23 Feb Note to Landlords: You may not be bound by the Retail Leases Act throughout the life of the Lease!
A recent decision in the Victorian Civil and Administrative Tribunal may have far reaching implications for both retail landlords and tenants.
In the case of William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd  VCAT 15 (William Buck), Senior Member Riegler decided on the issue of whether the Retail Leases Act 2003 (VIC) (RLA) could apply at the start of the lease and, at a point during the term, cease to apply due to the enlivening of a statutory exemption (“a late exit”) – in this case the $1 million occupancy costs exclusion.
As a refresher, the RLA and the Retail Leases Regulations 2013 provide that if occupancy costs (broadly defined as rent and outgoings) exceed $1 million, the RLA will not apply.
There are many benefits to landlords if the RLA does not apply. For example, if the RLA does not apply, a landlord may:
- recover land tax from a tenant;
- incorporate ratchet provisions regarding rent review/adjustments in the lease;
- not be required to maintain and repair its installations or other equipment during the term of the lease; and
- issue proceedings in a Court of competent jurisdiction and avoid VCAT or other resolution channels that are often perceived as “tenant friendly”.
Senior Member Riegler expressed some interesting comments on the subject of late exits from the Act which landlords and tenants should keep in mind, particularly if occupancy costs under a lease are around the $1 million mark:
- If leased premises do not fall within the definition of “retail premises” at the time that the parties entered into the lease (or its renewal), the premises can not become retail premises later. Using the occupancy cost example, if occupancy costs under the lease start above $1 million but are later reduced during the lease term, the lease does not automatically convert into a retail lease.
- Where occupancy costs are under $1 million at the time the parties entered into the lease, but then subsequently increased above the $1 million threshold, the premises would no longer fall under the definition of a “retail lease”. This would result in a “late exit” from the application of the RLA.
The upshot for landlords is that notwithstanding whether the Act applies at the start of the lease, landlords should continually review whether there are any factors that may lead to the RLA no longer applying through the life of a lease. For example, occupancy cost thresholds or even a change in ownership of the tenant to a listed corporation – who knows, there may be scope for a late exit from the Act!
This article was written by Josh Kaplan, Senior Associate and Olly Gagiero, Law Clerk.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from marshalls+dent+Wilmoth and other relevant experts.