VCAT Clarification in Victoria’s Shifting Landscape Of Retail And Commercial Leasing

By Nasiya Goldberg, Associate, MST Lawyers

Landlords and tenants across Victoria should take note of VCAT’s important decision handed down in July 2019 matter of Phillips v Abel [2019] VCAT 1031.  This decision is an important landmark in the shifting landscape of retail and commercial leasing in Victoria.

The matter involved the commercial lease of rural premises to a tenant operating a sand quarry from the site.  The tenant used the site to extract, wash and process sand for sale predominantly to:

1.       customers for their direct use (including equestrian organisations which used the sand on their arenas); and

2.       customers who used the sand to produce other products (including concrete); with only a small proportion of business customers on-selling the sand repackaged (but unchanged) to their own customers. 

There were two main questions raised in this matter:

1.       Is the lease of the sand quarry considered a “retail lease” as defined under the Retail Leases Act 2003 (Vic) (‘the Act’)?  Yes!

The landlord argued that a lease of a sand quarry does not meet the criteria of a “retail lease”, for the following reasons

  • The character of the leased premises did not meet the Act’s definition of “retail premises” because the land at lease commencement was largely open pasture located in a rural location which did not include any buildings or structures.  Only over the term of the lease did the tenant erect any infrastructure on the land.

However, VCAT accepted the tenant’s argument that the Act does not contain geographical restrictions or require “retail premises” to include any infrastructure.  VCAT stated: “there are many retail leasing arrangements which concern ground leases, absent any building”.  There are in fact many businesses which operate outdoors on bare land, such as a garden nursery, car park and caravan park.  This is a significant finding, as it means that even effectively empty land now meets the Act’s criteria for “retail premises” if the tenant conducts a retail business from the premises.

  • The sand could not be removed from the rural premises by the general public except those with an appropriate vehicle, and therefore the leased premises failed the “test of retailing” as confirmed by the Court of Appeal in IMCC Group (Australia) Pty Ltd v C.B.Cold Storage Pty Ltd [2017] VSCA 178.  The “test of retailing” involves consideration of the nature of the “ultimate consumer” of goods sold or services provided at business premises, together with a broader contemplation of the nature of the premises and public access to the premises. 

However, VCAT accepted the tenant’s position that the premises were, in fact, accessible to the general public for direct sales, as the tenant facilitated hire of a vehicle suitable for the removal of the sand to customers for the removal of the purchased sand.

VCAT found that the lease of the sand quarry constituted a “retail lease” as defined under the Act, meaning that the tenant was entitled to all of the legislative protections under the Act.  This case serves as a timely reminder to parties to leasing arrangements that the Act can have a broad, and often unexpected, application.

2.       If a landlord fails to provide an estimate of outgoings, can the landlord later recover back-payment of accrued outgoings from the tenant? No! 

In this instance, the landlord did not comply with the Act’s requirement to provide the tenant with a statement of outgoings during the lease term. Belatedly a statement of outgoings was provided with the intention to recover back-payment of outgoings. It was arguing that the tenant’s obligation to pay outgoings was ‘revived’ when the landlord provided a belated statement of outgoings.

VCAT found that “giving notice under s46(2) of the RLA does not revive or establish liability for outgoings previously incurred”.  Practically, this means that if a landlord fails to provide an outgoings estimate as required under the Act, the landlord forfeits the unpaid outgoings previously accrued.

VCAT’s finding that the sand quarry constituted a “retail premises” as defined under the Act is just one of the many recent cases in Victoria where VCAT or the Supreme Court found that the Act will apply in unexpected circumstances.  In the context of an expanded range of leasing arrangements captured by the Act, the obligation to comply with the estimation of outgoings requirements under the Act is a new frontier for many landlords. 

The tenant’s success in the sand quarry case serves as a reminder to all parties to obtain expert legal advice in relation to the drafting, review and negotiation of all commercial leases to identify potential exposure and mitigate any risks under the Retail Leases Act 2003 (Vic). 

For prompt and professional advice, you can email our Property and Leasing team or call us on +61 3 8540 0200.