Commercial Leases

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In the ACT, the Leases (Commercial and Retail) Act generally applies to small commercial premises and premises being used for the sale of retail goods and services. However, the test for determining whether a tenant is offering retail services may not be as simple as you think. For example, it includes the provision of services to another business.
Who uses the goods or services?  When considering if goods and services provided by a tenant are retail rather than wholesale, the courts will consider who is using the goods and services. However, the question is not whether the consumer is the general public or another business. Instead the question is whether the consumer is the end user or the ultimate consumer of the goods and services.     For example, if the tenant is selling stationery to a business which uses the stationery, then the customer is the ultimate consumer and the sale of goods by the tenant is considered to be retail. If the tenant is selling stationery to a business which then sells the stationery in an unaltered state to a third party, the customer is not the ultimate consumer and the sale of the goods by the tenant is considered to be wholesale.     The same test is applied to services. For example in the recent case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, CB Cold Storage Pty Ltd (‘the Tenant’) operated a cool storage business using freezer warehouses and related facilities. The Tenant’s customers were usually companies in the food industry who paid a fee to store products such as dairy products, small goods, and seafood. The customers ranged from large primary production enterprises to small owner operated businesses.     IMCC Group (Australia) Pty Ltd (‘the Landlord’) argued that the customer was not the ultimate consumer as they would take the products from the cold storage, thaw them, cook them, and someone else would eat them. However, the court disagreed as the court was not deciding if the goods were retail but if the service was retail. The court found that the customers of the Tenant were the ultimate consumer of the services as the customers were not passing on the services in an unaltered state to a third party. Accordingly, the provision of the services by the Tenant was considered to be retail.     The court acknowledged that it may be difficult to contemplate circumstances where the provision of services is not retail. However, this does not change the decision.     Other examples  Some other examples of the use of premises which have been found to be ‘retail services’ are: 
<ul>
<li>pathology business </li>
<li>serviced apartments </li>
<li>function and conference centre </li>
<li>office and warehouse for logistic service and </li>
<li>a patent attorney office  </li>
</ul>
In all of these cases, it was found that the tenant was supplying a service to someone who is the ultimate consumer.     What are the implications?  If a tenant is using the premises for ‘retail services’ then in Victoria the Retail Leases Act 2003 may apply and in the ACT the Leases (Commercial and Retail) Act may apply.     In the CB Cold Storage case the Tenant used the Retail Leases Act 2003 (Vic) as the basis for successfully recovering land tax payments made to the Landlord.     Other implications of the relevant Act applying could be: 
<ul>
<li>tenants may be entitled to a minimum term of 5 years </li>
<li>landlords may not be able to recover outgoings </li>
<li>tenants may have a right of termination within the first 6 months of the lease </li>
<li>a rent review clause may be void </li>
<li>landlords may have broader repair obligations </li>
<li>tenants may be able to claim compensation for interferences with their occupation (including breakdowns in plant and equipment) and </li>
<li>implications for lease assignments, including the release of outgoing tenants in certain circumstances. </li>
</ul>
What should you do?  Landlords and tenants should consider the use of the premises and the services being provided by the tenant. It may be that, as in the CB Cold Storage case, the relevant Act applies to your lease of industrial or warehouse premises.     Meyer Vandenberg can be contacted here
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j.ballantyne1990-6AQqhLzZaK

Are your leased ACT premises truly being used for retail services?

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The number of full office floors (Premium and A Grade) vacant across Australia’s capital city office markets has dropped over the last 12 months in line with slightly better overall total vacancy figures, according to recent research by Savills Australia.
The overall figures, however, masked a mixed bag of results with Sydney and Melbourne showing the biggest falls and Brisbane with a total office vacancy of 16.9 percent – its worst result in more than 25 years – paradoxically reporting an 11 percent fall in the number of full floors available, while Perth and Adelaide followed the script with rises.
Savills’ Prime Full Floor Availability Report assesses each Premium and A grade building in each city on a floor-by-floor basis highlighting which floors are available for lease, now and in the near future, in each building including those under construction and refurbishment. 
According to Savills national head of Research Tony Crabb, the figures further confirm the recovery in Sydney and Melbourne’s office markets whilst underlining the negative impact the end of the mining investment boom continues to have on the Perth market.
He said Brisbane was at first glance an anomaly, but evidence of an uptick in leasing suggested the figures could be a bellwether for a more positive market there.
Office demand had bounced back over the last 12 months with 117,437 square metres of leasing activity (&gt; 500 square metres) in the Brisbane CBD,  up 27 percent on the 12 months prior, said state director-Office Leasing in Brisbane, John McDonald.
“There’s no doubt that the CBD market has turned the corner and the full floor figures reflect that with 32,000 square metres of prime space being filled this year alone,” said McDonald.
He said competitive rents and incentive packages attracting fringe and suburban tenants to the CBD and state government leases had been key drivers with childcare, health, and education and incubator businesses prominent.
<a href="/images/2016/09/15/Screen%20Shot%202016-09-15%20at%2010.29.37%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/15/Screen%20Shot%202016-09-15%20at%2010.29.37%20AM.png" alt="">
 
Sydney trending well
The 14 per cent decrease to 260 full floors available in Sydney had been expected given the much stronger demand over the last 18 months, said Crabb. In the last 12 months, 38 full floors had either been filled, partially occupied or committed to and it was unlikely the market would see a dramatic fall given backfill space and new developments would add to the numbers.
He said that while the downward trend was positive, it was a timely reminder for larger tenants with looming lease expiries, particularly in Sydney and Melbourne.
“What the figures show for tenants is that their options are diminishing. It’s not panic stations just yet but the trend is downward and that means that tenants with lease expiries on the horizon need to do their homework to identify just what is going to be available in their preferred location,’’ he said.
Crabb said in Melbourne the general consensus was that with leasing up 17 percent on last year a recovery was well under way and that Victoria’s strong economic growth, underpinned by rapidly increasing population, would see that trend continue.
The report found 831 full floors were vacant across the Adelaide, Brisbane, Melbourne, Perth and Sydney CBD office markets in August 2016, down from the 883 floors vacant in August 2015.  
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