Under the Retail Leases Act 2003 (Vic) (RLA) “retail premises” are defined to mean premises that are used, or are to be used, wholly or predominately for the sale or hire of goods by retail or the retail provision of services.

So what does this actually mean?

Last year, the case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Ltd [2017] VSCA 178, made it clear that the ‘ultimate consumer’ test is now the principle test to be applied to determine whether a tenant is undertaking a ‘retail’ business for the purposes of the RLA.

As a result of this case, a large number of leases that were previously not thought to be retail, will now be governed by the RLA.

What is the ultimate consumer test?

Case law has established that “retail” essentially means the provision of a good or service to the ultimate consumer for a fee or reward.

The “ultimate consumer” does not need to be a member of the public. In other words, it does not matter if the good or service is provided to another business who uses that service for their own business purpose. A business to business transaction could result in retail business.

What does this mean?

In short, if the answer to either of the following questions is “yes”, then it is likely that the business will be a retail business and the RLA will apply:

• are the goods or services consumer by the purchaser; or
• are the goods or services being used by the purchaser as input in the purchaser’s business.

Accordingly, this means that:

• most businesses that provide services in Victoria will be found to be “retail” and will be governed by the RLA (unless another exemption applies); and
• business that supply goods to a second business that use those goods as input into the second business are likely to be “retail”.

It is important to note that including an acknowledgment in your lease that the RLA does not apply will not save you from application of the RLA.

Implications for landlord and tenants

Landlords and tenants should carefully review any leases that may be subject to the RLA and consider if the RLA will apply.

The RLA is generally considered to be “tenant friendly”. In other words, tenants will usually have more protections under a lease governed by the RLA, than one which isn’t.

For those leases that are already on foot, some key things for both parties to consider are:

• Under the RLA a tenant is not required to pay for land tax. Landlords of leases that are now clearly captured by the RLA may find that their tenants are now requesting refunds for land tax already paid
• If the term of the lease is less than 5 years, the RLA automatically extends the lease to a 5-year term

For those leases that are currently being negotiated, the parties should carefully consider if the RLA will apply and if so, take the provisions of the RLA into account when negotiating clauses. Landlords may wish to narrow the permitted use to make it clear that premises cannot be used for a retail purpose.

If your lease was entered into prior to commencement of the RLA in 2003, it is good idea to speak to a lawyer before agreeing to any variation of that lease (as a variation may result in the RLA applying).

If you suspect that any of your Victorian leases may now be found to be “retail”, and would like further advice on the implications under the RLA, please contact us.