The Ministerial Determination (the Determination) excluding certain retail premises in commercial buildings from the operation of the Retail Leases Act 2003 (Vic) (the Act) has been confirmed.
This means that premises that would otherwise fall under the operation of the Act but are not solely located on one or more of the first three storeys of a building (excluding any basement level) continue to be excluded from the coverage of the Act.
Set out below is the industry's current interpretation of the Determination.
The Determination and the Retail Leases Act 2003 (Vic)
By way of background, on 29 April 2003 a Ministerial determination was made excluding retail premises located above the third storey in commercial office buildings from the application of the Act.
The Determination states:
'Acting under Section 5(1)(c) of the Retail Leases Act 2003, I determine that the following kind of premises are premises to which Section 4(2)(f) applies:
Premises that are located entirely within a building which, under the terms of the lease relating to the premises, or part of the premises, are used, wholly or predominantly for the retail provisions of services, other than premises located entirely on any one or more of the first three storeys in a building, excluding any basement level.
This determination comes into effect on 1 May 2003.'
The Evans Case
The County Court in Evans & Ors v Thurau Pty Ltd [2011] VCC1354 (Evans) ruled that the Determination was made without power as:
- the Determination was made on 29 April 2003 and published in the Victorian Government Gazette on 30 April 2003; and
- the Act granting the power to make the Determination did not come into operation until May 2003.
Practically speaking, this meant that the exclusion did not 'exist' and that premises located above the third storey in commercial office buildings could be subject to the Act. This had significant ramifications, including ratchet provisions on a market rent review being invalid, automatic rights to a minimum 5 year term, and restrictions on the ability to recover capital costs and certain outgoings.
The Industry Position
Small Business Victoria, on legal advice, has concluded that although the Evans case raised some doubts as to the validity of the Determination, the Determination was made pursuant to a valid exercise of power by the Minister and the Determination remains valid.
Practical Position
Whilst it may appear straightforward, there are a number of practical considerations to bear in mind in determining what constitute the first three storeys of a commercial office building. Each building must be considered in isolation and a common sense approach must be employed in each instance.
When applying the Determination to a particular tenancy, keep in mind that:
- the Determination only applies to premises used for the retail provision of services (eg, accountants, lawyers, medical service providers, etc.), not for the retail sale or hire of goods;
- the Determination specifically excludes the basement levels of a building;
- the first three storeys may not match the generally accepted floor numbering of the particular building (eg, the first three storeys may be known as the lower ground, upper ground and first floor of the building);
- the first storey does not need to have any leased premises – it could simply consist of a concierge desk and/or directory board;
- there may be challenges in determining the first storey if there are multiple entries to the building on different street levels – consider 'what is the main entrance'. As a guide, if a 'person of importance' was invited to attend the building, where would they be asked to enter; and
- the premises must be located solely on the first three storeys – if they are spread over additional levels, the Act will not be applicable (eg, where there are leased premises located on both the third and fourth storeys).
Conclusion
On the basis that the Determination continues to apply, it is important that parties understand the ramifications of the exclusion in full and negotiate their leases accordingly.
Needless to say, please do not hesitate to contact us if you would like us to assist in determining whether the Determination is relevant to a particular tenancy.