Are you operating a business at a leased location or are you the property owner running a leasing business? Do you know whether the leased business location is a Retail Lease or a Commercial Lease?
Commercial Lease
Commercial leases typically apply to spaces such as warehouses, storage areas, or large commercial buildings without retail operations. In the state of Victoria, Australia, commercial leases are not regulated by specific laws and are generally set under terms favorable to the landlord.
A commercial lease agreement typically includes the following items:
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Method and timing of rent payments
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Method and timing of lease renewal reviews
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Maintenance and repairs of the leased premises
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Handling of lease breaches and termination
Retail Lease
A retail lease refers to a space used for the sale and provision of goods and services to the end consumer. In the state of Victoria, Australia, retail leases are protected by the Retail Leases Act (Vic).
A retail lease must meet the following requirements compared to a commercial lease:
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Mandatory disclosure requirements: The landlord must provide the tenant with a disclosure statement containing all information related to the lease. This includes details of the leased property, parking spaces, additional costs, estimated rental fees, etc. This helps protect the tenant.
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Cost charge limitations: The Retail Leases Act prohibits the landlord from charging or recovering certain costs from the tenant, such as land taxes and maintenance fees.
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Legal consistency: The Retail Leases Act ensures that if a lease agreement does not meet legal requirements, the offending provisions are void and replaced with legally compliant terms.
Key Issues between Commercial and Retail Leases
Until 2017, there was significant controversy about the distinction between commercial and retail leases. Commercial leases were more favorable to landlords, and they tended to classify leases as “non-retail” leases. In commercial leases, landlords could pass on certain costs to the tenant, such as:
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Legal costs associated with preparing and negotiating the lease
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Property land taxes
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Headlease-related obligations
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Real estate management fees
However, the 2017 ruling by the Supreme Court of Victoria in the case of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSCA 178 marked a turning point in resolving such disputes.
In this case, the tenant operated a cold storage business at the leased location, and the landlord attempted to pass on the land tax responsibility to the tenant. However, the court ruled that, based on the “End Consumer Test”, the lease should be classified as a retail lease. The end consumer test determines whether the person receiving the goods or services is the ultimate consumer.
In conclusion, the court determined that the lease was a retail lease, and the landlord could not pass on the land tax to the tenant.
Solomon Legal Services
Solomon Legal Services has been providing expert document review and legal advice related to commercial and retail leases in Victoria for the past 17 years. If you have any inquiries, feel free to contact us.
