1. The upshot

The High Court of Australia has dismissed an application for special leave to appeal against the decision of the Victorian Court of Appeal in the much anticipated case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Ltd [2017] VSCA 178 (CB Cold Storage).

The decision relates to the classification of a cold storage facility located in Victoria as a retail lease for the purposes of the Retail Leases Act 2003 (Vic) (RL Act). The decision confirms the understanding that the 'ultimate consumer' test is a key determining factor in classifying whether premises fall within the scope of, and therefore regulated by, the RL Act.

The decision is likely to have significant ramifications for tenants and landlords in Victoria. Put simply, the High Court's decision confirms that a large number of leased premises in Victoria are likely to be regulated by the RL Act. This is despite the fact that parties may have agreed to the contrary within Disclosure Statements, Heads of Agreement and Leases themselves and that to the general public the premises would not appear to be a retail premises.

Following the decision, tenants may seek recovery of land tax and other amounts paid to landlords where parties were under the mistaken belief that the lease was not regulated by the RL Act.

2. The Ultimate Consumer Test and other factors

In its decision handed down in July 2017, the Victorian Court of Appeal held that the ultimate consumer test should remain part of the broader test when determining whether premises constitute retail premises for the purposes of the RL Act.

The test can be simplified as to whether the goods or services are used by the person to whom they are sold, or whether the goods or services are passed on by the purchaser in an unaltered state to a third party. The Court of Appeal stressed that there is to be no distinction between commercial and non-commercial sales of goods or services.

In CB Cold Storage, commercial customers utilised the cold storage service provided for by the tenant (CB Cold Storage) of the cold storage facility which it leased from IMCC Group (Australia) Pty Ltd in Laverton, Victoria before transforming the goods into usable items for on-sale to the public. The Court of Appeal held that the Landlord's focus on what happened to the goods that were stored after they left the leased cold store facility was not relevant, but that the focus should be on the service that was provided by CB Cold Storage at the leased premises.

In rejecting the Landlord's submissions, the Court of Appeal noted that the ultimate consumer test must also be viewed in light of other factors and is but one component of a broader test. In assessing whether premises are retail premises for the purposes of the RL Act, parties will need to consider whether the goods or services are generally made available to the public for a fee, and whether the tenant's premises are open to customers during normal business hours.

The Court of Appeal also noted that it is likely that all premises that provide a service from the leased premises will be classified as a retail lease for the purposes of the RL Act.

3. Consumer protections and land tax implications

The RL Act provides for certain protections to tenants where the lease is regulated by the RL Act regarding, among others, the structural repair of the leased premises. Crucially however, landlords of retail premises regulated by the RL Act are not entitled to recoup land tax from a tenant under a retail premises lease. Given the recent decisions of the Court of Appeal and High Court, it is likely that tenants of retail premises regulated by the RL Act will take steps to recover land tax mistakenly paid to landlords.

4. Next steps for the property industry

Parties who are unsure as to whether this recent decision will affect the premises of which they are either the tenant or landlord should seek legal advice.

Given the impact of the decision in CB Cold Storage on tenants and landlords, tenants, landlords and third parties (such as valuers and mortgagees) should review leasing agreements and properties and specifically those that are classified as warehouses or involve the provision of services for a fee.

Affected parties should be aware that among other requirements, the RL Act requires the preparation and signing of a retail lease disclosure statement providing a broad summary of outgoings and other important information regarding the leased premises.

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