Which Premises are Retail Premises?
Premises are retail premises if, under the terms of the lease, they 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.1 The test looks at the use the lease permits, not at the title on the front page. A document headed "commercial lease" is a retail premises lease if the permitted use fits that description, and any area intended for use as a residence is left out of the assessment.
Services are provided by retail when they reach the ultimate consumer, meaning the person who uses the service rather than passing it on. The Court of Appeal applied that test to a cold storage and transport facility leased to a business, and held that the premises were retail premises because the customers consumed the storage service themselves.2 A business customer can therefore be an ultimate consumer.
For example, a café selling coffee, a hairdresser serving walk-in clients, a gym selling memberships and a cold store hiring chilled space to food wholesalers can each occupy retail premises. The Act applies to retail premises in Victoria regardless of where the lease was entered into, and regardless of any clause stating that the law of another State governs it.3
Which Premises Fall Outside the Act?
Premises that fit the description in section 4(1) are still outside the Act if a statutory exclusion applies. The most frequently encountered exclusion is cost: the Act does not apply where occupancy costs under the lease exceed $1,000,000 a year excluding GST.45
Two further exclusions turn on the tenant and the term. The Act does not apply where the tenant is a corporation listed on a stock exchange, or a subsidiary of one.6 It also does not apply to a lease for a term of less than one year, although it begins to apply once the tenant has been continuously in possession for a year through renewal or continuation.7
The Minister may exclude further categories of premises, businesses, tenants or leases by determination.8 Several categories are excluded on that basis, including:
- premises used for the retail provision of services that are not located entirely on one of the first three storeys of a building;
- leases of 15 years or more that impose substantial obligations on the tenant; and
- premises leased for farming operations.9
What Changes if the Act Applies?
Where the Act applies, its provisions are read into the lease and displace anything inconsistent with them. The provisions below alter the commercial bargain most often; section references are to the Retail Leases Act 2003 (Vic).10
| Provision | What the Act does | Section |
|---|---|---|
| Minimum term | Extends a lease shorter than five years, counting any option period, so that the total term is five years | s 21 |
| Disclosure | Requires a disclosure statement in the prescribed form and a copy of the proposed lease at least 14 days before the lease is entered into | s 17 |
| Land tax | Makes void a clause making the tenant liable for the landlord's land tax or commercial and industrial property tax | s 50 |
| Lease costs | Prevents the landlord recovering its legal costs of negotiating, preparing or executing the lease | s 51 |
| Capital costs | Makes void a clause requiring the tenant to pay the capital costs of the building or its plant | s 41 |
| Repairs | Makes the landlord responsible for the structure, fixtures, plant and equipment, and for the landlord's gas, electricity, water and drainage installations | s 52 |
| Outgoings | Requires an itemised written estimate before the lease and one month before each accounting period, with no liability to contribute until it is given | s 46 |
| Rent reviews | Confines the review basis to a fixed percentage, a published index, a fixed annual amount or current market rent, and makes a clause preventing a rent reduction void | s 35 |
| Disputes | Requires mediation certified by the Victorian Small Business Commission before a proceeding at VCAT | s 87 |
Each of those provisions applies whether or not the lease repeats it, and a clause of the lease is void to the extent that it is inconsistent with the Act or purports to exclude it.11
Why do Parties Get the Classification Wrong?
Parties get the classification wrong because they treat it as a drafting choice rather than a question of fact and law. The name of the document does not decide it, and neither does a clause recording that the parties agree the Act does not apply.
The classification is also settled once, at the beginning. The Court of Appeal has held that a lease which is a retail premises lease when it is entered into remains one for the whole of its term, even if the occupancy costs later rise above the threshold.12 For example, a tenancy with rent and estimated outgoings of $940,000 in its first year does not leave the Act when a market review lifts the figure past $1,000,000 in its third year. The land tax clause in that lease stays void throughout.
Estimates are another common source of error. Occupancy costs are measured using the landlord's own written estimate of outgoings, so a tenancy sitting close to the threshold can be classified on a forecast rather than on the amounts eventually paid.
What Applies to a Lease Outside the Act?
A lease outside the Act, often called a commercial lease, is governed by its own terms and by the general law. There is no minimum term, no disclosure statement, no restriction on recovering land tax or the landlord's legal costs from the tenant, and no requirement to mediate before commencing a proceeding.
One general protection survives. Before enforcing a right of re-entry or forfeiture for breach of a covenant, a landlord must serve a notice specifying the breach, requiring the tenant to remedy it if it is capable of remedy, and requiring compensation in money.13 That requirement does not extend to re-entry for non-payment of rent, which the general law on relief against forfeiture continues to govern.14
The practical contrast is direct. A clause requiring the tenant to reimburse the landlord's land tax is enforceable in a lease outside the Act and void in a retail premises lease, and a three-year term stays three years instead of being extended to five.
What should a Review of the Lease Check?
The classification question is answered before the commercial terms are settled, because it determines which of those terms are available at all. A review of a proposed lease can be organised around five points:
- the permitted use recorded in the lease, and whether that use is the sale or hire of goods by retail or the retail provision of services;
- the occupancy costs for the first year, calculated as rent plus the landlord's itemised estimate of outgoings plus any advertising and promotion contributions;
- whether a statutory exclusion applies, including the tenant's corporate status, the length of the term and the position of the premises within the building;
- whether the lease contains clauses the Act would make void, such as land tax recovery, capital costs or a restriction on reducing the rent at review; and
- the date on which the disclosure statement and the proposed lease were given, and whether that was at least 14 days before signing.
Tenants should settle the classification before signing rather than after a dispute arises, and landlords should confirm it before relying on a clause the Act may make void. Where the answer is not obvious from the permitted use and the first year's figures, you should obtain advice on the lease before it is executed.