Retail Leases Update - Tenants not required to pay for late issued outgoings statements under the Retail Leases Act

By Nick Bacon July 23, 2019

We thought you may be interested to know of a recent VCAT hearing which is of relevance to all
commercial property landlords.

In the recent case of Phillips v Abel (Building & Property) [2019] VCAT 1031, VCAT determined that a lease of a quarry was a lease of retail premises under the Retail Leases Act 2003 (Vic) (The Act) and late provision of an estimate of outgoings did not retrospectively revive the tenant’s liability to pay outgoings that accrued before the estimate was provided.

In summary:

  • In February 2007, the tenant entered into a 6x5 year Lease of the premises. When the tenant attempted to exercise its second option, the landlord refused on the basis that the tenant was in default for failing to pay outgoings required under the lease.
  • The leased premises comprised approximately 250 hectares of unimproved land. The tenant installed buildings and infrastructure on the land after the initial term.
  • The landlord argued that The Act did not apply because the Lease was initially a ground lease with no buildings erected and further that The Act should not apply to rural premises. It sought to recover payment of outgoings previously undemanded from the tenant.
  • The tenant argued successfully that in order to determine if the premises are “retail premises” the purpose of occupation, rather than the character of the premises should be looked at.
  • The Tribunal noted that retail leasing arrangements between landlords and tenants do not necessarily require that a building be erected and that there are many retail leasing arrangements which do not involve buildings, eg car parks.
  • The tenant used the leased premises to extract, process, clean and sell sand, clay and gravel found in a quarry at the leased premises. Any member of the public could attend at the premises and purchase sand etc provided that they had the necessary means of transporting it.
  • The Tribunal concluded that the business conducted by the tenant constituted the provision of retail goods or services and, as such, The Act applied.
  • With regard to the recovery of outgoings sought by the landlord, the Tribunal determined that it would be unfair if a landlord was able to retrospectively claim for historical outgoings many years later which may place a tenant in financial difficulty.

retail-leases-update-july-19

There are a number of takeaways from this case, the most critical being:

  • The Act’s primary purpose is to enhance the certainty and fairness of retail leasing arrangements between landlords and tenants and this will primarily be front of mind in the determination of any dispute.
  • The Act is not limited to retail shop leases and over time the seemingly broad definition of retail premises has caught many parties off guard. If the premises is used wholly or predominately for the sale of goods by retail or the retail provision of services, The Act will apply.
  • VCAT again has taken the approach that by far the majority of all Victorian commercial leases fall under The Act, with exceptions becoming fewer and fewer.
  • Under Section 46 of The Act, the landlord is required to give the tenant a written, itemised estimate of the outgoings for which it is liable to contribute to under the lease for the following 12 month period, at least one month before the start of that period. This is covered off by the provision of a Disclosure Statement prior to the commencement of the Lease and annually thereafter Section 46 applies.
  • This decision definitively puts responsibility on the landlord to provide outgoings accounts to the tenant in a timely manner. Should these deadlines be missed, the landlord risks not being able to recover those outgoings retrospectively.

Landlords should consider the implications of this decision with their existing leases. A lease entered into several years ago which may not have been considered a retail lease at that time, may in fact fall under The Act.

As commercial property managers, we are experts in ensuring our clients meet the requirements of the Retail Leases Act 2003 (Vic). If you require any assistance with respect to this please contact us for advice today.

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Nick Bacon

Written by Nick Bacon

Since 1988 Nick has seen vast changes in Australian commercial property, but through his energy, passion and adaptability, he always ensures his clients benefit from the most responsive and up-to-date guidance on how to maximise the leasing potential of their assets.

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