The Retail Leases Act 2003 (Vic): does it cover my office?

The test, and why offices are caught more often than people expect

Section 4 defines retail premises as premises used wholly or predominantly for the sale or hire of goods by retail, or for the retail provision of services. The second limb does the work. Victorian courts have applied an "ultimate consumer" approach — asking whether the service is supplied to the person who is its final user — and on that reading a service does not stop being retail simply because the customer is another business.

The Court of Appeal decision in IMCC Group v CB Cold Storage (2017) is the well-known example: a cold storage facility was held to be retail premises. The practical consequence is that a tenancy providing services to customers from the premises can fall within the Act even though nobody involved would describe it as a shop. Purely back-office premises, with no service provided to customers there, are much less likely to qualify.

The main exclusions

Even where premises meet the retail test, section 4(2) and the associated determinations exclude a number of situations. The commonly encountered ones are:

• occupancy costs — rent plus the landlord's estimate of the outgoings you must contribute to — exceeding $1 million a year excluding GST;
• tenants that are listed corporations, or subsidiaries of them;
• premises used for the retail provision of services that are located above the first three storeys of a building, where the building is not a retail shopping centre;
• leases where the tenant does not have continuous possession for more than one year;
• barristers' chambers, and certain community or charitable purposes;
• anything carved out by a current ministerial determination.

Thresholds and determinations change. Check the current position rather than relying on a figure you remember.

What the Act gives a tenant

Where the Act applies, it applies regardless of what the lease says — the parties cannot contract out of it. The protections that matter most commercially are a minimum five-year total term including options (s 21), a prohibition on recovering land tax from the tenant (s 50), a prohibition on recovering the landlord's legal and other costs of negotiating and preparing the lease (s 51), and a requirement that the landlord give a disclosure statement and a copy of the proposed lease at least 14 days before the lease is entered into.

The Act also restricts recovery of capital costs and depreciation through outgoings, limits ratchet clauses on market rent reviews so that a review can move the rent down as well as up, and routes disputes through the Victorian Small Business Commission before VCAT.

Why it matters even if you would rather it did not

Coverage is not optional, and it is not always in the tenant's favour in practice. A landlord who has assumed the Act does not apply may have recovered land tax or lease preparation costs it was not entitled to. A tenant who wanted a two-year term may find the lease extended to five by operation of section 21. Either way, both parties are better off establishing the position at the outset than discovering it in a dispute.