What is a retail lease? More guidance from Victoria

By David Dickens and Alexandra Lane

Since the CB Cold Storage decision in 2017, a range of interesting decisions have been made on what constitutes a retail lease. While the law has not changed, the decisions have altered preconceptions around what can fall within the definition of retail premises.

The recent Victorian Civil and Administrative Tribunal (VCAT) decision of Eastcombe Pty Ltd v Fagersta Steels Pty Ltd [2022] VCAT 780 (Eastcombe) marks only the second reported decision in which a lease has not been characterised as a retail lease because it is not ‘open to the public’, thereby not being subject to the Retail Leases Act 2003 (Vic) (RLA).

Background: commercial or retail?

Fagersta Steels Pty Ltd (Tenant) leased premises at 66-74 Micro Circuit, Dandenong South (Premises) from Eastcombe Pty Ltd (Landlord). From the Premises, the Tenant warehoused and sold different types of stainless-steel products to customers. Although the Tenant preferred prearranged sales, sales were also made to members of the public without prearranged sales meetings.

Relevantly, in relation to the business conducted by the Tenant:

• when customers had a prearranged meeting, a salesperson met them in the Tenant’s office and then escorted the customer through an internal door to the warehouse;
• members of the public could enter to the Premises through warehouse doors which are opened between 30am and 3.30pm Monday to Friday, and they must be escorted by staff upon entry;
• business signs were placed outside the warehouse doors and at the warehouse;
• the purchase of the products could be made either in the warehouse or in the office; and
• the warehouse was located within an industrial park, which did not list the Tenant’s business on its signage upon entry to the park.

For the first three years of the lease, the parties treated it as a commercial lease which was not governed by the RLA. After this time, the Tenant asserted that the lease was properly characterised as a retail premises lease captured by the RLA. The Tenant sought to take advantage of section 46(2) of the RLA which provides that, in the absence of a written estimate of outgoings being provided by a landlord, the tenant can avoid making payment of outgoings until that estimate is provided.

In response to this claim, the Landlord applied to VCAT seeking a declaration that the lease was not a ‘retail lease’ subject to the RLA and accordingly, an order for payment of unpaid outgoings totalling $136,000.

What was the issue for determination?

The principal issue before the Tribunal was whether or not the lease was a retail premises lease within the meaning of the RLA. That is, whether the Premises were used, or were to be used, wholly or predominantly for the hire or sale of goods by retail or the retail provision of services.

In considering this question, the Tribunal is required to consider (among other things) the nature of the goods or services offered and whether these are generally available to anyone wishing to purchase them, whether the ultimate consumer test is satisfied and, relevantly, whether the premises are open to the public.

Decision

Senior Member Forde held that the lease was not a retail premises lease, as the ultimate consumer test was not satisfied and the premises are not properly ‘open to the public’ in the required sense.

The Member applied the CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC ultimate consumer test and found that the evidence did not demonstrate what portion of the Tenant’s sales were to, or were to be to, the ultimate consumer. Although it was submitted that the business wholesaled products and tax invoices were provided as evidence, it was ‘completely unclear’ to the Tribunal whether the products were consumed, on supplied or used as an input into another business.

The Tribunal noted that ‘the sale of a product to a member of the public is not synonymous with a sale to the ultimate consumer.’ The Tenant’s evidence did not go further than establishing that members of the public could attend and buy steel from the Premises. The frequency of such visits and the percentage of sales directly to members of the public were not known.

In assessing whether the Premises were ‘open to the public’, the Tribunal analysed the business signage at the premises, noting that signage is one factor to consider in classifying the retail aspect of a lease. The Tribunal considered that there was limited signage for the Tenant’s business at the premises.

Aside from the business not being identified on the signage for the industrial park, the small-scale signage outside the warehouse was nondescript as it was A4 in size, used pale colours and was located among various other signage advertising safety vests, foot protection and head protection in the area. On balance, the Tribunal found that this signage did not invite a customer into the warehouse Premises as the signage simply set out the Tenant’s name (rather than including any other text).

Notably, the Tribunal went on to consider that a member of the public could not simply enter the warehouse and walk around unaccompanied. The layout of the warehouse was depicted in photographs showing huge racks of product sometimes stacked to the ceiling and stacks of large steel sheets and overhead cranes. Further, the warehouse doors were kept locked and there was no contact number displayed at the front office or reception area. The access for the Tenant’s business remained restricted.