In brief

Whether or not a lease is governed by the Retail Leases Act 2003 (Vic) is a matter of law and landlords and tenants cannot make (or not make) a lease retail simply by agreement.

What you need to know

With the growing expansion of leases being governed by the Act, careful consideration needs to be given as to whether a lease is a retail lease. The safest route is to assume that the lease is governed by the Act and structure the rent to include land tax and be aware of the obligations of repair and maintenance imposed under section 52 of the Act on a landlord.

To overcome this issue, some parties include a clause in the lease specifying whether the Act applies. However, the Act will apply irrespective of the parties agreement as to whether the Act applies.

Background

At a recent seminar I was delivering, a query was raised as to whether a lease was governed by the Act as the parties had a clause in the lease that specified that the lease was governed by the Act. It has become quite common to see such clauses in leases where, presumably for ease of review, the parties specify whether the Act applies to the lease. Of course, the parties are free to do this but it will not be determinative as to whether the lease is governed by the Act. The Act applies as a matter of law. If a tenant is provided with a disclosure statement, this will not mean that the lease is governed by the Act. Whether the lease is governed by the Act will ultimately depend on the permitted use under the lease and the circumstances around the tenant’s use of the premises.

It is also common for managing agents to assume that leases are governed by the Act and determine a rent inclusive of land tax. This is a cautious approach but avoids a situation where a lease may be governed by the Act but the parties were not aware of it and a tenant has been paying land tax. In such circumstances, if the tenant believes that the lease may be governed by the Act, it is possible that the tenant can seek to be repaid the land tax.

Conclusion

Careful consideration needs to be given as to whether a lease is governed by the Act, particularly given the expansion of the Act to leases which were not thought to be governed by the Act. The problem if the lease is governed by the Act is that a tenant can be entitled to repayment of land tax if it has been paid by the tenant under the lease. The safest option is to gross up the rent to include land tax (although this may have inherent issues where land tax increases beyond CPI). It needs to be remembered that even if the parties agree that the Act does or does not apply, this will not be evidence of whether the Act applies or not.

About the Author

Rohan Ingleton

Partner
A telecommunications and retail leasing expert, Rohan is a property specialist with an enviable reputation.

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