The Retail Leases Act 2003 (Vic) (Act)regulates the leasing of retail premises in Victoria.
However, there are several exemptions to the Act. This article focuses on the “15 year” exemption, which is a Ministerial determination exempting leases for 15-years or longer where they impose substantial works or financial obligations on the tenant.
This particular exemption has been the subject of significant discussion within the legal community.
The exemption, in summary, requires:
- The Lease must be for an initial term of 15 years or more, and
- The Lease must impose an obligation on the Tenant (or other person) to carry out substantial work on the Premises, or incur substantial expenditure on works or improvements at the Premises, or
- The Lease must significantly disentitle the tenant (or other person) from removing such works or improvements at the Premises at the end of the Lease.
All-too-often we see leases in which the landlord and tenant have expressly agreed that the 15 year lease exemption applies simply because the term of the lease is 15 years or more.
But this is a fatal misunderstanding which can lead to a costly dispute between the parties to the lease in the future.
The Victorian Small Business Commissioner (VSBC) stresses the importance of understanding the exemption within the policy context. It says that (emphasis added):
The purpose of the Determination is to exempt long term leases which impose substantial financial obligations on the tenant from the operation of the Act, where such exemption would be beneficial to both the landlord and the tenant. The Determination is not restricted to Crown land leases, but may apply to any retail lease as long as that lease satisfies all of the criteria of the Determination.
However, it is not the purpose or intent of the Determination to exclude genuine small and medium retail tenants from the protections provided by the Act, where doing so would not be in the best interests of the tenant.
We also remind our clients that parties cannot ‘contract out’ of the Act, for example by including a provision in the lease whereby the parties agree that the Act does not apply, or that the Act does not apply specifically because of this determination.
While it might be reasonable to expect that a tenant who has made an informed decision to agree that the Act does not apply will not later seek the benefit of the protections of the Act, this logic falls down if a dispute later arises between the parties and the tenant seeks legal advice, or there is an assignment of the lease and the new tenant queries the application of the exemption. In such cases we have seen tenants make significant claims against the landlord to recover outgoings or other costs (such as land tax) which were paid to the landlord in contravention of the Act.
We therefore strongly recommend that landlords and tenants seek legal advice in ascertaining whether a lease is exempted from the Act by this ministerial determination. Ideally such advice is sought at the time the lease is negotiated.