The phrase, “retail provision of services”, used in the Retail Leases Act 2003 (Vic) (Act) has again been interpreted by the courts, this time in Horgan v Equi Ventures Pty Ltd.
The County Court applied the “ultimate consumer test” to determine that an equine business operated by a tenant constituted “the retail provision of services” and therefore the lease was a retail lease for the purposes of the Act.
This case is the latest in a series of decisions over recent years that have confirmed the broad application of the Act. The Act applies to “retail premises” which are premises used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services.
The Act may apply to a wholesale cold storage facility, a premises for the “the manufacture and sale of steel gates”, the “warehousing and distribution of general freight”, a conference centre, and now an equestrian centre. The permitted use in a lease and the potential application of the Act must be carefully considered by parties.
Background – Studying the Form
In Horgan v Equi Ventures Pty Ltd, the County Court examined a lease of an equestrian centre. The tenant’s main business was providing, training and grooming horses for horse-riding lessons, polo lessons and instructional polo to fee paying clients, and also operating polo livery leases and full service polo livery. The tenant used the non-residential parts of the leased premises to operate its business, though the horse-riding lessons and training, polo lessons and instructional polo were carried out both on and off the leased premises.
The landlord initiated the proceedings in the County Court rather than in VCAT (which has exclusive jurisdiction over retail lease disputes) on the basis that the lease was a commercial lease only and not a retail lease. The landlord submitted that the premises were not used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services because the leased premises were used for non-retail purposes, namely, to care for and accommodate horses for use in polo games played in offsite locations away from the leased premises. This was, according to the landlord, not a retail use as there was a lack of a connection between the premises and the services provided to the ultimate consumer, being the horse-riding lessons, polo lessons and polo games.
The landlord noted that the tenant’s business income came primarily from the services provided by the tenant offsite and not from the leased premises. The landlord agreed that the tenant did provide some retail services from the premises. However, the landlord asserted that those retail services were only a small part of the tenant’s business, were undertaken on only a small part of the premises, and took up only a small amount of time to operate, compared to the amount of time the tenant spent caring for the horses.
The tenant submitted that the connection between the use of the premises and the business of the tenant was sufficient for the Act to apply and that therefore VCAT had jurisdiction and the County Court should stay the proceeding.
Consideration and Decision – the Main Event
The court’s analysis centred around the well-established “ultimate consumer test”. in determining whether the Act applied to the lease. Justice Robertson also referred to additional relevant factors, including whether a fee is paid, whether the business was open during normal business hours, the percentage of floor space used for the retail purpose, the dollar amount of retail sales, whether the service is generally available to anyone who is willing to pay, whether members of the public can access the premises and can book services online, whether the storage of goods can be retail and whether the provision of services offsite can be retail.
Turning to the equine business operated by the tenant, the court noted that such businesses typically require a large area of land to accommodate the horses. Justice Robertson held that it would be “artificial” to distinguish this part of the land from the part of land used by the tenant in providing the actual retail services (such as the arena for the polo and horse-riding lessons and the office for the administration of the business) in determining whether the premises were used wholly or predominantly for retail purposes.
Provided there is a nexus with the business being conducted, the fact that many of the services were provided offsite rather than directly at the premises was not determinative.
The court ultimately held that the Act applied to the lease as there was a sufficient nexus between the use of the premises by the tenant for grazing and agistment and the tenant’s equestrian services (for which members of the public paid a fee). The services or the sale of goods did not need to occur only at the leased premises for the premises to be considered retail premises.
Action
Keeping with the equestrian theme, whether your proposed lease is subject to the Act is anything but a sure bet! The lease and the proposed used of the premises must always be carefully analysed because the “ultimate consumer test” continues to be applied broadly by the courts and the application of the Act will significantly impact lease risks and obligations.
We are here to help
Russell Kennedy has the experience and expertise to assist with retail leasing queries. Please contact Mark McKinley, Emma Dunlevie, or Caroline Snaidr.
If you would like to keep in touch with Alerts and Insights from our expert Property team, you can subscribe to our mailing list here.