The Facts of the Cases

Bulk Powders involved a dispute over whether the landlord was entitled to recovery of outgoings without having provided annual outgoings statements (as required under the Act) or for payment of land tax (recovery of which is prohibited under the Act).

In Bulk Powders, notwithstanding that the lease specifically stated that the Act did not apply, and that the use was 'NOT RETAIL' the tribunal went into a substantive examination of how the premises were actually used and were proposed to be used to ascertain the meaning of the permitted use.

In this case, the evidence presented was that the tenant used the premises for the manufacture and sale of sports supplements and that 100% of sales were direct to the end user. However, the tenant sold mainly via online methods, with only selected customers occasionally attending the premises and there being no obvious street signage identifying the premises nor was the address publicly available. In a 4 year period only 5% of sales were done face to face. In addition, lease documentation stated that the premises was not a retail premises.

Eastcombe concerned a lease which the parties had both initially treated as non-retail, but which the tenant later claimed to fall under the Act. The landlord sought a declaration that the Act did not apply and for the recovery of outgoings arrears and the tenant sought a declaration that the Act did apply and for repayment of certain amounts not recoverable under the Act.

This case concerned a lease initially entered into between related entities before the land was sold to the Applicant landlord.

The tenant used the premises to sell steel products to customers, including to members of the public from the premises, with the preferred method of customer contact at the premises being prearranged sales meetings, but with sales also being made without a pre-arranged meeting.

Entry to the premises was through either a security door at the office which was kept locked, or through the warehouse door, with customers being escorted by a staff member at all times whilst in the premises. Products could be purchased either at the warehouse or at the office.

It was also noted in evidence that the premises were in a business park with a sign at the entrance of the business park naming the occupants – but not the tenant – and that other than an A4 sign on the premises identifying it, there was limited identification of the business. Inside the warehouse premises visitors were required to wear high visibility clothing, with the majority of the products apparently requiring heavy machinery to move.

The landlord’s lawyer gave evidence that when he called the premises, he was told that the business was 'just a wholesaler and distributor', that people could arrange appointments to inspect the products however 'we are not set up like a shop', and the business was set up on a wholesale model.

The Relevant Factors for determination

Bulk Powders considered a number of cases all of which emphasised that to be considered 'retail' a premises must be 'open to the public'.

The relevant factors considered in Bulk Powers which supported VCAT’s determination that the Act did not apply were:

1. The premises were not open to the public as could be seen by a lack of external signage, deliberate non-disclosure of the premises location to the public and the admission to the premises of only selected customers.
2. The sales were conducted mainly online, with the premises used as a production, shipping and storage facility for the products sold online, which, in the Member’s view, did not make the premises retail.
3. The relevant use for determining whether the Act applies is the use which is permitted under the lease.

In Eastcombe, the Member, helpfully, sets out a number of factors that need to be taken into account generally when considering whether the Act applies, including [at 24]:

1. the nature of the goods or service offered;
2. whether a fee is paid;
3. whether the goods or service is generally available to anyone willing to pay the fee;
4. whether the ultimate consumer test is satisfied;
5. whether the premises are open to the public in the required sense; and
6. whether the test is satisfied at the time the lease was entered into.

The Member had a number of difficulties accepting the tenant’s assertion that the premises were 'retail'.

The tenant’s records showed that during a 2 year period, onsite sales (including cash and card) were $329,592, in circumstances where the rent for that period was close to $1M and therefore the sales to people who attended the premises could hardly be a majority of clientele. The tenant was also unable to provide any evidence about what these products that were sold on site were used for and – the Member pointing out that 'member of the public is not synonymous with … ultimate consumer' – it was therefore impossible to satisfy the ultimate consumer test.

VCAT turned also to the question of whether the premises were 'open to the public' and, after considering the same case law cited in Bulk Powders, stated that the relevant factors for determining that in this case the premises were not 'open to the public' were:

1. The lack of business signage inviting the public to enter.
2. Main entry was via a warehouse roller door.
3. Customer entry was restricted and customers (being required to wear special clothes in the warehouse) were required to be accompanied by a staff member. The accompaniment by a staff member seemed to be of significant weight and was specifically noted as being unlike the businesses in the authoritative Supreme Court cases.
4. The office/reception door was kept locked and no contact details were displayed on the door.
5. The nature of the business as a wholesaler.
6. The layout of the premises, including huge racks and overhead cranes.
7. The lack of an obvious showroom.

Conclusion

It is becoming more and more apparent that when determining whether the Act applies to a particular lease, VCAT is interested in the actual practicalities of how a premises is to be used and will go into great detail in making a determination. It is not sufficient for parties to just blindly state that the premises is not retail in circumstances where they then let it be used for a substantively retail purpose.

It is therefore important that both landlords and tenants carefully consider how the premises is to be used (even at the day-to-day level) so that the application of the Act can appropriately be addressed in the documentation and anticipated in lease administration.

Further information / assistance regarding the issues raised in this article is available from the authors, David Gandolfo - Partner, Joshua Szwarcbard - Special Counsel or your usual contact at Moray & Agnew.