When is a lease for business-to-business services governed by the Retail Leases Act 2003 (Vic)?

A number of Supreme Court decisions have confirmed that the supply of services business-to-business governed by the RLA 2003, provided that the second business is the 'ultimate consumer' of the services.

However, the cases also suggest that:

1. the nature of the premises and the degree to which the premises is ‘open to the public’ may also influence whether the premises will be considered retail premises under the Act; and
2. we are yet to see the extent to which those elements influence a determination of whether the premises is a retail premises.

Background to the ultimate consumer test

A lease is a governed by the RLA 2003 if it is a lease of a retail premises.  Section 4 of the RLA defined a retail premises as (relevantly):

(1)  In this Act, retail premises means premises, not including any area intended for use as a residence, that under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for—

(a)   the sale or hire of goods by retail or the retail provision of services; or
…

There are some exceptions in s 4 that are not relevant to this note. The scope of the permitted use is also important, but is not relevant to this note.

It is now generally accepted that the Courts and the Tribunal will determine whether the sale of goods or the provision of services is retail by reference to the ‘ultimate consumer test’. The usual formulation of that test is the following from Nathan J in Wellington v Norwich Union Life Insurance Society Ltd - [1991] 1 VR 333:

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. In support of this conclusion, I call in aid not only commonsense but the Macquarie Australian Dictionary which defines retail as being a sale to an ultimate consumer, usually in small quantities. When the verb is used in the transitive form, it is to sell directly to the consumer.

Accordingly, it is generally accepted that the end user does not need to be a member of the public, provided that they are the ultimate consumer of the relevant services.

As a result, and perhaps contrary to general expectations in the marketplace, leases conducting the following businesses have been held to be retail premises:

1. a patent attorney, where the patent attorney’s advice is provided to an intermediary before being provided to the ultimate client (see Wellington v Norwich Union Life Insurance Society Ltd - [1991] 1 VR 333; see also Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 at [16]);
2. a logistics business consisting of shipping/transport and storage/warehousing (see Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported, VCAT, Member L Rowland, 8 November 2012)); and
3. a convention centre where the convention space was supplied by the tenant to convention organisers who ‘on-supplied’ the space to delegates attending the convention (see Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344).

These findings suggest that all providers of services are probably providing retail services. In Global Tiger Logistics Pty Ltd v Chapel Street Trust (unreported, VCAT, Member L Rowland, 8 November 2012), Member Rowland held that:

[17]   Given the ultimate consumer test I find it difficult to conceive of any sale of a service which would be other than retail. I find that the provision of logistic services is a retail activity, as it is a sale of services to an ultimate consumer within the meaning of the ultimate consumer test. The test does not distinguish between a commercial or private consumer.

The decision in Fitzroy Dental has also led my friend and colleague Robert Hay to conclude that most tenants who provide services engage in ‘retail provision of services’ (see Robert’s blog post here).

Justice Croft in Fitzroy Dental stressed the need to consider the services provided and determine who is the ‘ultimate consumer’ of those services. However the proposition remains that many, and perhaps most, service providers will be conducting a retail business for the purposes of the RLA 2003.

The nature of the premises and whether they are ‘open to the public’

In the early decision of 536 Swanston Street Pty Ltd v Harbrut Pty Ltd (1988) V ConvR 54-323, Kaye J said (emphasis added):

I have been referred to several definitions by authorities of what is described as retail shop and retail trade. Perhaps the most succinct statement from which assistance is to be derived is from that made by Viscount Dunedin in his speech in Turpin v Middlesbrough Assessment Committee and Kaye & Eyre Brothers, Limited, [1931] AC p.451 at p.474. His Lordship then said, referring to buildings, that they were buildings to which the public can resort for the purpose of having particular wants supplied and services rendered to them.

It is, in my view, clear that the demised premises fall within that description of being available to members of the public for the purposes of having their food and drink requirements supplied and services of discotheque entertainment provided to them. Accordingly, in my view, the demised premises are retail premises within the meaning of the Act.

The ultimate consumer test from the later decision of Wellington v Norwich Union Life Insurance Society Ltd - [1991] 1 VR 333 (set out above) does not make reference to the premises being ‘open to the public’ and the text of the decision seems to suggest that this requirement has been overshadowed.

However, in the recent case of Stringer v Gilandos [2012] VSC 361 (discussed here), Croft J made the following remarks:

[68]   I should, however, sound a note of caution in relation to this finding by emphasising that whether or not premises described as “serviced apartments” is to be characterised as “retail premises” depends upon the particular circumstances, including the nature of the premises, the manner in which occupancy is provided and the nature of that occupancy.[citation omitted] As I have said, the term or description, “serviced apartments”, is not a term of art. Rather, it is a term or description of premises which connotes a range of possibilities. At one end of the range one would find premises managed and occupied in a manner indistinguishable from a motel or hotel and at the other end premises indistinguishable from long term residential accommodation, separately let but with the attribute of being serviced. In the former case it would be expected that the Acts would apply on the basis that the premises are “retail premises” and in the latter case they would not, any more than they would to any block of residential units. In between there are a range of possibilities each of which may have different consequences in terms of the application of the Acts.

In Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344, his Honour went further and spent a substantial portion of his judgment considering the nature of the premises and the extent to which it is ‘open to the public’ (see paragraphs [29] to [42]), making the following informative comments after considering the evidence:

[30] Nevertheless, the Plaintiffs submit, in opposition to the application, that the evidence establishes that the Premises do not have the hallmarks of being open to the public. The Plaintiffs submit that because the Premises are used predominately as a conference centre, it is only open when booked for the purposes of a conference and, when operating as a conference centre, is only provided to conference attendees – not the members of the public as a whole. There is, however, no evidence that conference attendance is in any way limited to any section or class of the public. The Plaintiff also submits that the café/restaurant in the Premises is only used for the purposes of providing refreshment to conference attendees as an adjunct to a booked conference; and so is not a café/restaurant in the usual sense.

...
[32] In significant respects the evidence of the parties is not in conflict. The differences between the parties arise in relation to the consequences of the factual position with respect to the operation of the Act. In particular, the Plaintiffs do not say that the Premises is not being used for its permitted use under the Lease, rather that it is not open for business very much – on the basis of their observations from the street or by sight from their own premises across the street, outside the premises, at various, unspecified times. Additionally, the parties agree that a member of the public could not “walk in off the street” at any time – much as one might otherwise walk into a convenience store or a café/diner of the kind one sees around the suburbs and country towns – or in American films.

[33]   For the reasons I have indicated I am not satisfied that there is any basis in the provisions of the Act or the authorities for constraining the concept of “open to the public” with respect to premises to the extent that the Plaintiffs would have it constrained. True it is that it would be very difficult to imagine a situation where commercial premises which were accessible on a “walk in off the street” basis could, in the absence of specified and unusual circumstances, be said not to be “open to the public”. It does not, in my view, follow that the converse position indicates that premises are not “open to the public”.

[34]   In the present circumstances I am satisfied that the Premises is “open to the public”. There is no evidence to suggest that any person or class of persons is prohibited or otherwise prevented from being able to utilise the conference and function services provided by the Defendants at the Premises. The use of the conference and function services, and those provided by the café/restaurant (which is licenced), are available and open to any member of the public subject to booking the conference or function facilities and the payment of a fee. The fact that the Premises may not be “open” for the provision of services during usual ordinary business, such as apply to ordinary retail shops or restaurants and bars, does not detract in any way from the Premises being “open to the public” in the relevant sense. It appears from the evidence that booking requests for the Premises and booking arrangements are made to and at the Adjoining Premises. This does not, however, detract from the use of the Premises itself in accordance with the Lease and so the position with respect to the application of the Act is not affected.

We must wait for further decisions before we know the extent to which the nature of the premises or whether it is ‘open to the public’ affect the determination of whether a particular premises is a retail premises under the RLA 2003.

However, it is not difficult to imagine a case in which services are provided to the ultimate consumer from a premises that is neither ‘open to the public’ nor presents as a traditional shop in any meaningful way. For example:

1. a warehouse or cold storage facility leased by a tenant who provides storage and transport services to other businesses. Often the premises will be locked and the consumer will have no real access to the storage space;  and
2. a service provider whose business is conducted solely over the internet and the telephone.

Although Member Rowland considered a logistics business in Global Toger Logistics, the decision pre-dated Croft J’s decision in Fitzroy Dental and it appears that arguments about the nature of the premises and whether they were ‘open to the public’ were not put to the Tribunal.

What to do now?

It is prudent for the time being, so far as possible, to treat leases as governed by the RLA where the business conducted on the premises is predominantly the provision of services business-to-business.

For example, practitioners should consider advising their clients to:

1. negotiate commercial terms for any lease of premises where the tenant provides business-to-business services on terms that are consistent with the RLA 2003. For example, landlords should consider excluding land tax from recoverable outgoings in the their leases in exchange for a proportionate increase in rent;
2. comply with procedural requirements under the RLA, such as giving an estimate of outgoings in accordance with s.46 of the RLA and providing six to twelve months’ notice of the last date to exercise the option in accordance with s.26 of the RLA;  and
3. when faced with a dispute, issue proceedings in VCAT, rather than the courts.  VCAT has a general landlord and tenant jurisdiction under consumer protection legislation (see Zeus & Ra Pty Ltd v Nicolaou [2003] VSCA 11; see also Tucci v Victorian Civil and Administrative Tribunal [2010] VSC 425).

This may not be possible commercially, in which case practitioners should advise their clients:

1. that there may be an arguable case that a lease to a tenant that supplies services business-to-business is not a retail premises if:
   1. the premises is not open to the public in any meaningful way; and/or
   2. the nature of the premises suggests overwhelmingly that it is not a traditional shop; and
2. the above notwithstanding, there is a significant risk that such a lease would be treated as a retail premises lease.

Thanks to Jamie Bedelis at Moray & Agnew for his input into this note.