Retail leases – A Snapshot of The Key Legislation and Recent Cases

By Nasiya Goldberg, Senior Associate

We have recently experienced a high volume of requests for guidance from commercial tenants and landlords as to the criteria which will determine whether a commercial lease is subject to the Retail Leases Act 2003 (Vic) (RLA). There has been much written on this topic, both on the MST Property team’s website and across many other legal resources. This article provides readers with a snapshot pulling together some of the key criteria listed in the relevant legislation, Ministerial determinations and recent cases in VCAT and Victorian courts.

1. Key Victorian legislation – the Retail Leases Act 2003 (Vic) (RLA)

The RLA will apply to leases of ‘retail premises’, as defined in the RLA as an area (excluding residential areas) that, under the terms of the lease, 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 or for any of the specified businesses determined by the Minister for Small Business.

The RLA lists some key exclusions to the purview of the RLA including:

• Premises in respect of which the occupancy costs exceed $1m (excluding GST) per annum (case law has clarified that this is assessed at the commencement of the lease) ;
• Premises used wholly or predominately for the carrying on of a business by a tenant on behalf of the landlord as the landlord’s employee or agent;
• Premises where the tenant is a listed corporation (as defined in the Corporations Act or a subsidiary thereof);
• Premises where the tenant is a body corporate whose securities are listed on a stock exchange outside Australia, that is a member of the World Federation of Exchanges or a subsidiary thereof;

2. Key Ministerial determinations and exclusions

In addition to the above exclusions, the RLA authorises the Minister to determine further exclusions to the purview of the RLA. The following Ministerial exemptions are in place:

• Determination 1 – Storeys: Premises in a building that are wholly or predominantly used for the provision of retail services (other than those located entirely on any one of the first three storeys of the building) are excluded from the operation of the RLA. It is important to note that VCAT recently clarified that ‘storeys’ for the purposes of the RLA does not always marry up with ‘levels’ in a building. The method for calculating the applicability of this exclusion is as follows:
  • Ground floor of a building (first storey) – RLA applies.
  • Level 1 of a building (second storey) – RLA applies.
  • Level 2 of a building (third storey) – RLA applies.
  • Level 3 of a building (fourth storey) and above – RLA does not apply due to the Ministerial determination.
• Determination 2 – Barristers’ Chambers: Barristers’ Chambers Limited is excluded from the operation of the RLA.
• Determination 3 – 15-year leases: Leases for 15-years or longer are exempt where they impose substantial works or financial obligations on the tenant.
• Determination 4 – Melbourne Market Authority: ‘Market land’ as defined by the Melbourne Market Authority Act 1977.
• Determination 6 – Bodies corporate (and their subsidiaries): Bodies corporate or companies or corporations whose securities are listed on a stock exchange outside Australia (or the subsidiaries of these bodies corporate, companies or corporations) are exempt from the operations of the RLA.
• Determination 7 – Premises used for community or charitable purposes: Premises that are leased for certain community or charitable purposes. This determination applies to leases entered into after 1 January 2015.
• Determination 8 – Premises used for farming or agricultural purposes: Premises that are leased for certain farming operations. This determination has effect from 29 October 2019.

3. Additional criteria considered by VCAT and Victorian courts in recent cases

A number of key recent cases have confirmed additional criteria which are relevant in determining whether premises can (and can’t) fall within the scope of operation of the RLA. These new criteria will capture some premises not previously considered to be retail premises. These criteria include:

• Whether premises are ‘open to the public’ , which will be assessed on a case-by-case basis, considering the facts and circumstances of a particular tenancy.
• Whether the premises have business signage.
• The extent to which visitors can freely enter and walk around the premises.
• Whether the tenant’s business operates predominately as an online business, where the tenant prohibits the public from entering the premises and walk around freely.
• A clause in the lease under which the tenant acknowledges that the RLA does not apply , and even specifically excludes retailing in the description of the “permitted use” under the lease, have been deemed not be definitive in determining whether the RLA applies to a certain lease where some of the criteria above have been met.
• Whether the premises are subject to a retail sublease does not definitively determine whether the head lease is also a retail lease under the Act.

Key take-aways

1. There are significant differences between a retail and commercial lease including:

• whether landlords can recover land tax;
• whether landlords are required to provide pre-lease disclosures in the form or a statutory disclosure statement;
• whether tenants are entitled to a minimum 5 years term, and more.

2. Landlords and tenants should seek expert legal advice on what is permitted under the Retail Leases Act 2003 (Vic) regarding their specific lease terms. The MST Property team is well-placed to assist you in reviewing your leasing documents to ensure compliance and provide you with specific advice on the commercial consequences for your lease falling within the purview of the RLA.

3. Before entering a lease as a commercial landlord or tenant, you should seek expert legal advice regarding the tenant’s intended use of the premises. If, after thorough investigations, it appears that the RLA may apply to the lease, this should be taken into account when negotiating the commercial terms of the lease, bearing in mind that some occupancy costs, such as land tax and legal costs cannot be recovered from the tenant.

4. If the parties determine at the outset that the lease is non-retail and outside the purview of the RLA (or is likely to be so), you should seek expert legal advice and drafting of the commercial lease including provisions prohibiting public access and prohibiting signage advertising sales from the premises. We can also assist with drafting provisions acknowledging that the RLA does not apply to the lease and restricting the permitted use to non-retail activities. As discussed in the key case summaries, any one of these approaches alone is unlikely to be definitive in determining whether the RLA applies to a certain lease, but, when drafted appropriately by a leasing expert, these approaches combined will ensure the parties’ intentions are clearly documented.

The MST Property and Leasing lawyers remain available to assist you with your property and leasing queries. Please contact Nasiya Goldberg, Senior Associate on (03) 8540 0727 or Evelyn Marcou, Principal on (03) 8540 0243. This article contains a general summary only – you should seek advice which is specific to your circumstances.