Retail Leases - an analysis post-CB Cold Storage

This article was first published in the June 2024 Law Institute Journal

Statutory background

The Retail Leases Act 2003 (Vic) (“Act”) governs, with some exceptions not the subject of this article, leases of premises in Victoria where the premises are to be used under the terms of the lease “wholly or predominantly for the sale or hire of goods by retail or the retail provision of services”.

The Act does not define “retail”, leaving significant scope for interpretation on whether any particular lease will fall under its auspices.

Historic decisions on retailing

In the 1990 Supreme Court decision of Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333 the central question was “whether the business of a patent attorney involves the provision of retail services” – if so, the lease would be governed by the Retail Tenancies Act 1986, a precursor to the Act.

In determining that the provision of patent attorney services was the retail provision of services the Court found:

“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so”.

In 2013 the Court considered the question again in Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd & Anor [2013] VSC 344 where the tenant operated a conference centre and café/restaurant from the premises.

The question considered by the Court was “whether a function and conference centre, with ancillary services . . . is to be characterised as ‘retail premises’ under the provisions of the Act . . .” (at [14]).

Croft J found, notably, in connection with the “ultimate consumer test” that:

“. . . the fact that a good or a service is provided to a person who uses the good or service as an “input” in that person’s business for the purpose of producing or providing a different good or service to another person does not detract from the possible characterisation of the first person (and perhaps also the second person, depending on all the circumstances) as the “ultimate consumer” of the original good or service” (at [18]).

In so finding, the Court determined that the provision of services from the premises was provision to an ultimate consumer.

The Court also considered the question of whether the premises was “open to the public”. It was not in dispute that “other than when used in conjunction with bookings, the Premises is not otherwise ‘open’ to the public” – the premises was not one that members of the public could attend by “walking in off the street”.

In determining that the premises was open to the public in the required sense, Croft J found (at [34]) that no “person or class of persons is prohibited or otherwise prevented from being able to utilise” the services and the fact that the Premises was not “open” during usual ordinary business did not detract from the Premises being “open to the public”.

In the 1992 decision of Sofos v Coburn [1992] V ConvR 54–439 the lease set a permitted use of “wholesale and export fish supply”. Nathan J found that those words were “unequivocal, crystal-clear and absolutely certain” and that use of the premises for retailing, in contravention of the terms of the lease did not convert the lease to one for retail purposes."

IMCC Group (Australia) v CB Cold Storage and the retailing high water mark

In CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd (Building and Property) [2016] VCAT 1866, CB Cold Storage Pty Ltd, a refrigerated storage warehouse operator, brought an application against its landlord alleging the Act applied to its lease.

The lease set a permitted use of “Cold and cool storage warehouse and transport facility” and included a covenant that the tenant would “not use or permit to be used the Demised Premises . . . as retail premises . . .”

The tenant provided cool storage services to its customers for a fee, those services were available to any customers wishing to use them.

Senior Member Walker, in determining at first instance that the Act did not apply, found:

“. . . [t]he customers to which the Tenant provides [its] services range from large primary production enterprises to very small owner operated businesses. [the landlord] submitted that there was nothing about the provision of these services that would give it a retail character and I think that is right. That is not the ordinary meaning of ‘retail’ . . .” (at [68]).

The matter was appealed to the Supreme Court in CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 on the question of whether VCAT had erred in finding that the leased premises were not retail premises for the purposes of the Act.

In overturning VCAT’s original decision and finding that the lease was subject to the Act Croft J found:

“. . . it is clearly to be inferred from the finding by the Tribunal that a customer will not be an ‘ultimate consumer’ of a service if it uses the service for a business purpose . . . the authorities simply do not support that proposition. Consequently, the Tribunal erred in not holding that the Plaintiff’s customers were ‘ultimate consumers’” (at [35]).

That decision was, in turn, appealed to the Court of Appeal in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 (CB Cold Storage). The Court of Appeal granted leave to appeal, but dismissed the appeal. In so doing the Court noted:

“. . . the phrase ‘retail provision of services’ has long been interpreted by reference (at least in part) to an ultimate consumer test; that is, are the services used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to some third person? No distinction has been drawn between commercial and non-commercial users of the service. The Court should be slow to depart from the interpretation of the phrase given to it by the Court over many years . . .” (at [3]).

Notably the Court of Appeal found, in considering the provision in the lease prohibiting retail use, that “. . . [i]t is not determinative of whether the premises are retail premises under the Retail Leases Act” (at [9]), moving away from the decision of Sofos v Coburn and indicating that a retail prohibition will not operate to determine whether or not the Act will apply.

CB Cold Storage reflects something of a high-water mark on applying the Act to a broad range of uses that might otherwise have been considered non-retail. It affirmed the historic position that the provision of services to an “ultimate consumer” will be considered retail (even where those consumers are themslves business customers) and, accordingly, that leases of premises for the delivery of such services will be subject to the Act.

Decisions since CB Cold Storage

In the immediate aftermath of CB Cold Storage there was a prevailing view that the purview of the Act had grown inexorably to encompass swathes of properties not previously considered to be retail.

There have, however, been a number of more recent decisions considering the application of the Act and, to an extent, something of a trend within VCAT to apply a more pragmatic test of retailing.

Bulk Powders Pty Ltd v Seicon Pty Ltd

In Bulk Powders Pty Ltd v Seicon Pty Ltd [2018] VCAT 2000 (14 December 2018) the tenant utilised premises pursuant to a lease setting out a permitted use of “production, packaging and storage of health supplements (not retail)” (at [13]). The tenant operated an online business, selling goods direct to consumers. The vast majority of products were sold online and delivered.

The evidence established that there was no visible signage at the premises, that the tenant actively concealed its location due to suspicious fires occurring at similar businesses, and that only certain customers with long trading history were permitted to enter the premises.

The tenant submitted that “the Act does not discriminate against different types of sale by retail or retailing provision of services. Whether the sales are provided to the ultimate consumer from the premises via face, phone, email, ecommerce, conducted electronically or via the internet, the meaning of retail premises is not affected” (at [21]).

VCAT did not accept the submission. After finding that the tenant supplied goods or services to ultimate consumers, VCAT found:

“Another indicium of retail recognised by the authorities is whether the premises are open to the public” (at [24]).

“In this case, the evidence is that the premises are not open to the public . . .” (at [29]).

“Whilst [the tenant’s] activity might be considered to be ‘retail’, in my view that does not make the premises retail premises . . .” (at [30]).

This decision saw a movement away from the paramount nature of the “ultimate consumer” test, focusing instead on another indicia of retailing – whether the premises was “open to the public”.

Izett St Pty Ltd v Applgold Pty Ltd

In Izett St Pty Ltd v Applgold Pty Ltd [2021] VCAT 174 the tenant sublet parts of the premises to various food, drink and office retailers. Each sub-lease was a retail lease. The question to be answered was whether the head-lease itself was retail.

The tenant argued that it provided sub-letting services to its sub-tenant “customers” who used that service as an input in their respective businesses, making them the ultimate consumers. The landlord submitted that the premises was not open to the public in the required sense and, further, that once the tenant had sublet the premises the tenant was unable to “use” the premises in the manner contemplated by Section 4.

VCAT found that:

“. . . the Premises is ‘open to the public’ in the sense that between sublets it is possible for a member of the public to enter a space available for sublet. There is no evidence to suggest that any person is prohibited from subletting a space in the Premises . . .“ (at [44]).

Nevertheless, VCAT determined that the Act did not apply. In so finding it determined:

“Being open to the public of itself does not make the Premises retail premises” (at [45]).

“Once the sublease is granted, the [tenant] is no longer able to ‘use’ the premises . . .” (at [49]).

“Subletting premises is not the provision of a service in the sense required by the RLA. If that were the case every sublet premises could be classified as a retail premises . . .” ( at [51]).

This decision highlights the importance of a tenant retaining rights to use a premises (and indicates that no lease entered into for the purposes of sub-letting will be retail).

Eastcombe Pty Ltd v Fagersta Steels Pty Ltd

In Eastcombe Pty Ltd v Fagersta Steels Pty Ltd [2022] VCAT 780 the tenant was a supplier of stainless steel products and the parties treated the lease as non-retail for a number of years before the tenant alleged that the Act applied and sought a declaration to that effect.

VCAT set out the relevant test as follows:

“Based on the authorities, matters I should take into account when considering whether the Premises are a retail premises include:

(a) the nature of the goods or service offered;

(b) whether a fee is paid;

(c) whether the goods or service is generally available to anyone willing to pay the fee;

(d) whether the ultimate consumer test is satisfied;

(e) whether the premises are open to the public in the required sense; and

(f) whether the test is satisfied at the time the lease was entered into” (at [24]).

VCAT moved through each test, finding that there was little evidence as to the nature of goods or services offered by the tenant but that a fee was paid and they were available to anyone willing to pay for them.

In considering whether the ultimate consumer test was satisfied VCAT found that a lack of evidence meant that it could not determine that the tenant’s customers were ultimate consumers but did find that “[t]he sale of a product to a member of the public is not synonymous with a sale to the ultimate consumer” (at [43]).

This decision drew something of a distinction between the provisions of goods and the provision of services (it has been posited that the provision of any service will be a provision to an ultimate consumer [see, for instance, Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported)]).

In considering whether the premises was open to the public VCAT noted that “Business signage is one factor to take into account in classifying the retail aspect of a lease” (at [48]) and found the evidence in relation to signage wanting.

Further, VCAT found that attendance by customers was restricted – customers were required to be accompanied by staff when in the warehouse. VCAT found:

“While I accept . . . it is possible for a member of the public to attend the Premises during business hours and make a purchase, I am not persuaded that the Premises operate or have ever operated since the commencement of the Lease as a retail premises in the sense required by the RLA” (at [60]).

The finding by VCAT in this regard (looking at the question of “open to the public” in the context of restriction of movement through the premises) appears to differ from previous, higher authorities which considered instead, whether “any person or class of persons is prohibited” from acquiring the goods or services.

This decision includes an excellent summary and consideration of the matters to be taken into account in determining whether or not the Act applies to a given lease. The decision is also notable in making a number of its findings on the basis of a want of evidence.

Practical takeaways

Although CB Cold Storage saw the Court determine that a site seemingly industrial in nature could be a retail premises for the purposes of the Act, there is no one determining factor when considering the question. Each decision will be considered on its merits by reference to the relevant indicia established over a long period but summarised concisely in recent decisions.

VCAT has shown a recent inclination to apply a more traditional test of “retailing”, considering all indicia of retailing, placing more weight on practical considerations of whether a premises is “open to the public” and applying a high standard of evidence in coming to its decisions.

Where a premises is used for the provision of goods, establishing that the goods are provided to an ultimate consumer may reflect a more difficult prospect than where the premise is used for the provision of services.

Landlords and tenants alike should carefully consider each relevant indicia when considering entering into a new lease or considering rights and obligations under an existing lease. The feeling which dominated discussions in the aftermath of CB Cold Storage that seemingly everything was being found to be retail has dissipated and parties should take a more balanced approach in considering and advising.

Paul Nunan

Director

Accredited Specialist | Commercial Leasing

This article was first published in the June 2024 Law Institute Journal