Ultimate Consumer Test - Broad Definition of Retail Leases confirmed in Victoria

A broad interpretation of the definition of a retail lease in Victoria has again been supported by the courts.  Section 4(1) of the Retail Leases Act 2003 (Vic) (RLA) defines 'retail premises' to include 'the sale or hire of goods by retail or the retail provision of services' but does not further define these terms. 

The decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 by the Victorian Court of Appeal (CB Cold Storage Case) was recently confirmed after the High Court of Australia refused an application for special leave to appeal the Court of Appeal's decision by the landlord.  The CB Cold Storage case confirms the 'ultimate consumer test', which itself comes from the following passage from Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333 of Nathan J:

“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.” (emphasis added)

There has been a widely held view that if the tenant's business was not generally available to the public, it couldn't be a retail activity.  For example, a building leased for use only as a warehouse was generally considered not to be subject to the RLA.

The 'ultimate consumer test' requires that the good or service provided by the tenant from the premises not be passed on to anyone else by the customers or clients of the tenant; that is, they are the 'ultimate consumers' of the tenant's goods or services.  If a tenant is merely re-supplying goods, rather than using those goods in order to provide their own goods or services, that business is likely to be wholesale. 

The CB Cold Storage Case concerned a cold storage warehouse facility.  The use of the facility, was open to anyone, but predominantly large and small businesses for storage of those customers property.  The Court of Appeal's decision confirmed that even though the services were not provided for personal requirements, the services were still retail because of the 'ultimate consumer' test.

It is important to note that there are other factors that also must be considered to determine if a premises is retail in addition to the ultimate consumer test.  For example, are the goods or services provided in exchange for money?  Is the premises itself used for the provision of the goods or services?  Is there an exemption that applies under the RLA? The circumstances of each case should be considered to determine whether a lease is retail or not.

Landlords should also ensure that they have considered what the tenant will use the premises for, and the use of the tenant's goods or services, and whether these accord with the description of the permitted use in the lease.  In particular:

• A landlord should be wary of stating that the permitted use in a lease is non-retail, given the wide definition now confirmed by the courts.  The RLA will override the terms of the lease if it is clear that the tenant uses the premises for retail purposes with the consent (whether implied or active) of the landlord.  For example, the lease may provide for use as a warehouse or storage by the tenant only, but in reality the tenant sells products from the premises with the knowledge of the landlord.  If the lease prohibits a certain use, which the tenant breaches without the knowledge or consent of the landlord, this may put the landlord in a better position.  
   
• The CB Cold Storage Case also demonstrates that although the lease in that case prohibited use as retail premises, the permitted use as defined in the lease and confirmed by the landlord as the actual use by the tenant, did allow for the provision of retail services.  In other words the permitted use itself contradicted the prohibition on use as a retail premises.

Accordingly, if a tenant will be selling goods or services from the premises, and it is intended that the RLA not apply, the permitted use should be clear.  For example, if the tenant's business is a fruit and vegetable wholesale distributor, the permitted use should be restricted to 'wholesale fruit and vegetable supply with direct sales to members of the general public not permitted'.  If the tenant sells directly to the public, it couldn't rely on the 'ultimate consumer' test because what it is doing clearly contradicts an express term of the lease.

Tenants should also be aware of the 'ultimate consumer' test if they are entering into, or have already entered into a lease which has been drafted as not being subject to the RLA.  Protection of the RLA from a tenant's point of view is important, so if a lease drafted as non-retail could be retail under the 'ultimate consumer' test, it may be worthwhile for the tenant to question this.  However, the tenant also needs to ensure that it is not breaching the requirements of the permitted use in their lease.

Both landlords and tenants can contact us if further information is required.

Emma Buchanan
Senior Associate
E ebuchanan@ha.legal
T 03 5226 8595

Deborah Mann
Special Counsel
E dmann@ha.legal
T 03 5226 8551