RETAIL PREMISES: MORE THAN MEETS THE EYE

12 February 2020

Lessons from IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178

In July 2017, the Victorian Supreme Court of Appeal (VSCA) handed down a judgment that markedly altered Victoria’s commercial leasing landscape. Upholding Croft J’s trial decision, VCSCA held the Retail Leases Act 2003 (Vic) (“the Act”) protected a tenant operating an industrial warehouse business.

The case also follows the broader judicial trend, which has expanded the Act’s scope and application. In Phillips v Abel (Building and Property) [2019] VCAT, a quarry selling sand was considered a retail premises. Likewise in Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd & Anor (2013) VSC, a tenant’s business in hiring out a conference space was also considered retail.

The outcome of this trend has potentially significant ramifications for tenants and landlords alike.

Background

The Tenant’s business, a cold storage warehouse, was situated in Laverton North. Numerous physical features indicated the property was used as an industrial facility. The area was zoned for “Industrial 2 use”, the site contained two large warehouse freezers, few car parking spots and a small office. The site was designed and equipped for semi-trailers and forklifts to deliver and collect stored goods. Ordinarily, such features are not perceived to be associated with retail businesses.

Procedural History

The matter initially came before the Victorian Civil and Administrative Tribunal (VCAT). Cold Storage Pty Ltd (“the Tenant”) sought to recover funds paid to IMCC Group (“the Landlord”) throughout its tenancy. The Tenant claimed the Landlord was prohibited from charging the disputed funds under the Act. The Landlord argued it was able to charge the funds as the Act did not govern the lease.

The Issue 

The primary question for VCAT and the subsequent Victorian Supreme Court decisions was whether the leased premises were a ‘retail premises’, as defined by the Act. The decision turned on whether the Tenant used the property for “provision of retail services.” VCAT initially found the Tenant was not providing a retail service, and therefore the Act did not apply. Croft J overturned this ruling in the Supreme Court’s trial division. VSCA dismissed the Landlord’s further appeal.

The decision 

The Court will consider key indicia in determining whether a tenant’s business provides retail services. VSCA emphasised that these indicia must be considered holistically, as non-satisfaction with regards to one factor will not necessarily exclude the Act’s operation over a given lease.

The Landlord further attempted to distinguish between commercial and non-commercial consumers. The court rejected this distinction, finding did it not align with previous authorities’ interpretation of the word “consumer.” It well established that a premises’ characterisation as retail is not dependent on the consumer using the product or service for personal use.

All key indicia were satisfied in relation to the Tenant’s business. The primary consideration is the ultimate consumer test, which is described as the “touchstone of retailing”. The ultimate consumer test is satisfied if the tenant’s customers are the final users of the service.

On appeal to VSCA, the Landlord submitted that the Tenant’s business failed the ultimate consumer test. They argued this because the Tenant’s customers would sell or otherwise alter the cold goods after they had been stored. The court held that this argument was misguided, as the Tenant sold a storage service, not goods, to customers. The enquiry was solely confined to whether the Tenant was retailing storage services. The Tenant’s services clearly satisfied the ultimate consumer test, as customers could not re-sell the storage service.

Courts are also bound to assess the character of the service offered, whether a fee is paid and whether the service is open to the public. Although the Tenant’s facility was predominantly used by companies, members of the general public could also store cold goods upon paying the required fee. This factor was especially persuasive to VSCA.

Consequences

To protect retail tenants, the Act imposes numerous obligations and restrictions upon landlords. Key provisions of the Act stipulate the following: 

• Landlords are prohibited from reclaiming land tax;

• Landlords must satisfy stringent disclosure requirements, and non-satisfaction of these requirements may give the tenant the right to terminate the lease;

• An enforced minimum five-year term; and

• Onerous obligations on the landlord for repairs to the premises. 

KKP Comment

It is essential to be aware of whether the Act applies to a particular lease. The emerging trend is that a wide range of premises will be considered retail in Victoria. The Act also contains various exclusions, for example, barristers’ chambers and premises run for charitable organisations are both exempt. Given the Act’s complexity, it is essential that all parties to commercial transactions seek professional advice.

Kerr and Kerr Partners have vast experience in all levels of commercial, industrial, retail, rural and residential property sales, leasing and associated disputes matters. If you are a landlord considering potential commercial tenants, or a commercial tenant and believe that you might be protected by the Act, please do not hesitate to contact us immediately on 03 9600 2234 or via email to enquiries@kerrpartners.com.au.