Retail Leases Update

Supreme Court Determines: Retail leases cannot exit the Retail Leases Act during their term.

You may have seen our article published last year here regarding the VCAT case of William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd [2018] VCAT 15 whereby VCAT ruled in favour of the Landlord seeking reimbursement of Land Tax from the tenant on the basis that the lease had fallen outside the Act by exceeding the total occupancy costs threshold.

VCAT’s determination at the time suggested that it was possible for an exit from the Act to occur mid-way through a Lease term, if exemption requirements are met at a later date.

However, this position was recently overturned when a very similar case, Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597, was appealed in the Victorian Supreme Court.

The Supreme Court found that if the Act applied to a lease at its commencement, the Act would continue to apply to the lease throughout its term, regardless of whether it ceased to meet the definition of retail premises.

Once the lease commences, section 11(2) of the Act shall apply to the term and options (if any) even if during that time the tenant:

1. Exceeds the occupancy cost threshold of $1 million per annum.
2. Is acquired by, or becomes, a listed corporation.
3. Does not use the premises for retail purposes consistent with s 4(1)(a) of the Act.
4. Is exempt by way of ministerial determination.

This decision at least provides certainty and consistency to all parties during the term of their Lease.

Matters to consider:

1. Case law in this area of retail leasing is constantly evolving.
2. If your tenant is likely to meet the exemption requirements in the near future, consider a shorter term lease.
3. You may want to consider the possibility of having the lease suitably worded so that if exemption requirements are met when the lease is varied or renewed, the Act will no longer apply. Your solicitor can assist with this.
4. Consider the implications of a non retail tenant paying land tax where the lease is renewed as a retail use and the rent is to be determined by a valuer. The valuer will normally deduct the land tax and accordingly, the rent will go down.