July 5, 2017


Court of Appeal dismisses appeal in the C B Cold Storage case – When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)? Part 4

The Victorian Court of Appeal today handed down its decision dismissing the much-anticipated C B Cold Storage appeal. The decision is cited as IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 and is available online.

The background to the decision is in earlier posts on my blog here.  If you have not been following this debate, you should read the earlier posts first, otherwise the balance of this post might not make much sense.

The issue is that the ‘ultimate consumer’ test leads to some counter-intuitive results.

The test suggests that:

  1. some premises will be considered ‘retail’ under the RLA 2003 when most members of the public would not characterise them that way;  and
  2. most, if not all, services are retail in nature.

This means that a significant number of leases are governed by the RLA 2003 when neither the landlord nor the tenant (nor, often, their lawyers) realise.

The consequences can be significant. The RLA 2003 alters the terms of the bargain between landlord and tenant and the forum for any litigation. The most significant change is that landlords are prohibited from recovering land tax from tenants of a retail premises lease under the RLA 2003. Claims by tenants for the recovery of substantial amounts of land tax at VCAT are not unknown.

In summary, the Court of Appeal did not overrule the ‘ultimate consumer’ test, holding that:

[3]       … In summary, the phrase ‘retail provision of services’ has long been interpreted by reference (at least in part) to an ultimate consumer test; that is, are the services used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to some third person? No distinction has been drawn between commercial and non-commercial users of the service. The Court should be slow to depart from the interpretation of the phrase given to it by the Court over many years. It would only be appropriate to do so if the interpretation was clearly wrong; but that is not the case. Moreover, the legislature has made amendments to the legislation, but has not made any change to the phrase ‘retail provision of services.’ Consequently, and while not conclusive, the Court may presume that the legislature adopted the interpretation consistently given to the phrase by the Court in the past.

[4]       Other relevant considerations that inform whether the service is ‘retail’ in nature include the type of service that is provided and whether it is generally available to any person for a fee.

[5]       Here, there is nothing in the nature of the services provided that would exclude them from being considered retail services. The services were used by the Tenant’s customers who paid a fee. Any person may purchase the services if the fee is paid. The Tenant’s customers do not pass on the services to anyone else. They are the ultimate consumers of the Tenant’s services.

The Court also provided the following commentary on the test for determining whether a lease is a lease of retail premises under the RLA 2003 (emphasis added, footnotes ommitted):

23        What can be seen from the authorities is that the concept of the ‘retail provision of services’ in the Retail Leases Act and its predecessor legislation is that it involves close consideration of the service that is offered, whether a fee is paid, whether it is a service that is generally available to anyone who is willing to pay the fee and whether the persons who use the service are the ‘ultimate consumer’. On one view, to talk of an ultimate consumer of services may appear strained. Most services that are purchased are not susceptible to being passed on to a third person. This may be contrasted with a sale of goods where the difference between wholesale and retail is easily discernible. Nevertheless, the authorities that apply an ultimate consumer test as one indicia of the retail provision of services, are of long standing.

44        As noted above, the phrase ‘retail provision of services’ has long been interpreted by reference (at least in part) to an ultimate consumer test; that is, are the services used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to some third person? No distinction has been drawn between commercial and non-commercial users of the service. The Landlord wishes to restrict the ‘consumer’ to the consumer who purchases goods or services for personal use. But that is not the sense in which the authorities have used the word ‘consumer.’ They have used it in a broader sense to mean a person who uses the service. As the judge identified, that is not the approach that the Tribunal took. Contrary to the Landlord’s contention, the judge applied the authorities that have consistently endorsed as a relevant consideration whether the user of the service is the ultimate consumer.

45        The Landlord’s focus on what happens to the goods that are stored after they leave the premises is not relevant in this case. That may have been relevant if the question was whether there was a sale of goods by retail. But it is not. It is not a question of consumption of the goods. Rather, the focus must be on the service that is provided by the Tenant.

46        We reject the Landlord’s submission that the judge approached the task on the basis that an ultimate consumer test alone suffices to determine whether there has been a retail provision of services. The judge looked at other matters, including whether the services are generally available to any person for a fee. Ashley J referred to the provision of services to ‘members of the public’ in FP Shine. In Fitzroy Dental, Croft J looked at whether the services were ‘open to the public.’ On analysis, it seems to us that their Honours were concerned with whether there were restrictions on access to the service and who could use it. They were not concerned with the characteristics of the user (for example, whether the user was an individual or a business). Both judges relied on Wellington. In that case, Nathan J made it clear that the user may, but need not, be a member of the public.

47        Here, even if one assumes that there may be a limited number of people who use the service (because they need to use large trucks to transport the goods to be stored) that would not matter. In any event, the Tenant does provide transport facilities if required on payment of an extra fee. In short, the Tenant does not impose any relevant restrictions on access. Anyone can use the service and the Tenant’s office is open during business hours to customers and prospective customers alike.

48        Of course, in each case it is necessary to consider the exact service that is supplied. …

50        In summary, the services were used by the Tenant’s customers who paid a fee. Any person could purchase the services if the fee was paid. The Tenant’s business was open during normal business hours. The Tenant’s customers have not passed on the services to anyone else. They were the ultimate consumers of the Tenant’s services. In isolation, none of these features would suffice to constitute the premises as retail premises. Conversely, the absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises. However, in the circumstances of this case, when all of those features are taken together, the conclusion must be that the premises are retail premises.

The emphasised passages show that the Court of Appeal has:

  1. left open the possibility of services that are not retail in nature, but has not identified any examples;  and
  2. emphasised that the ‘ultimate consumer’ test is one of a number of considerations to be taken into account when determining whether a lease is of retail premises under the RLA 2003.

February 24, 2017


Ministerial Determination – overseas listed companies and their subsidiaries – Part 2

In a previous post here I discussed problems with the reference to the World Federation of Exchanges in sub-s 4(2)(d) of the RLA 2003 and the Ministerial determination that excludes overseas listed companies and their subsidiaries from the operation of the RLA 2003 effective from12 August 2016.

The recent decision of AMJE Pty Ltd v Mobil Oil Australia Pty Ltd [2016] VSC 777, which was handed down on 13 December 2016 (after the new determination), highlights another problem with the exclusion contained in s 4(2)(d) of the RLA 2003.

In that case, Derham AsJ in the Supreme Court of Victoria was considering a challenge to the jurisdiction of the Court to hear and determine a case involving a lease of a petrol station by the defendant on the basis that it was a retail tenancy dispute in VCAT’s exclusive jurisdiction.

His Honour recited the following unchallenged evidence and concluded as follows (citations omitted, emphasis added):

[27]      When the Lease was executed on 19 September 1996, the defendant was a subsidiary of Mobil Petroleum Co., Inc. Mobil Petroleum Co., Inc. was, in turn, a wholly owned subsidiary of Mobil Oil Corporation, an entity listed on the New York Stock Exchange (‘NYSE’).

[28]      Exxon Corporation and Mobil Oil Corporation merged in November 1999, and the defendant became a wholly owned subsidiary of ExxonMobil Australia Pty Ltd, which in turn, is a wholly owned subsidiary of Exxon Mobil Corporation. Both Mobil Oil Corporation and ExxonMobil Corporation were listed on the NYSE at the time of the merger. ExxonMobil Corporation remains listed on the NYSE.

[29]      On 22 March 2000, defendant converted to a proprietary company known as Mobil Oil Australia Pty Ltd (‘the defendant’).

[30]      Until 2013 the NYSE, then known as NYSE Euronext, was a member of the World Federation of Exchanges (‘WFE’). NYSE Euronext was acquired by Intercontinental Exchange Group Inc. (‘ICE’) on 13 November 2013. The NYSE is not a member of WFE as the WFE ceased to exist on or about 29 October 2013. Subsequently, Intercontinental Exchange, Inc., a subsidiary of ICE, became a member of a differently constituted company called The World Federation of Exchanges Limited. Intercontinental Exchange, Inc. was also previously a member of the entity previously known as WFE. In summary, therefore:

(a)       WFE ceased to exist on or about 29 October 2013. From that date, section 4(2)(d) of the RLA could not operate and the Act applied; and

(b)       alternatively, if the subsequent entity The World Federation of Exchanges Limited is to be read as WFE for the purposes of s 4(2)(d) of the RLA, then from 13 November 2013 the NYSE was not eligible to be a member of WFE. From that date, s 4(2)(d) of the RLA could not operate and the RLA applied to the Lease.

[31]      It is not in dispute that the defendant is a subsidiary of its ultimate parent, Exxon Mobil Corporation, for the purposes of the Corporations Act 2001 (Cth) and s 4(2(d) of the RLA.

It is important to note that the Associate Justice did not make a finding that s 4(2)(d) of the RLA 2003 ceased operating on or about 29 October 2013, but left the question open as one of the two alternatives that had the same effect on the case before the Court.

Practitioners considering a lease to an overseas company (or the subsidiary of an overseas company) that was entered into before 12 August 2016 should be aware of this decision, as well as the other potential problems with s 4(2)(d) of the RLA 2003 discussed in my earlier post.

February 10, 2017


When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)? Part 3

An earlier blog post here discussed the recent decision of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2016] VCAT 1866, in which Senior Member Walker held that a lease of a premises used to provide cold storage and logistics services to other businesses was not a retail premises under the Retail Leases Act 2003 (Vic).

The decision was overturned this week in an appeal heard by Croft J in the Supreme Court of Victoria, who found that the premises were retail premises under the RLA 2003.

An excellent summary of the decision is available on my colleague Robert Hay QC’s blog here.

A copy of Croft J’s the decision is available here.

The main points to draw from the decision are:

  • the test to determine whether the sale of goods or supply of services is retail for the purposes of the RLA 2003 remains the ‘ultimate consumer’ test from Wellington Union Life Insurance Society Limited [1991] 1 VR 333;
  • the RLA 2003 can apply to premises from which goods or services are supplied business-to-business, provided that those goods or services are supplied to the ultimate consumer of those services. This may apply to services supplied to business-to-business, provided that the services are not on-supplied (see more below), or to goods that are supplied business-to-business and that are used as an input in the second person’s business (such as a pen in a solicitor’s practice or a bolt used in the manufacture of a car);
  • unless another statutory exclusion applies, warehousing and logistics businesses are likely to be treated as retail premises;
  • the reach of the ‘ultimate consumer’ test is broader than most people expect. The words of Member Rowland in Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported, VCAT, Member L Rowland, 8 November 2012) remain relevant:

[17]   Given the ultimate consumer test I find it difficult to conceive of any sale of a service which would be other than retail. …

  • the ‘ultimate consumer’ test applies also to the supply of goods business-to-business, provided that the goods are used as an input into the second business, rather than re-supplied.

Importantly, there are likely to be a significant number of leases in the community that are regulated by the RLA 2003 without the parties knowing.

This could have a number of effects. The most significant is likely to be the prohibition on the recovery of land tax as an outgoing in a retail premises lease under s 50 of the RLA 2003. Recent VCAT authority suggests that a tenant of retail premises is entitled to recover from its landlord land tax mistakenly paid as an outgoing (see here).

Similar arguments may also apply to payment of certain repair and maintenance costs (see here).

Practitioners acting for tenants should consider reviewing their client’s non-retail leases to determine whether:

  • their leases are in fact leases of retail premises under the ‘ultimate consumer’ test;  and
  • land tax or other outgoings mistakenly paid may be recoverable from the landlord.

Practitioners acting for landlords should be aware of the breadth of the ‘ultimate consumer’ test and advise their clients accordingly when preparing their leases. If there is any doubt, it is prudent to treat the lease as a lease of retail premises to avoid the risk of losses to the landlord down the track.

November 14, 2016


When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)? Part 2

The recent trend in retail leasing cases has seen a gradual broadening of leases that fall within the definition of “retail” under the Retail Leases Act 2003 (Vic) (RLA 2003).

Many commentators, myself included, have suggested that all businesses that wholly or predominantly supply services will be considered retail, whether or not these services are supplied to the public or business-to-business (see here.)

In the recent case of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2016] VCAT 1866, Senior Member Walker expressed a different view, stating that:

[30]     Mr Hay provided me with an extract from … [Retail Leases Victoria]. Mr Hay is one of the authors of the book and he adopted the following statement that is to be found at paragraph 20,005 concerning … [the Fitzroy Dental] decision: 

“The consequence of Fitzroy Dental Pty Ltd v. Metropole Management Pty Ltd is that the provision of any service is likely to constitute the retail provision of services and therefore the 2003 act will apply.”

[31]     I do not accept the correctness of this proposition. The learned judge does not go that far in the case referred to. For example, in paragraph 18, when he talks about the “on-supply” of goods and services, he talks about the possible characterisation of the first person to whom the goods or services are supplied as being an ultimate consumer. He does not say that that conclusion is inevitable in regard to services.

In that case, the Senior Member considered a business that provided cold storage facilities and could also arrange refrigerated transportation. He reviewed the authorities and held that:

[62]     In all of these cases the goods or services are rendered to persons variously described as members of the public or the ultimate consumer. The term “consumer” is nowhere defined … [and] dictionary definitions are unhelpful but in the sense in which it has been used in the cases I think it means the person who uses the goods or services to satisfy his own personal needs rather than for some business or other purpose. The other characteristic is that the supply in each instance is usually in small quantities for use or consumption by the person to whom they are directly supplied.

[63]     That accords with the way I think the word “retail” is used in normal speech. As was pointed out in some of the cases, it is possible for a company or business to be involved in a retail supply of goods or services. For example, a company officer might purchase stationary at a local newsagency and that would be a retail supply. However if the company acquired a large quantity of stationery for on-supply to various purchases in smaller quantities, that would generally be regarded as a wholesale supply. 

[64]     The situation is more difficult to categorise in regard to services where one cannot talk about retail or wholesale quantities. Nevertheless, most people would have no difficulty in categorising a particular supply of services as retail if such were the case. 

[65]     For example, if a mining company, wishing to sell coal to a power station in India, dispatched a large shipment of coal by rail to a port, the rail operator would be providing a service of transport to the mining company but that service would not generally be regarded, in normal parlance, as being provided on a retail basis. Similarly, when the coal is loaded onto a ship by the Port authority, that again is a service rendered to the mining company but again, that would not generally be regarded as being provided on a retail basis. The same can be said of the services provided by the shipowner. In each case, the service that is provided is a necessary step in a supply chain of a commodity to a commercial customer, being the power station in India, and neither the mining company nor the customer can be regarded as an “ultimate consumer” or “a member of the public” in the sense in which those words appear to have been used in the authorities referred to. One does not get to an “ultimate consumer” or a “member of the public” until the coal is burnt to produce electricity which is then supplied to the power company’s customers in India. 


[66]    I do not accept Mr Hay’ submission that, virtually any supply of services will fall within section 4. The definition is not simply the provision of services but rather, the retail provision of services. Parliament has limited the application of the definition by the addition of the word “retail” and that word must have some meaning. 

[67]     In applying the definition one must look carefully at the facts of the particular case and decide as a matter of mixed fact and law whether, under the lease, the predominant use of the premises is, or is to be, the retail provision of services. The starting point will be to examine the lease to see what the permitted use of the premises in question is …

[68]     In the present case the use is that of cold and cool storage warehouse and transport facility, involving the receipt, storage and trans-shipment of goods for producers, manufacturers, distributors, importers and exporters. The customers to which the Tenant provides these services range from large primary production enterprises to very small owner operated businesses. Mr Clarke submitted that there was nothing about the provision of these services that would give it a retail character and I think that is right. That is not the ordinary meaning of “retail”. The Tenant’s services to those customers cannot sensibly be regarded as being a retail supply of services. Indeed, such an interpretation would give the word “retail” in the section no meeting at all. 

On one view, this case represents a shift away from the broad interpretation of ‘retail’ that has been adopted by many in the leasing community and suggests that less leases will be treated by the Tribunal as retail than had previously been expected, particularly leases for the sale of goods or the supply of services between businesses.



September 7, 2016

1 Comment

Ministerial Determination – overseas listed companies and their subsidiaries

An issue has emerged in recent years about the extent to which overseas listed companies and their subsidiaries are excluded from the operation of the Retail Leases Act 2003 (Vic) (RLA 2003).

Sub-section 4(1) of the RLA 2003 defines ‘retail premises’ for the purposes of that Act.   Sub-section 4(2) then contains a number of exceptions to that definition, including sub-section 4(2)(d), which excludes from the definition of retail premises:

(d)       premises the tenant of which is –

(i)   a body corporate whose securities are listed on a stock exchange, outside Australia and the external territories, that is a member of the World Federation of Exchanges; or

(ii)   a subsidiary (as defined in section 9 of the Corporations Act) of such a body corporate;

A number of problems with that exclusion have emerged.

First, a number of significant international stock exchanges are not members of the World Federation of Exchanges.

Secondly, it appears that membership of the World Federation of Exchanges is not fixed and that some significant exchanges have been members at some times and not at others.

Thirdly, it appears that there are different levels of membership. For example, the website for the World Federation Exchange currently lists 63 members, 3 associates, 26 affiliates and 1 correspondent exchange.

These issues have lead to confusion over whether and when the exclusion applies.

To address the confusion caused by this definition, the Minister of Small Business, Innovation and Trade has published a new determination under sub s 5(i)(d) of the RLA 2003 excluding the following tenants from the definition of “retail premises” in the RLA 2003:

bodies corporate or companies or corporations whose securities are listed on a stock exchange outside Australia or the subsidiaries (including subsidiaries as defined in section 9 of the Corporations Act 2001) of such bodies corporate, companies or corporations.  

The determination is prospective in operation and takes effect from 12 August 2016.   It does not appear to have retrospective effect.

The new determination also revokes the determination signed 20 December 2011 and Gazetted on 5 January 2012, which applied to the New Zealand Stock Exchange only.

When considering leases to overseas companies, practitioners should be aware of both the determination and its start date of 12 August 2016.

A copy of the new determination is available here.

July 8, 2016


When is a road not a road?

Answer: when it turns into a laneway.

In an earlier post here, I discussed adverse possession of an unused laneway where the paper title remains with the old developer who subdivided the land.

Last week’s decision of McMillan J in Anderson v City of Stonnington [2016] VSC 374 highlights another issue that needs to be considered before making such a claim.

In Anderson v Stonnington, her Honour considered whether an old laneway in South Yarra subject to two easements was also a public highway at common law. Her Honour reviewed and summarised longstanding authorities on the creation of public highways at common law, particularly where the disputed land is not recorded in title documents as a road. The court concluded that the laneway was a public highway because it had been open to the public and used ‘without force, without secrecy and without permission’ for a very long period of time.

This has implications for an attempt to acquire title to a disused laneway by adverse possession. The general position at common law is ‘once a road, always a road’.  It is generally not possible to extinguish a public highway by adverse possession (see Halsbury’s Law of Australia [225 – 1250]). This has now been largely codified in statute (e.g. cl 2(1)(d) of schedule 5 to the  Road Management Act 2004 (Vic)). Consequently, anyone considering bringing a claim for adverse possession of an unused laneway will need to consider whether the laneway attained a status of ‘public highway’ at common law. If it has, the claim may be unable to proceed.

Also, McMillan J’s decision may have implications for landowners acquiring freehold rights to disused laneways from councils.

Generally, easement rights, however created and whether or not currently registered, are enforceable (see s 42(2)(d) Transfer of Land Act 1958 (Vic)). This means that old long forgotten easements can re-appear and be asserted by the owner of the dominant land, much to the inconvenience (and often cost) of the owner of the servient land.

Many landowners, particularly in older established suburbs of Melbourne, have purchased disused laneways from their local council. However, those laneways may be subject to easements in favour of their neighbours. This could be particularly inconvenient if the purchaser of the laneway wants to build on that land.

In Anderson v Stonnington, McMillan J considered the following words of clause 14 schedule 5 Road Management Act 2004 (Vic):

A private right of way or easement cannot—

(a)    develop or co-exist with a public right of way over the same land…

The plaintiffs argued that this clause meant that their easement rights over the laneway in South Yarra precluded the creation or development of a public right of way over the same land.

However, in rejecting that argument, her Honour held that:

[79] Nevertheless, in support of their argument the plaintiffs also relied on cl 14 of Sch 5 to the RM Act.93 Schedule 5 to the RM Act deals with the ownership of roads and highways, and the powers and duties of the relevant authorities. The plaintiffs’ argument is that cl 14 of Sch 5 to the RM Act precludes the dedication and use of land as a public highway in circumstances where the land is already subject to a private right of way. For their part, the defendants submitted that the true effect of the provision is precisely the opposite of what was pressed by the plaintiffs; that is, the existence of a public right of way over land automatically prohibits the exercise of a private right of way or easement over that land, regardless of which was first in time.

 [80] The defendants’ construction of the provision must be preferred. The language of cl 14 to Sch 5 of the RM Act clearly subordinates a ‘private right of way or easement’ to a ‘public right of way over the same land’, such that the former is eclipsed by the latter regardless of which was first in time. The RM Act does not define ‘public right of way’, but on any view that term must include a ‘road’ within the meaning of that Act or a ‘public highway’ within the meaning of the common law (which are equivalent for the purposes of the RM Act). It follows that, since 1 July 2004, all public rights of way have existed to the exclusion of private rights of way to the extent that the two overlap.

[81] For the purposes of this case, it is enough to say that this result defeats the plaintiffs’ contention that cl 14 of Sch 5 to the RM Act operates to preclude the creation of a public right of way over the laneway because of the pre-existing easement. It may be that, if I find that the laneway is a road within the meaning of the RM Act, the effect of the provision is to extinguish whatever private rights the plaintiffs may enjoy over the laneway. However, the defendants did not press the point, and correctly so. In any case, it is not necessary to decide for the purposes of dealing with the declaratory relief sought by the plaintiffs.

If, as McMillan J suggests, the creation of a public highway extinguishes easement rights, then purchasers of laneways from councils will take those rights free from any old (possibly forgotten) easements over land.

 Sam Hopper and Cassandra Siarabalos

June 14, 2016


‘or’ means ‘or’ in 15 year determination

There has been a long running controversy in the retail leasing community over the effect of the word ‘or‘ in a Ministerial determination that excludes certain leases from the operation of the Retail Leases Act 2003 (Vic).

Some of the background to the dispute is contained in an earlier post here and in documents linked to that post.

In short, the debate has been over whether the word ‘or‘ in the 15 year determination should be read as ‘and‘.

If ‘or‘ is read conjunctively as ‘and‘ then the effect of the determination is significantly reduced.  This, in turn, increases the number of leases of more than 15 years duration that are governed by the RLA 2003.

However, if the word ‘or‘ is read disjunctively as ‘or‘, then many (and perhaps most) leases of more than 15 years duration are excluded from the RLA 2003.

In the recent decision of Luchio Nominees Pty Ltd v Epping Fresh Food Market Pty Ltd (Building and Property) [2016] VCAT 937 published today, Member Edquist considered the various arguments and concluded that:

47 Having regard to the actual text employed in the Determination and its context, I find that Epping’s proposition that sub-paragraph (f) assumes the prior application of either (d) or (e), in other words that the word ‘or’ after sub-paragraph A(e) must be read as an ‘and’, is not sustainable. 

In short, the Member held that ‘or’ means ‘or’ in the 15 years determination.

Practitioners should be aware of this decision and consider its impact for landlord and tenant of leases over 15 or more years as it suggests that a number of those leases will be excluded from the RLA 2003.

A copy of the 15 year determination is available here.

A copy of the decision is available here.

June 10, 2016


Part 2- Appeal – is an Airbnb guest a sub-tenant?

In an earlier post here, I reported that an appeal had been filed in the Victorian Supreme Court challenging a decision of a VCAT member holding that the occupation of a room by an AirBnB guest was not a sublease. As a result the VCAT member held that a notice to vacate served by the landlord on the head tenant was invalid as it alleged that the head tenant had sub-let without the landlord’s consent.

His Honour Justice Croft today handed down a decision overturning the Tribunal’s finding and substituting his own decision that the occupation by the AirBnB guest was a sublease. It follows that the landlord’s notice to vacate was valid.

Many in the leasing community will, no doubt, treat this as a finding that all AirBnB stays are in fact leases or subleases with implications for whether the head tenant has sub-let without consent.

However, his Honour made the following observations, both at the end of trial, and again at the conclusion of the courts judgment.

First, this is not a case on the merits of AirBnB arrangements. Neither is it a case on whether or not AirBnB arrangements might be said to be “illegal”—either in some particular or some general, non-legal, sense. Rather it is a case, on appeal, which raises for determination—directly or indirectly—the legal character of this particular AirBnB arrangement and any consequences this characterisation may have in the context of the terms of the lease of the apartment concerned.

Secondly, the context provided by the terms of the particular apartment lease are important. Although this apartment lease is a residential lease, many commercial leases restrict the tenant from sub-leasing, assigning the lease, granting any licence to occupy all or part of the leased premises or otherwise parting with possession without the landlord’s prior consent. Broad terms such as this would prevent, for example, sub-letting or licensing without the landlord’s consent and would avoid the need—as in the present case—to characterise the nature of the same arrangement like the AirBnB arrangement for occupation of the whole of the leased premises as a sub-lease or a licence.

No doubt, more will be said about the significance of this decision in due course.

A copy of the decision is available here.

Sam Hopper and Michael Kriewaldt

May 2, 2016


Appeal – is an Airbnb guest a sub-tenant?

An appeal has been filed in the Supreme Court from the VCAT decision in Swan v Uecker (Residential Tenancies) [2016] VCAT 483 and should be heard later this year.

In Swan v Uecker a residential tenant put the leased property on Airbnb without the landlord’s consent. The landlord then served a notice to vacate on the basis that the tenant had wrongly sub-let the property. The Tribunal held that the notice was ineffective because the arrangements between the tenant and the Airbnb guests did not amount to a sub-lease.  Reference was made to the Airbnb standard terms and conditions.

There has been some recent press over the decision and I have received inquiries about it, so it appears that the outcome of the appeal will be significant.

That significance is amplified by:

  1. the Victorian Supreme Court decision in Janusauskas v Director of Housing [2014] VSC 650, which upheld a decision from the Tribunal in Director of Housing v Janusaukas (Residential Tenancies) [2014] VCAT 42 to make a possession order when a public housing tenant had used his apartment on a similar website known as ‘Couchsurfing’.  In that case, the Tribunal found that the arrangements between the tenant and the ‘couch surfers’ constituted a sub-lease;  and
  2. the recent VCAT decision of Alex Taxis Pty Ltd v Knight (Residential Tenancies) [2016] VCAT 528 in which VCAT held that guests from Airbnb did not occupy the residence as sub-tenants (see paras [30] to [31]).

Follow my blog for further updates as they emerge.

March 24, 2016


A hidden trap in s 28 notices

Readers should be aware of a hidden trap in the operation of s 28(2)(a) of the RLA 2003.

The idea behind s 28 of the RLA 2003 is that:

  1. a retail tenant should have at least six months notice in writing of the last date to exercise its option; and
  2. if the notice is given late, both the lease and the last date for exercising option are extended by six months.

An issues arises when you need to draft a notice that is given late.

Section 28 of the RLA 2003 states that (emphasis added):

(1)       If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable—

(a)      at least 6 months; and

(b)       no more than 12 months—

before that date but is not required to do so if the tenant exercises, or purports to exercise, the option before being notified of the date.

(2)       If subsection (1) requires the landlord to notify the tenant but the landlord fails to do so within the time specified by that subsection—

(a)       the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 6 months after the landlord notifies the tenant as required; and

(b)       if that date is after the term of the lease ends, the lease continues until that date (on the same terms and conditions as applied immediately before the lease term ends); and

There is an unresolved issue over what is required in a s 28(2)(a) notice. In particular, it is unclear which date it needs to state – the date in the lease deed or the last date for the exercise of the option as extended by sub-s (2)(a).

In Beds for Backs v Palace Pty Ltd (Retail Tenancies) [2006] VCAT 2677, Deputy President Macnamara (as he was then) held that:

… The notice which sub-section 2(a) deals with has a number of features necessary, first, it must be a notice that is late and out of time. If it were on time it would be in compliance with sub-section (1). Secondly, however, the notice must be ‘as required’ to adopt the phrase which appears at the end of the paragraph. What does ‘as required’ mean. In my view, it means that it must be in accordance with sub-section (1) in all respects save that it is late. What sub-section (1) requires is a notice which faithfully records the contractual terms of the lease. The letter of 22 September 2005 does that. It is in all respects the notice required by sub-section (1) except, that it is late. Sub-section (2)(a) assumes that the notice will be as required except that it is a notice that is late. The counter argument to this would reside in the phrase which begins paragraph (a) of sub-section (2) ‘the retail premises lease is taken to provide …’. That is there is an effective statutory amendment to the lease. It might be said that that statutory amendment introducing the further six month period is supportive of the view put by Mr Piraino. The matter is I think far from clear. With some hesitation however I conclude that the proper construction of the sub-section is that the words ‘as required’ refer back to sub-section (1) hence the notice or the letter of 22 September 2005 is an effective notice for Section 28(2)(a) and the fact of it being late extends the period during which the option to renew may be exercised to a date being six months thereafter presumably to 22 March 2006. I am not concerned for the moment to distinguish whether one counts the first day, the last day, whether it is the 21st or the 22nd of March because it is clear that on no day in March or thereabouts was any notice of exercise of option given. It would follow from that conclusion as to the correct meaning of Section 28 that the contractual term of the lease is about to expire and there is no entitlement on the part of Mr Piraino to exercise an option to renew. ….

This decision suggests that the s 28(2)(a) notice need not specify the extended last date for exercising an option and need only state the date specified in the lease deed for exercising an option.

However, in Xiao v Perpetual Trustee Company Ltd [2008] VSC 412, Vickery J in the Supreme Court of Victoria held that (emphasis added):

80       Under s.28(2)(a) of the RLA, which operates in this case, the retail premises lease is taken to provide that the date after which the option is no longer exercisable is to be six months after the landlord notifies the tenant “as required”. The requirement is for a notice under s.28(2)(a) to comply with the critical twin requirements of s.28(1) I have identified, that is the notice must be in writing and specify the date after which the option is no longer exercisable. It is only a notice in this form which would trigger the running of the six month period under s.28(2)(a) of the RLA.

81       It would follow that in this case, the date after which the option is no longer exercisable is the date implied in the Lease by operation of s.28(1)(a), that is six months after the landlord notifies the tenant as required. Section 44 of the ILA relevantly provides that:

(a) In an Act, unless the contrary intention expressly appears:

(b) a reference to a month shall be construed as a reference to a calendar month.

82       Accordingly, in this case, if the date of notification of the tenant Mr Xiao was either 6 or 7 December 2007, six calendar months from those dates would be either 6 or 7 June 2008, in which case the notice should have specified either of those dates as being the dates after which the option was no longer exercisable. However, the notice did no such thing. It incorrectly specified that the option was “not capable of being exercised after 3 June 2008. After that the option lapses.” [Underlining added]

83       In the circumstances, only one conclusion is open – the 4 December 2007 letter was fundamentally defective as a notice under s.28 and did not constitute notification “as required” for the purposes of subs.(2)(a) of that section.

This decision suggests that a sub-s 28(2)(a) notice will only be valid if it states the last date for exercising an option as extended by operation of that sub-section.

The decision in Beds for Backs was recently followed by Senior Member Lothian in LEGFIN Pty Ltd v Anthony (Building and Property) [2015] VCAT 986 at [60] to [63].

Unfortunately, Vickery J does not appear to have been made aware of the decision in Beds for Backs, nor does Senior Member Lothian appear to have been made aware of Xiao.

Consequently, it remains unclear which date a sub-s 28(2)(a) notice needs to state and it is prudent to include both dates when drafting a notice.

However, sub-s 28(2)(a) extends the last date for exercising an option by six months, so if you need to specify the extended day, you should ensure that the tenant is notified on a day that is precisely six months before the expiry date.

One solution may be to serve a notice that says that the extended last date for exercising an option is 6 months after the tenant is given the notice (rather than specifying the actual date). It is unclear at this stage whether such a notice would satisfy the test in Xiao, so practitioners should be cautious in serving such a notice.

The implications of a defective s 28(2)(a) notice can be significant, particularly if the landlord has plans to redevelop or re-let the premises – if the notice is found to be invalid, then the tenant’s option can still be exercised and the tenant can remain in possession.