Leases granted at commercial rents can be excluded from the operation of the Retail Leases Act 2003 (Vic) (Act), if the lease complies with the Ministerial Determination dated 20 August 2004 (Determination). In order to comply, the lease must be for a term of 15 years or more and require the tenant to carry out substantial work on the premises.
What you need to know
- A lease can be excluded from the Act if it is for a term of 15 years or more and requires the tenant to carry out substantial work on the premises.
- To ensure that the lease is excluded from the operation of the Act, the lease must be carefully drafted to satisfy the requirements of the Determination.
There has been some conjecture in recent years as to whether a lease for a term of 15 years or more, with a requirement that a tenant undertake substantial work on the premises, will be excluded by the Act. The Determination sought to exclude such leases from the Act but the Small Business Commissioner refused to provide a certificate confirming such leases are excluded by the Act, unless the leases are granted at a nominal rent.
In June 2016, in the matter of Luchio Nominees Pty Ltd v Epping Fresh Food Market Pty Ltd, VCAT determined that the lease was excluded from the operation of the Act by virtue of the Determination. This was because the lease was for a term of 20 years, and contained an obligation on the tenant to carry out construction works on the Premises.
When undertaking a market rent review, or assisting a party in a lease negotiation, if the term is 15 years or more you should consider whether the lease will be governed by the Act. The lease will not be governed by the Act if there is an obligation on the tenant to carry out substantial work, pay the cost of any substantial work, or the tenant is not entitled to remove works undertaken by the tenant during the term of the lease. It should also be noted that under the Determination, a lease can excluded from the Act if there is a renewal granted of a 15-year lease, or variation of such lease, where the lease would have been excluded from the operation of the Act.
Whether a lease is or is not governed by the Act can have a significant impact on a market rent review. Accordingly, we recommend that you seek advice as to whether the lease is governed by the Act in such circumstances.