Commercial Leasing in Victoria: When Does the Retail Leases Act Apply?
For landlords and tenants, an important preliminary question is whether the Retail Leases Act 2003 (Vic) (“the Act”) applies. The answer can materially affect lease negotiations, disclosure obligations, recoverable outgoings, rent reviews and dispute resolution.
When does the Act apply?
The Act generally applies to premises used, or to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provision of services.
Whether goods or services are provided “retail” is not always straightforward and may depend on a multitude of factors. Whilst we think of a retail shop, the Act has been deemed to apply to a quarry, a commercial cold storage facility, a warehousing and freight distribution centre, a gate manufacturer that supplies to builders, a manufacturing and recycling centre, an equestrian centre, a short-stay accommodation site, a patent attorney, a dentist, showrooms and other commercial premises.
Calling a document a “commercial lease” or designating that the Act does not apply does not prevent the Act from applying.
When does the Act not apply?
The Act generally does not apply where the premises are not used predominantly for retail activity (such as a storage warehouse that sees no customer interaction whatsoever) nor:
Where occupancy costs (rent and outgoings) exceed a prescribed annual threshold;
The tenant is a listed corporation or its subsidiary (as opposed to a non-listed public company);
Where a Ministerial determination excludes the premises, tenant or use; or
another statutory exclusion applies.
Mixed Use Premises
Mixed-use premises and businesses serving both commercial and individual customers can present classification difficulties. The position may also change during the lease if relevant circumstances change. The determination is based on fact rather than any predetermination or even agreement.
What are the key implications?
Where the Act applies, important statutory protections and obligations arise. These may include:
landlord disclosure requirements before the lease is entered into;
a minimum five-year lease term, unless the statutory requirements for a shorter term are satisfied;
restrictions on the outgoings and legal costs recoverable from the tenant;
a prohibition on passing land tax on to the tenant;
requirements for annual outgoings estimates and statements;
controls concerning rent reviews and market rent determinations;
obligations concerning repairs and maintenance;
requirements for handling security deposits; and
access to mediation through the Victorian Small Business Commission before proceedings are commenced at VCAT.
Some lease provisions may be ineffective if they are inconsistent with the Act. Non-compliance can also create termination rights, compensation claims or prevent recovery of particular costs.
Early advice on whether the Act applies can prevent unexpected liabilities and strengthen a party’s negotiating position. Assistance with lease classification, disclosure, negotiation and drafting ensures the document reflects Victorian law and the parties’ commercial objectives.
Bottom line
The Act is, arguably, a tenant protection measure. As such, tenants usually prefer the Act to apply whereas landlords often prefer it not. However, landlords need to take extreme care in preparing and entering a lease that purports to exclude the Act only to find that they may face a subsequent ruling potentially backdating the application of the Act which may involve considerable landlord liabilities.
Andrews Crosthwaite regularly accepts instructions to draft, advise and renew commercial and retail leases. Contact us on 03 9450 9400 to make an appointment for a consultation.
