Are your leased premises being used for retail purposes?

Are your leased premises being used for retail purposes?

In the ACT, the Leases (Commercial and Retail) Act generally applies to small commercial premises and premises being used for the sale of retail goods and services.

However, the test for determining whether a tenant is offering retail services may not be as simple as you think. For example, it includes the provision of services to another business.

Who uses the goods or services? 

When considering if goods and services provided by a tenant are retail rather than wholesale, the courts will consider who is using the goods and services. However, the question is not whether the consumer is the general public or another business. Instead the question is whether the consumer is the end user or the ultimate consumer of the goods and services.

For example, if the tenant is selling stationery to a business which uses the stationery, then the customer is the ultimate consumer and the sale of goods by the tenant is considered to be retail. If the tenant is selling stationery to a business which then sells the stationery in an unaltered state to a third party, the customer is not the ultimate consumer and the sale of the goods by the tenant is considered to be wholesale.

The same test is applied to services. For example in the recent case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, CB Cold Storage Pty Ltd (‘the Tenant’) operated a cool storage business using freezer warehouses and related facilities. The Tenant’s customers were usually companies in the food industry who paid a fee to store products such as dairy products, small goods, and seafood. The customers ranged from large primary production enterprises to small owner operated businesses.

IMCC Group (Australia) Pty Ltd (‘the Landlord’) argued that the customer was not the ultimate consumer as they would take the products from the cold storage, thaw them, cook them, and someone else would eat them. However, the court disagreed as the court was not deciding if the goods were retail but if the service was retail. The court found that the customers of the Tenant were the ultimate consumer of the services as the customers were not passing on the services in an unaltered state to a third party. Accordingly, the provision of the services by the Tenant was considered to be retail.

The court acknowledged that it may be difficult to contemplate circumstances where the provision of services is not retail. However, this does not change the decision.

Other examples 

Some other examples of the use of premises which have been found to be ‘retail services’ are:

  • pathology business
  • serviced apartments
  • function and conference centre
  • office and warehouse for logistic service and
  • a patent attorney office

In all of these cases, it was found that the tenant was supplying a service to someone who is the ultimate consumer.

What are the implications? 

If a tenant is using the premises for ‘retail services’ then in Victoria the Retail Leases Act 2003 may apply and in the ACT the Leases (Commercial and Retail) Act may apply.

In the CB Cold Storage case the Tenant used the Retail Leases Act 2003 (Vic) as the basis for successfully recovering land tax payments made to the Landlord.

Other implications of the relevant Act applying could be:

  • tenants may be entitled to a minimum term of 5 years
  • landlords may not be able to recover outgoings
  • tenants may have a right of termination within the first 6 months of the lease
  • a rent review clause may be void
  • landlords may have broader repair obligations
  • tenants may be able to claim compensation for interferences with their occupation (including breakdowns in plant and equipment) and
  • implications for lease assignments, including the release of outgoing tenants in certain circumstances.

What should you do? 

Landlords and tenants should consider the use of the premises and the services being provided by the tenant. It may be that, as in the CB Cold Storage case, the relevant Act applies to your lease of industrial or warehouse premises.

If you have any concerns regarding a lease of premises which may be ‘retail premises’ but the lease does not comply with the relevant Act, contact the Leasing Team at Meyer Vandenberg to discuss your options.

For more information contact the Property, Commercial and Finance Team:

Christine Murray — Partner — Property, Commercial and Finance
(02) 6279 4402
christine.murray@mvlawyers.com.au

Jennifer Jaeschke — Associate — Property, Commercial and Finance
(02) 6279 4361
jennifer.jaeschke@mvlawyers.com.au