Applicability of Retail Legislation – is GST part of occupancy costs?
In NSW, premises fall outside the scope of the Retail Leases Act if they are greater than 1,000 square metres. That test also applies in the Northern Territory, Western Australia, Tasmania, and Queensland. In Victoria and South Australia, the test is whether occupancy costs exceed a certain amount per annum ($1,000,000 in Victoria, $400,000 in South Australia). The ACT employs a hybrid model.
There is ample caselaw in each jurisdiction about what space is to be included in the area tests and what costs are to be included in the costs tests. This article summarises a recent case in Victoria which had to determine whether the Retail Leases Act applied – if it did apply, the lessee would have been entitled to a refund of approximately $250,000 it had paid the lessor as a contribution to land tax as part of outgoings.
William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd [2018 VCAT 15
The lease was an eight year term which expired on 31 December 2014. The parties entered into new lease for a smaller area (and less rent) –there was no issue that the Retail Leases Act 2003 (Victoria) (the “ACT”) applied to the new lease. The issue was whether the Act applied to the expired lease.
The lease provided that land tax was part of the outgoing payable by the tenant. The tenant had paid an amount to $251,234.68 towards land tax. Section 50 of the Retail Leases Act provides that the landlord cannot recover land tax from the tenant – so if the Act applied to the expired lease, that money would be refunded.
Section 4(2) of the Act provides that the Act does not apply if occupancy costs are more than the amount proscribed by the Regulations. The Regulations now provide that the amount is $1,000,000 per annum exclusive of GST. When the lease was entered into, the Regulation did not contain the words “exclusive of GST”.
‘Occupancy costs’ is a defined term in the Act, meaning the aggregate of the rent, outgoings and other prescribed costs.
In this lease, the rent was $802,795 plus GST. Outgoings were estimated to be $150,209.
“According to the Tenant, if GST is not counted for the purpose of assessing occupancy costs, then the occupancy costs amount to $953,004 and the RLA applies. That would mean that the clause in the Lease requiring reimbursement of land tax is void ab initio.”
“According to the Landlord, if GST is added to the starting rent and Estimate of Outgoings, then the occupancy costs amount to $1,048,304.40 and the RLA does not apply. That would mean that there is no prohibition against requiring the Tenant to reimburse the Landlord for land tax.”
The case set out answers to the following questions:
- Should GST be counted in calculating the occupancy costs?
- Should GST be added to council and water rates?
- If the lease is determined to be a retail lease as at the date of entry into the lease, can it cease to be a retail lease simply by an increase in occupancy costs at some future date?
