News

26 March 2019

Online business and retail shop leasing – is it a retail shop?

If a tenant conducts an online retail business, but uses premises predominantly for producing or storing goods, is it a retail shop?  The Victorian Civil and Administrative Tribunal (“VCAT”) recently considered this question.

The Retail Shop Leases Act in Queensland and its equivalent across other states in Australia (“Retail Shop Legislation”) imposes additional tenant protections in leases of retail shop premises.  These additional protections do not apply to premises that are not considered retail shops under the legislation.  The concept of what is a retail shop is not always a straightforward determination to make, as illustrated in the decision of VCAT in Bulk Powders Pty Ltd v Seicon Pty Ltd (Building and Property).

Bulk Powders Pty Ltd v Seicon Pty Ltd (Building and Property) [2018] VCAT 2000

Bulk Powders Pty Ltd (the tenant) leased premises in an industrial area in Victoria where it developed and produced sports nutrition and supplement products.  While the tenant sold the items it produced as a retail business, the sales were mostly online, except in limited circumstances where some customers could collect products by appointment.  The tenant sought a declaration from VCAT that the premises was a retail shop.  The reason the tenant did this was that the lease included outgoings which would not be permitted to be recovered by the landlord if the premises were a retail shop.

The Retail Shop Legislation defines retail premises as premises that are “used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services”.

Upon reviewing the law on this point, VCAT considered that to be retail premises, it was necessary that the premises have a retail characteristic of being open to the public, which in this instance, it was not.  The premises were used for predominantly production and storage of products and even though those products were sold online, that did not make the premises retail premises.

With so many businesses being conducted online today, this is an important clarification for both landlords and tenants about when the Retail Shop Legislation will apply to a leasing arrangement.  The consequences of the Retail Shop Leases Act applying to a lease are significant, for example, as illustrated in this case, the inability of the landlord to recover certain types of outgoings and charges.  There are also further disclosure obligations on the landlord that, if not complied with, can give the tenant extensive rights to terminate a lease.  This decision also goes to show that what does constitute a retail shop is not always a straightforward answer and there are a number of considerations in making a determination about this.

You can access the full decision of VCAT here.

Our team at Miller Harris Lawyers has extensive experience in commercial and retail leasing in Cairns and surrounding areas.  We would be happy to assist you with all of your leasing requirements.  Please contact our office on 07 4036 9700.

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