Will you be caught within the expanding cover of the Retail Leases Act?

The recent decision by the Supreme Court of Victoria in CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 endorses a wider interpretation of what is considered a ‘retail premise’ for the purposes of the Retail Leases Act 2003 (Vic) (RLA). As a result of this decision, it is clear that the ‘ultimate consumer’ test could be satisfied by either commercial or private consumers and that most service businesses will be found to be involved in the ‘retail provision of services’ and subject to the RLA. As a consequence, leases which have previously been considered to fall outside the scope of the tenant friendly RLA provisions may, in fact, be regulated by its provisions, without landlords or tenants realising.

The provision of business to business services

CB Cold Storage leased a large refrigerated storage warehouse from the IMCC Group. The terms of the lease allowed for CB Cold Storage to use the property to store commercial customers’ products in the cold storage areas. CB Cold Storage issued proceedings to recover amounts they had paid unnecessarily because the premises were incorrectly identified as retail premises subject to the RLA provisions. The Tribunal ordered that the preliminary issue of whether, under the terms of the lease, the property was used wholly or predominantly for the retail provision of services, was to be tried separately. Resolving this issue would clarify whether the premises were, in fact, a ‘retail premises’ within the meaning of the RLA.

A strict interpretation at first instance

A lease will be governed by the RLA if it is a lease of a retail premises. The RLA defines retail premises as:

‘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 sale or hire of goods by retail or the retail provision of services…’.

At first instance, the Victorian Civil and Administrative Tribunal found that the RLA did not apply to CB Cold Storage’s business because it was not of a retail character. The Member did not consider it appropriate to include all business to business leases within the definition of a retail lease, as this did not accord with the ordinary meaning of the word ‘retail’. The Tribunal confirmed that a key feature of retail businesses is that they sell small quantities of goods or services to consumers to meet their own personal needs (rather than for business purposes). On this basis, the provision of services by CB Cold Storage to large commercial clients could not be considered a ‘retail’ supply. CB Cold Storage appealed the Tribunal’s decision.

Will your lease be covered by the RLA? Broadening the definition of ‘retail premises’ on Appeal

The decision was reversed on appeal, with the Supreme Court of Victoria finding that the property was properly characterised as ‘retail premises’ and fell within the scope of the RLA provisions. The ultimate consumer test, in assessing who actually received the goods or services, may be used to resolve this question of whether the provision of services is of a retail character. Justice Croft found that the Tribunal took an overly narrow approach in its application of the test, and reaffirmed that the ultimate consumer test applies to the provision of both goods and services. The Court clarified that customers that used a tenant’s service for a business purpose can be considered ultimate consumers of that service.

This applies as long as:

• The commercial entity receiving the goods or services is the ultimate consumer.
• The services supplied are not involved in an ongoing supply chain.
• The goods are being used up as part of the recipient business.

The Court considered that the premises rented by commercial warehouse and logistics providers, such as CB Cold Storage, fell within this broad definition of ‘retail premises’. On this reasoning, the Court stressed the broad application of the ‘ultimate consumer test’ concluding that most leases involving a provision of services will be considered ‘retail premises’.

How does this decision affect you?

In light of this decision, we advise that both tenants and landlords review their leases and apply the ultimate consumer test to consider whether the leased premises constitute ‘retail premises’ for the purposes of the RLA. In particular, these findings present a key risk for landlords who have incorrectly identified any ‘commercial’ leases as falling outside the scope of the RLA. Pursuant to section 50 of the RLA, landlords are prohibited from charging land tax. Landlords should be aware that savvy tenants may now refuse to pay or seek reimbursement for amounts incorrectly paid. In contrast, tenants should consider whether their landlord has claimed sums in breach of these provisions and either seek compensation or refuse to pay any further amount.

In refusing to narrow the scope of the definition of ‘retail premises’ the Court has signalled an intention to ensure that the tenant friendly RLA provisions are applied as widely as possible. As a result of this broader interpretation, a greater number of leases may be captured by the provisions of the RLA.

If you have any questions about whether or not your lease could be considered a retail lease in light of this decision, please contact our office.