground floor in your calculation as follows:

• Ground floor = Storey 1
• Level 1 = Storey 2
• Level 2 = Storey 3
• Level 3 = Storey 4 and so on…

Sam Hopper and Eli Fryar