William Buck Pty Ltd (the Tenant) entered into a lease with Motta Holdings Pty Ltd (the Landlord) which required the tenant to pay land tax in respect of the premises. After entering into the lease and paying significant sums of land tax to the Landlord, the Tenant subsequently claimed that the lease fell under the Retail Leases Act 2003 (the Retail Legislation) as the total occupancy costs excluding GST were less than $1million and sought to recover the land tax paid to the Landlord. The Landlord disputed that the lease was subject to the Retail Legislation on the basis that the total occupancy costs including GST exceeded $1million.
The tribunal member held that the occupancy costs under the lease included GST and therefore the Retail Legislation did not apply to the lease in question. Please note that the scope of this decision is limited to leases entered into prior to 22 April 2013. The current Regulations provide that occupancy costs exclude GST for leases entered into from 22 April 2013.
More interestingly and, although not essential to the case at hand, the tribunal member made a number of comments about the late exit of a lease from the application of the Retail Legislation. That is, the ability for a lease that is initially governed by the Retail Legislation at its commencement to subsequently fall outside of the Retail Legislation during the term. Specifically, the Tribunal held that:
“Although my findings set out above do not require me to make any determination on this issue, I consider it appropriate to set out my observations concerning this issue, having regard to the submissions filed by the parties.
11 Application generally
(2) Except as provided by Part 10 (Dispute Resolution), this Act only applies to a lease of premises if the premises are retail premises (as
defined in section 4) at the time the lease is entered into or renewed.
In my view, s 11(2) of the RLA prevents fluctuation to prevent late entry into the Act. Therefore, if the premises are not retail premises at the time the lease is entered into (because the occupancy costs exceed $1 million), then the premises cannot become retail premises later (if the occupancy costs fall below $1 million).
However, I do not consider that the reverse scenario applies. In particular, I am of the opinion that a plain reading of the provision does not prevent late exit from the Act.”
In the current case, even if the occupancy costs in question were found to exclude GST and therefore the Retail Legislation would apply initially, due to the rent review that was to be effected in year 2 the occupancy costs (even excluding GST) would exceed $1 million and the Retail Legislation would cease to apply to the lease once the rent was reviewed.
The decision provides support for the view that a lease can fall outside the Retail Legislation if:
If a lease does make a late exit from the Retail Legislation during the term, a landlord will no longer be prohibited from recovering certain costs (such as a land tax and legal costs) from the tenant or implementing provisions which would otherwise be prohibited under the Retail Legislation (such as ratchet rent reviews).
Accordingly, particular attention must be taken when drafting and negotiating lease clauses especially in circumstances where there is a possibility that the Retail Legislation may cease to apply during the term.
Case name: William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd (Building and Property)  VCAT 15
Date delivered: 16 January 2018
Property type: Retail
Shanna Livingstone, Special Counsel
Jessica Merola, Lawyer