We would rarely expect that an industrial tenant may be deemed as ‘retail’ under the Retail Leases Act 2003 (the Act), but a recent decision by the Supreme Court of Victoria means that we need to question all industrial leases in Victoria.
Previously we would use the ‘ultimate consumer’ test to determine if a tenant was a retail tenant under the act. If a business was selling to it’s final destination (a member of the public) direct from the property than they would fit the definition of retail tenant as providing ‘the sale or hire of goods by retail or the retail provision of services’ and be a retail tenant under the Act (provided they met the other terms such as annual rent). Most industrial tenants didn’t fit into this definition, as they didn’t sell direct from their premises or they provided services to other businesses.
However, the recent case between IMCC Group (Australia) Pty Limited v CB Cold Storage Pty Ltd means that the definition of ‘retail tenant’ could now be interpreted that offering commercial services to other business from a premises are covered by the Act.
What does this mean if you are a tenant of an Industrial property?
The Retail Leases Act 2003 offers a good level of protection and advantages for tenants, including:
- Requirement for the Landlord to provide you with a Disclosure Statement
- A minimum lease term of five (5) years, which can be made up of options
- The ability for rent to reduce at a market rent review (ratchet clauses are not permitted)
- Land Tax cannot be oncharged to a tenant
- The Landlord cannot be reimbursed for legal costs for the preparation of the lease
How do you determine if the Retail Leases Act covers your lease?
If your existing lease states that you are not covered by the Act, and you sell a product or service direct to businesses or members of the public from your property, then you may meet the first requirement. If you are a listed corporation or a subsidiary of one, then you are not a retail tenant as classified by the Act. The same applies if your rent and outgoings are greater than $1,000,000 per annum or you are a tenant operating a business on behalf of the landlord as the landlord’s employee or agent – these businesses are not covered by the Act.
What should you do if you think the Retail Leases Act should cover your lease?
Firstly, speak with a specialised property lawyer who can work with you to determine if your lease should be classified as a retail lease. They will then communicate with the Landlord to ensure that the lease is updated to reflect the requirements of the Retail Leases Act 2003.