In a precursor to the Richmond Football Club’s (“RFC”) recent Grand Final win, an important victory was also secured by RFC off the field, kicking goals not just for themselves but tenants generally. With important ramifications for leases and tenancies, the decision of Justice Croft in Richmond Football Club Ltd v Verraty Pty Ltd was upheld by the Court of Appeal and provides clarity for leases and the application of the Retail Leases Act 2003 (Vic) (Act).
What was the issue?
The dispute between RFC and Verraty Pty Ltd (“Verraty”) centred on whether the Act applied to their lease. The lease required RFC to reimburse Verraty for land tax and contained rental increase controls, preventing the rent being reduced upon a market review process. However, if the Act applied to the Lease, these clauses would be void.
Tenants in general, including RFC in this case, benefit from having the Act apply to their lease as it offers important protections to Tenants, provides clarity and governs issues such as notification periods, rental review processes and a Landlord’s right to recover outgoings. Crucially for RFC, where the Act applies, a Landlord is prohibited from claiming payment of land tax from a Tenant, meaning RFC would save a substantial amount of money.
It was common ground that the lease was a retail premises lease to which the Act applied when the lease was entered into. However, Verraty argued that the lease ceased to be a retail premises lease on and from 7 May 2016 due to the rent and outgoings increasing to in excess of $1 million, being one of the circumstances which would exclude a lease from the operation of the Act. Verraty argued this meant the lease was not subject to the Act and RFC were liable for land tax payments.
What was the outcome?
At first instance, the Victorian Civil and Administrative Tribunal (VCAT) agreed with Verraty and found that due to the rental and outgoings exceeding $1 million, the Act no longer applied to the lease. This left RFC with the prospect of having to pay Verraty $122,034.45 by way of reimbursement for land tax. Further, this decision meant RFC would also be required to adhere to the rent review provisions in the lease, which under the Act would also be void.
This decision was appealed by RFC to the Supreme Court of Victoria where it was overturned by Justice Croft. Verraty then appealed to the Victorian Court of Appeal which upheld Justice Croft’s decision.
What does it mean?
Justice Croft’s decision in the Supreme Court provides clarity to leases and whether they fall within the Act. Once a lease is classified as a retail premises lease and falls within the Act, it will be governed by the Act for the term of the lease, and cannot ‘jump out’ of the application of the Act. Vice versa, a lease cannot ‘jump into’ the Act if it is not classified as a retail premises lease at the time it is entered into.
This means that if a lease contains provisions which would be void under the Act, they will not be enlivened during the term of a lease, providing security and clarity for tenants. The position on a renewal of lease is less clear, with Justice Croft suggesting that it depends on the terms of the individual lease. The Court of Appeal did note, however, that a clause that would be void under the Act could become enlivened if the Act no longer applied. As such if circumstances of the tenant or the lease change throughout a term of a lease which could affect the application of the Act, consideration should be given to these issues to ensure they are appropriated addressed upon renewal.
Having clarity regarding your lease, rights and obligations is important to the viability of your business. The application of the Retail Leases Act can involve complex issues and expert advice should be obtained to ensure Tenants and Landlords are aware of their legal obligations. Knowing where you stand and if the Act applies can provide clarity and security. If you have any leasing issues and require assistance, the experienced Corporate & Commercial team at Coulter Roache are here to help.