In brief
Tenants and landlords of listed public companies may have land tax considerations that they need to consider when extending leases.
If a lease governed by the Retail Leases Act 2003 (Vic) (Act) is assigned to a listed public company, the Act will still apply to the lease following the assignment. However, if the listed public company tenant exercises an option to renew the lease for a further term, the new lease resulting from the exercise of the option will not be governed by the Act.
What you need to know
- Leases relating to public listed companies that are governed by the Act are not static and the status can change if a lease is renewed.
- If you are advising a party on an assignment of a lease, consideration needs to be given as to the identity of the assignee/transferee and the impact that may have if and when that party exercises any option to renew the lease for a further term.
- If acting for a party where a lease is to be assigned, consideration needs to be given as to the unintended consequences of such an assignment.
Background
We were recently asked to advise as to whether a lease, which had been assigned to a listed public company tenant, was subject to the Act. The listed public company tenant had exercised an option for a further term and the issue was whether the new lease, arising from the exercise of the option, was subject to the Act. If the new lease was not subject to the Act, then the landlord could recover land tax from the listed public company tenant. No party had given consideration to the Act or the consequence of the requirement for the listed public company tenant to pay land tax.
We advised that once the listed public company tenant exercised its option for the further term, the Act ceased to apply to the lease for that further term. This resulted in an unintended consequence from an assignment, which would have a windfall gain for the landlord. In this example, the parties had already agreed upon the rent to apply for the further term but had assumed that land tax was not payable as the Act applied to the lease.
Conclusion
If acting for a party where a lease is to be assigned, consideration needs to be given as to the unintended consequences of such an assignment. An assignment to a listed public company tenant will not take the lease outside of the Act during the term of the lease. But where that listed public company tenant exercises an option for a further term, the further term will be outside of the Act. Of course, this could also work in reverse so that if the lease was not governed by the Act (as the tenant was a listed public company) but the lease was assigned to a private company, the Act may apply following any exercise of an option for a further term by the assignee.
