Recent developments regarding the application of the Retail Leases Act

Corporate & Commercial 23 February 2018

A dispute between a landlord and tenant has recently found its way to the High Court of Australia, where special leave to appeal the Victorian Court of Appeal’s decision was refused.

The dispute, which was initially heard in the Victorian Civil and Administrative Tribunal (CB Cold Storage Pty Ltd v IMCC Group (Australian) Pty Ltd VCAT 1866, VCAT), revolved around the application of the Retail Leases Act 2003 (Vic) (“Act”) to a lease of premises used as a cold storage facility. For a further description of the case and subsequent appeals, please click here.

This case demonstrates a broad application of the Act, which has inevitably resulted in many leases, previously treated by the leasing parties as non-retail premises leases, falling within the operation of the Act. There will be implications for those parties who have entered into a lease on the assumption that it is non-retail. Those leases are likely to have been drafted so as to:

  1. limit the landlord’s maintenance obligations to structural repairs;
  2. impose obligations on a tenant to maintain, amongst other things, the landlord’s plant and equipment, and essential safety measures at the premises;
  3. allow the landlord to recover from the tenant land tax assessed on the premises;
  4. ensure that where rent is reviewed to market, the reviewed rent is not less than the rent payable under the lease before the review is undertaken;
  5. require the tenant to bear the cost of the negotiation and preparation of the lease, and of any renewal; and
  6. give the landlord significant discretion in considering the Tenant’s request to assign the lease.

However, those provisions will be void on the basis that they are inconsistent with the Act. In particular, by operation of the Act:

  1. the landlord’s repair obligation is broadened to maintain the structure of the premises, plant and equipment at the premises and other fittings provided by the landlord in connection with utility services, in the condition they were in when the lease was entered into;
  2. the landlord is unable to pass on land tax, and costs associated with essential safety measures, to the tenant. This means that a tenant may seek to recover amounts it has paid on account of those items under the Lease; and
  3. the landlord cannot recover from the tenant its legal or other expenses relating to the negotiation, preparation or execution of the lease, or the landlord’s compliance with the Act; and
  4. the parties will need to comply with the market rent review procedure (where applicable) and the dispute resolution procedure provided for in the Act.

It is therefore essential that the application of the Act is considered when negotiating a lease to ensure that each party understands its respective rights and obligations.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5263.

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