Retail leases cannot exit the Retail Leases Act 2003 (Vic) during their term.

The Supreme Court of Victoria (Supreme Court) in Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597 overturned an earlier decision of the Victorian Civil and Administrative Tribunal (VCAT).

The Supreme Court confirmed that if the Retail Leases Act 2003 (Vic) (Act) applies to a lease at its commencement, the Act will continue to apply during the remainder of the term. Even if the lease no longer satisfies the definition of ‘retail premises’ during the term of the lease.

What happened?

A landlord (Verraty Pty Ltd) and tenant (Richmond Football Club) were parties to a lease for “retail premises” in 2004. The lease included a provision that the tenant would pay the land tax applicable to the premises.

As the lease met the definition of “retail premises” under the Act, the Act applied to the lease, and the provision allowing the landlord to recover land tax from the tenant was deemed void. This meant the landlord could not recover land tax from the tenant.

However, by 7 May 2016 the occupancy costs of the lease had exceeded $1m (excl GST) per annum which meant that the lease no longer satisfied the definition of “retail premises” in the Act.

The landlord brought a claim against the tenant for payment of land tax from 7 May 2016, arguing that since the lease no longer met the definition of “retail premises”, the Act no longer applied, and the previously void requirement for the tenant to pay land tax was no longer void.

VCAT decision

VCAT, following an earlier VCAT decision in William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd [2018] VCAT 15, agreed with the landlord.

It found that as the lease no longer met the definition for “retail premises”, therefore the Act no longer applied from that date. It further found that any previously void provisions of the lease due to the application of the Act were no longer void, and ordered the tenant to pay the outstanding land tax.

The tenant appealed to the Supreme Court.

Supreme Court decision

The Supreme Court allowed the appeal, and overturned the earlier VCAT decisions. Greater emphasis was placed on the principles of certainty in the Act.

This decision reflected many of the concerns shared in the industry regarding the uncertainty surrounding leases if they were to exit the Act during their term.

The Supreme Court found that if the Act applied to a lease at its commencement, the Act would continue to apply to the lease throughout its term, regardless of whether it ceased to meet the definition of retail premises.

What this means for landlord and tenants

Landlords and tenants should take comfort from this decision that their leases will remain consistent during the term.

However, it is important to remember, when determining whether the Act applies to a lease it is not only the first commencement date of the lease that is relevant.

Section 11 of the Act provides the key terms for determining whether the Act applies when the lease is entered into or renewed. If there is a substantial change to a key term of the lease (such as a variation to change the area of the premises being leased, or a change to the duration of a lease) the lease is considered a new lease and it must be determined on that date whether the Act applies.

The parties should assess whether the Act applies on renewal, or on variation to the leased area or lease duration. Legal advice should be sought early on in the negotiation process to avoid pitfalls.

While this Supreme Court decision adds some much needed certainty in this area, there is the possibility that the landlord may appeal the decision further. We will continue to monitor this space, and provide an update on any future proceedings.