Case Summary – Verraty Pty Ltd v Richmond Football Club Ltd [2020] VSCA 267
- The case concerns an appeal from a decision made by Justice Croft in the Victorian Supreme Court
- The proceeding was heard before 3 Judicial Associates of the Appeal Court of the Supreme Court of Victorian on 1 September 2020 and the judgement was handed down on 16 October 2020
Background of case
- In 2004, the parties varied the Lease by extending the initial term from 10 to 20 years commencing when the lease was first entered into on 7 May 1998. At that time, it was agreed that the premises constituted ‘retail premises’ within the meaning of section 4 of the Retail Leases Act 2003 (Vic) (RLA).
- The Lease included a requirement that the Tenant reimburse the Landlord its annual land tax payable in respect of the premises. However, because of the application of the RLA, this requirement was unenforceable by reason of section 50 of the RLA which prohibits such arrangements.
- When the Lease was varied back in 2004, the premises constituted a ‘retail premises’ within the meaning of the RLA.
- Over the years, the property’s occupancy costs (rent and outgoings) increased, and by May 2016 the annual occupancy costs exceeded the $1 million statutory threshold.
- Section 11(2) of the RLA states that the operation of the RLA ‘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’.
- The RLA goes on to define a ‘retail lease’as including any lease where the premises are ‘used, or are to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provision of services’. There are also various exceptions, including where… ‘occupancy costs’ under the lease exceed $1 million per year’. If an exception applies, the lease will not be characterised as a retail lease and subject to the RLA.
- By May 2016, the Tenant’s annual occupancy costs exceeded the $1 million threshold prescribed by the RLA. If applicable, this would mean that the exception to the definition of a ‘retail lease’ under the RLA was enlivened.
- Because the Landlord’s occupancy costs now exceeded $1 million, the Landlord was of the view that the Lease was no longer subject to the provisions of the RLA as it ceased being a ‘retail premises’ and that it was therefore entitled to the reimbursement of land tax.
- The key question looked at by the Court of Appeal was whether the Lease ceased to be a ‘retail premises lease’ upon the premises ceasing to satisfy the statutory definition of ‘retail premises’.
Principles of the case
- The Court of Appeal confirmed that the only relevant point in time to assess whether the premises are retail premises is the time at which the lease is entered into or renewed.
- The court considered that jumping in and out of the RLA was an untenable interpretation of the RLA and one which would "deprive the parties of any certainty in respect of their rights and obligations, which is a key purpose of the legislation".
- This means that the characterisation of a lease cannot change during the currency of its term, irrespective of any change in circumstances surrounding the retail premises itself (for example, increase in occupancy costs beyond the $1 million threshold).
Effect on our clients
- This decision gives important guidance when assessing whether a lease is governed by the RLA provisions.
- It effectively means that if a lease started as a retail premises lease, the parties to that lease can rely on it remaining a retail premises lease throughout its term.
- The consequences of a lease being considered a ‘retail premises’ include the inability to recover land tax as a building outgoing, the inability to enforce a ratchet clause, market rent reviews being regulated and governed by the provisions of the RLA, and potential repair and maintenance obligations on the part of a landlord.
- Landlord clients should be aware of potential retrospective claims being made against them by a tenant if they insist that they can have a ‘late exit’from or ‘jump out of’ the RLA.
- It is still unclear whether a lease can jump in or out of the RLA on the renewal of a lease. The Court of Appeal stayed silent on this point, but Justice Croft’s decision in 2019 does suggest that this will depend on the renewal provisions of the lease.
If you have any queries regarding your lease, please contact our Property Team for further information on +61 3 9822 8588 to find out how we can assist you.
