In brief

In the decision of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017,], the Supreme Court last week has effectively determined that a lease that provides for the provision of services will be governed by the Retail Leases Act (Act), subject to the usual exceptions contained in the Act.  As such, a warehousing or logistics business is likely to be considered retail premises under the Act. In fact, based on the reasoning in the decision, it is difficult to envisage that any lease that provides for a use of a service will, as of now, not be governed by the Act.

What you need to know

  • If you are conducting a rent review, or providing advice to a party (landlord or tenant) and the tenant provides services from the premises, consideration will need to be given as to whether the lease is governed by the Act.
  • Further, if the lease is governed by the Act, you should be aware that if land tax has been paid by the tenant, the tenant may be entitled to seek a refund of any land tax paid. As you are aware, under a lease governed by the Act, land tax cannot be charged to a tenant.

Background

In the case of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd, the tenant operated a business providing cold storage refrigeration and logistics services. VCAT determined that the lease for such a use was not a retail lease governed by the Act. However, on appeal, the Supreme Court determined that the use was a retail use under the Act. Justice Croft determined that the “ultimate consumer” test applies. This means that if a good or service is provided to a tenant who uses that good a service as an input in the tenant’s business to produce a different good service, then the tenant’s lease will be governed by the Act, subject to the exceptions in the Act.

So, the decision is contrary to the wide held belief that a good or service needed to be provided to a member of the public to be considered “retail” for the purposes of the Act. It is a question of whether the good or service is provided to a tenant, who uses the good or service as an input in the tenant’s business.

So is there any service they will not be considered retail? Warehousing and logistics is retail by virtue of the decision. Further, by way of example, if a landlord leases a large tract of land for a car dealership to store motor vehicles, it will be considered retail for the purposes of the Act. Or, if a tenant leases premises to make raw materials, which are sold to manufactures to make plastic containers, then the lease of the premises by the tenant will be retail, as the manufacturers that purchase the raw materials, are considered the “ultimate consumers”.

This is contrary to the general understanding of what constitutes ”retail” under the Act, which is generally thought to be a sale of goods or services to members of the public and not businesses.

Conclusion

Careful consideration will need to be given to any lease, which provides for sale of goods or the provision of services, as it is now unclear as to whether that lease will be considered “retail” and governed by the Act. Of course, the Act still provides the exceptions for publicly listed companies and their subsidiaries in the various other exceptions. If a lease does not fall within one of those exceptions, we strongly recommend obtaining legal advice as to whether the lease is governed by the Act.

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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