Our firm acted for Phillips, the tenant. The case which was handed down on 10 July 2019 relates to the Retail Leases Act 2003 (“the Act”) and deals with:-
- Whether a lease of land for the conduct of a sand quarry with Work Authorities issued under the Extractive Industry Development Act 1995 constitutes a lease of retail premises under the Act; and
- In circumstances where the landlord gives a written estimate of outgoings after the dates required by the Act, whether a tenant is required to pay outgoings for a period prior to the written estimate of the outgoings being provided.
The Tribunal found that:-
1. The lease is a lease of retail premises under the Act.
2. The giving of notice under s.46(2) of the Act does not revive or establish liability for outgoings to which the Applicant was not otherwise liable to contribute under s.46(4) of the Act.
This decision is relevant to those Members undertaking work in either the valuation of quarries or in retail leasing in the State of Victoria.
- Phillips leased the land from Abel for the purposes of carrying out an extractive industry using Work Authorities issued under the Extractive Industry Development Act 1995.
- The nature of the commercial enterprise undertaken by Phillips is set out in detail in Paragraph 11.
- The Tribunal found that the sand is sold to customers of the business conducted by the tenant who, in large part, use that sand for their own purposes which constitutes the retail sale of goods or services.
- There was argument that the land so leased is not “premises” within the meaning and intent of this term in s.4(1) of the Act. The Tribunal was not persuaded by the arguments put by the landlord and made a number of findings, being:-
- References to a “building” in various parts of the Act does not necessarily mean that the word “premises” is to be construed as land having some form of infrastructure built on it;
- It is possible for a retail business to be conducted on bare land;
- Whilst s.4(2) of the Act describes a number of types of “premises” which are excluded from the definition of “retail premises”, neither that subsection nor any of the Determinations made by the Minister under s.5 of the Act exclude a lease of bare land from the definition of “retail premises”;
- The definition of “retail premises” appears to be directed towards the purpose of occupation; namely, the provision of retail goods or services, rather than the character of the demised land.
- On the issue of accrued but unpaid outgoings incurred prior to delivery of the written estimate, the parties’ position was:-
- The tenant contended that it was not liable for any outgoings which accrued prior to receiving the written estimate of outgoings pursuant to s.46(2) of the Act.
- The landlord conceded that, if the Act applies, the Tenant was not required to pay outgoings until such time as the statement of outgoings was delivered to him but, once given, the obligation to pay outgoings incurred prior to its delivery was revived.
- The tenant contended that the delivery of the written statement of outgoings does not revive an obligation to pay outgoings which would have otherwise been payable but for the failure to give the written statement, i.e. the late provision of the written estimate means that he is only obliged to pay those outgoings which accrue after the written statement is given.
- The Tribunal agreed with the tenant’s position and held at paragraph 65 that:-
“The purpose of s.46 (4) of the Act would be rendered somewhat otiose if the landlord’s interpretation was accepted.
and that, the tenant’s interpretation
“best accords with the main purpose of the· RLA; namely, to enhance the certainty and fairness of leasing arrangements. The landlord ultimately has control over this situation. If outgoings are not paid because the landlord has failed to give the tenant a statement of outgoings, then that situation is easily remedied by the provision of a statement of outgoings. The landlord is only penalized to the extent that it continues to fail to comply with its obligations under the Act.”
- As s. 50 of the Act precludes the landlord from recovering land tax from the tenant, the Tribunal endorsed its decisions in Richmond Football Club v Verraty Pty Ltd (2011) VCAT 2014 that the landlord was not obliged to refund other outgoings which had been paid without a written estimate being first given.
Implications of the Decision
- Land Tax Issues
- The landlord is required to reimburse incorrectly charged land tax (as per the decision in The Richmond Football Club case.
- A landlord of land leased for the purposes of carrying out an extractive industry business of similar nature to Phillips will now need to give greater consideration to the valuation methods used to value their land, including but not limited to:-
- Comparable sales method; or
- Capitalisation of assumed market royalty.
1.3 The shifting of liability for land tax may increase the value of the tenant’s business and decrease the value of the land.
2. Retail Lease Implications
A landlord must provide to a tenant:-
2.1 Prior to the commencement of the lease and at least one month before the start of the landlord’s accounting period (usually financial year), a written estimate of the outgoings to which the tenant is liable to contribute; and
2.2 Within 3 months after the end of the landlord’s accounting period (usually financial year), a statement which details all expenditure by the landlord on account of the outgoings to which the tenant is liable to contribute.
The implications of this decision for landlords are as follows:-
- A landlord cannot retrospectively comply with its obligations to provide an estimate of outgoings.
- A landlord cannot retrospectively recover arrears of unpaid outgoings for which it has not provided an estimate; therefore, the tenant is not liable to pay those outgoings.
- A tenant cannot be in breach of a lease for the non-payment of outgoings for which it has not been provided an estimate.
The implications of this decision for tenants are as follows:-
- Where an estimate has not been provided, steps by the landlord to retrospectively recover outgoings, or to treat the non-payment of outgoings as a breach, will fail.
- To ensure a tenant retains good relations with its landlord, it may voluntarily pay for the outgoings even though an estimate has not been provided. However, the voluntary payments made by a tenant cannot later be claimed back from the landlord.
A copy of the full decisions can be accessed here.
Note: this advice is intended to be of a general nature only and should not be acted on without the specific circumstances being reviewed by a legal practitioner experienced in this area of law.