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Landlords on notice after retail lease decision

Landlords on notice after retail lease decision

By Karin Derkley

Landlord & Tenant 

A case that has extended the definition of what constitutes a retail tenant will have wide ramifications for practitioners who deal with commercial leases, the Victorian Small Business Commissioner (VSBC) Judy O'Connell has warned. The Victorian Court of Appeal's (VCAT) decision on the IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd resulted in a change to the interpretation of the Retail Leases Act 2003 that means that the premises of businesses that supply commercial services to other businesses may now be regarded as retail premises, covered by the Retail Leases Act 2003. In the CB Cold Storage case, the warehouse was tenanted by a business providing refrigeration services to mostly business customers. The tenant claimed that the Retail Leases Act applied, and therefore it should not have been required to pay land tax, water and council rates that were passed on to it by the landlord, and commenced VCAT proceedings against the landlord to recover those charges. In its decision VCAT determined that the warehouse was not a retail premise and therefore not covered by the Act. But its decision was overturned by the Supreme Court on appeal on the basis that the tenant’s business customers purchased its services as the end user of the services, and that it therefore met the requirements of a retail lease under the Act. The High Court has refused leave to appeal the decision of the Victorian Supreme Court of Appeal. The decision will have significant consequences for businesses that were previously not covered by the Act, Ms O’Connell said. Landlords of those business tenants will no longer be able to charge them land tax, certain repair and maintenance costs, or management fees – unless the premises are in a shopping centre or building that is managed by the landlord. As well, disputes under a retail lease other than those relating solely to the payment of rent or the market value of rent payable under the lease cannot be the subject of proceedings in a court and must be referred to the VSBC before proceeding to VCAT. Ms O'Connell said that lawyers need to be aware of the decision when drafting new commercial lease agreements. "I think not all lawyers are aware of the extended application of the Retail Leases Act, for example that premises used for mixing and selling concrete to builders will be covered under the Act," she said. Most disputes involving a landlord and tenant under the Retail Leases Act will now need to be taken to the Victorian Small Business Commission before going to VCAT, Ms O'Connell pointed out. There is also a possibility that tenants under existing leasing arrangements may attempt to retrospectively recover charges that were previously collected by landlords and that are prohibited under the Retail Leases Act, including land tax and lease preparation costs.

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