The Great Debate – When is a Lease a Retail Lease?

Section 4 of the Retail Leases Act 2003 (Vic) (the Act) provides the definition for a retail premises however, the question of whether a lease is a retail premises under the Act has always been a heated debate between landlords and tenants.

The Ultimate Consumer Test

That was until the case of IMCC Group Pty Ltd v CB Cold Storage Pty Ltd [2017] (CB Cold Storage) where the Victorian Supreme Court of Appeal applied the ‘Ultimate Consumer Test’ first established in Wellington v Norwich Union Life Insurance Society Ltd [1991] and decided that the definition of a ‘retail premises’ should be widely interpreted for the purposes of the Act.

CB Cold Storage provided cold storage and logistics services to customers from a warehouse in Laverton. The Court’s application of the ‘Ultimate Consumer Test’ in this case widened the definition by demonstrating that careful consideration needs to be made of:

1. whether the goods or services provided by the tenant were used by the person to whom they are sold (‘the ultimate consumer’) to satisfy his or her own personal needs rather than passed on in an unaltered form for some business, third person or other purpose;
2. whether the goods or services were generally available to any person for a fee;
3. whether a fee is in fact paid; and
4. the parties’ intentions at the commencement of the lease.
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The ‘Ultimate Consumer Test’ has since been applied by all practitioners, tenants, and landlords when determining whether a lease is in fact a retail lease. However, while the ‘Ultimate Consumer Test’ can certainly be telling in determining whether a lease is a retail premises under the Act and has often been referred to as the touchstone of retail leasing, it should not be applied in isolation.

Open to the Public

The requirement for a premises to be ‘open to the public’ is another key issue the Court of Appeal dealt with in CB Cold Storage. In essence, the Court held that together the ‘Ultimate Consumer Test’ and the requirement for a premises to be ‘open to the public’ provides a very valuable guide as to whether the goods or services are retail in nature.

In the past being ‘open to the public’ has not necessarily required the premises to be physically open to the public but rather if a customer can access the service or goods for a fee online or by telephone during reasonable business hours, it is considered sufficient to be ‘open to public’.

However, it has recently been interpreted in Eastcombe Pty Ltd v Fagersta Steels Pty Ltd [2022] (Eastcombe) by VCAT in a more practical manner. Fagersta Steels, the tenant, sold stainless steel goods to customers from a warehouse in Dandenong South. In this case, VCAT ruled the premises was not open to the public in the ‘required sense’ for the following key reasons:

1. there was limited signage for the tenant at the premises and no signage inviting the public to enter;
2. customer entry to the premises was selective;
3. the layout of the premises and the practicalities of customers accessing the products was restricted; and ultimately
4. the nature of the business.

It is this recent interpretation in Eastcombe that has revived the issues around whether a lease is of retail premises under the Act, in particular, where there is limited access to the premises by consumers in the ‘required sense’.

An outcome similar to this one of Eastcombe where a lease was held not to be of ‘retail premises’ because it was not open to the public was Bulk Powders Pty Ltd v Seicon Pty Ltd [2018] VCAT 2000. Bulk Powders, the tenant, ran an office from a warehouse from which it primarily sold protein powders and health supplements online. In this case, while the tenant argued that it was of retail nature because its supply of goods satisfied the ‘Ultimate Consumer Test’, there was no signage of Bulk Powders at the premises, the tenant did not want its location to be publicly known and only existing customers with a trading history were given access to enter the premises.

Exceptions

There are leases which will always fall outside of the Act regardless of how they satisfy the above criteria. As defined by the Act, these premises include instances where:

1. occupancy costs exceed the $1 million threshold during the lease term;
2. premises are used primarily for the carrying on of a business by a tenant on behalf of the landlord as the landlord's employee or agent;
3. the tenant is a listed corporation or a subsidiary of such a corporation;
4. the tenant is a body corporate whose securities are listed on a foreign stock exchange or a subsidiary of such a body corporate; or
5. premises that the Minister determines are excluded.

Here are examples of premises that the Minister has determined to be excluded:

1. premises located above the first three storeys;
2. barristers’ chambers;
3. premises used for community or charitable purposes;
4. premises used for farming/agricultural purposes;
5. leases for a 15 year term which impose substantial works or financial obligations on the tenant; and
6. premises that are located entirely within the Melbourne markets.

Take Away

The outcomes of CB Cold Storage, Eastcombe and Bulk Powders have commonly shown that the Courts and VCAT are becoming more and more interested in the practicalities of a lease and how the premises itself is used or can be used by consumers on a day-to-day basis.

When determining whether a lease is of ‘retail premises’ under the Act, parties to a lease and their representatives must carefully:

1. consider whether the lease falls under Section 4 of the Act;
2. apply the ‘Ultimate Consumer Test’;
3. take a more practical approach to the assessment of whether a premises is ‘open to the public’ in the required sense; and
4. consider individual circumstances of the particular lease and the parties’ intentions at the commencement of the lease.

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This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.