UPDATE: Is Your Business To Business Lease Governed By The Retail Leases Act 2003 (Vic)?

By Evelyn Marcou, Senior Associate, MST Lawyers

This article is a follow-up to the February 2017 piece, Is your business to business lease governed by the Retail Leases Act 2003 (Vic)? We review the decision handed down on appeal and the implications for tenants and landlords.

The Victorian Court of Appeal recently handed down its decision dismissing the much-anticipated CB Cold Storage appeal. The decision cited as IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 states that a lease of a wholesale cold storage facility is a “retail premises lease” as per the provisions of the Retail Leases Act.

In 2012, CB Cold Storage (Tenant) and the IMCC Group (Australia) Pty Ltd (Landlord) entered into a lease for a cold storage facility. Following a dispute, CB Cold Storage commenced an action against the Landlord in the Victorian Civil & Administrative Tribunal (VCAT). CB Cold Storage was required to prove that the facility was a retail premises. Initially, VCAT found that the cold storage facility was not a retail premises. Using the ‘ultimate consumer’ test, this decision was overturned by Justice Croft in the Supreme Court citing that the Tenant’s business customers ultimately consumed services provided by the Tenant from the cold storage facility.

The issue is that the ‘ultimate consumer’ test leads to some unclear results.

The test suggests that:

1. some premises will be considered ‘retail’ under the Retail Leases Act 2003 (“RLA”) 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 when neither the landlord nor the tenant (nor, often, their lawyers) realises.

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 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.

In summary, this decision reaffirms that:

For Landlords

• Landlords should review their leases to assess whether the premises are in fact subject to the RLA. Landlords should also identify potential breaches of the RLA and potential exposure to claims by tenants arising as a result.

• For new leases, Landlords should be vigilant in understanding whether the proposed tenant is operating a “retail” business and should seek legal advice in this regard.

• Landlords should also consider whether they need additional warranties from a tenant in respect of this issue.

For Tenants

• Tenants should consider whether they have additional rights under the RLA. This will require a consideration of the nature of their customers to determine whether those customers are the ultimate consumers of their goods or services.

• Potentially, tenants may seek reimbursement of any sums mistakenly paid to the landlord, including any outgoings which the landlord was not entitled to pass on or seek reimbursement from a retail tenant including, significantly, land tax.

For further information, please contact our Property & Leasing team by email or by telephone +61 3 8540 0200.