Working Out If Premises Are Retail Or Commercial?

Factory photo

Working out if premises are retail or commercial can have significant implications for both landlords and tenants. Retail leases are subject to the Retail Leases Act 2003 (Vic) (“Retail Leases Act”) which, unlike commercial leases:

  • gives tenants access to VCAT;
  • prohibits tenants from paying land tax;
  • requires that the first term of the lease be for a minimum period of five
    years, unless an exemption is sought from the Small Business
  • imposes a strict disclosure regime concerning the tenant’s obligation to
    pay outgoings; and
  • can make landlords responsible for the maintenance of certain parts of
    the property in the condition it was in at the commencement of the lease.

It is relatively straightforward to work out if a lease is retail or commercial in the case of a business which sells goods by the application of the “ultimate consumer test”. If the goods sold are consumed by the “ultimate consumer” then the premises are deemed to be “retail” and the Retail Leases Act applies. If the goods are consumed by an intermediary, then the premises are deemed to be “commercial” and the Retail Leases Act does not apply.

However, it is far more difficult work out if premises are retail or commercial in the case of tenants who provide services. In IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, the Victorian Supreme Court recently concluded that industrial premises leased to a cold storage company which provided services to wholesalers only, were deemed to be retail premises and therefore that the Retail Leases Act applied.

The general rule arising out of this case is that is that the Retail Leases Act will apply:

  • where the tenant provides services which are generally available to
    anyone who is willing to pay; and
  • the users of the service are the “ultimate consumer” (which will almost
    always be the case).

The intention of the landlord and the tenant and the type of lease that they have entered into are irrelevant to working out if the premises are retail or commercial.

There have been a number of cases where leases to businesses which provide services have been found to be retail leases, including:

  • The office of patent attorneys (lawyers), whose clients were large foreign
    chemical companies;
  • A blood testing service, even though the blood was taken at other places and
    then delivered to the business;
  • A serviced apartments business;
  • A transport and logistics business; and
  • A conference centre.

This issue should be of significant concern to both the landlords and tenants where the tenant is a service provider. Whilst both may think they are entering into a commercial lease on certain terms and conditions, the lease they have entered may not be what it seems if the Retail Leases Act applies.

There are circumstances where careful legal drafting can avoid this outcome. Our property and leasing lawyers at Hendersons Legal have experience in drafting commercial leases that will not be deemed to be “retail” by the application of the “ultimate consumer test”.

Call our office on (03) 9629 2211 to speak to an experienced property and leasing conveyancing lawyer now.

This content is intended as commentary and should not be construed as legal advice.

For more information call David Henderson on 03 9629 2211.

Business, Conveyancing    ,

David Henderson

David Henderson

I have been in private practice as a solicitor for the last 30 years. I take a hands-on, direct approach to my clients' legal matters and I don't like taking 'No' for an answer...

See David's full profile

Share this article