Australia: Valuer and Retail Leases Update - Leases can no longer fall out of the operation of the Act

In brief

You may recall in an update last year, I referred to a VCAT decision, which determined that a lease could cease to be governed by the Act during the term where occupancy costs (being rent and outgoings payable by the tenant under the lease) increased to more than $1 million. You will also recall that where occupancy costs exceed $1 million, the lease will not be governed by the Act. The VCAT decision determined that during the term of the lease, even though the lease was initially governed by the Act, as the occupancy costs increased to over $1 million the Act ceased to apply from that time.

This case was appealed to the Supreme Court in September 2019 and Justice Croft determined in Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597 that a lease could not fluctuate in and out of the Act and that if the Act applies when the lease is entered into, it will continue to apply during the term even if occupancy costs exceed $1 million during the term.

What you need to know

If it is a lease is governed by the Act at the commencement, then the lease will always be governed by the Act during the term of the lease. So even if the occupancy costs exceed $1 million, or the lease is assigned to a public company, it will still be a lease governed by the Act during the term of the lease. Of course, when the lease is renewed, this will be a new lease and the lease may cease to be governed by the Act if any of the exclusions under the Act apply.

Background

In the VCAT decision, it was determined that a lease could cease to be governed by the Act during the term of the lease, even though the lease was governed by the Act at the commencement of the lease.

This decision was controversial and contrary to my understanding of when the Act applied. I had always maintained that the determination of whether the Act applied must be done at the commencement of the lease and had lectured and advised on this basis. Nice for my view to be vindicated by the Supreme Court!

Conclusion

The Supreme Court has once and for all made it clear that if the lease is governed by the Act at its commencement, it will continue to be governed by the Act during the term of the lease. The decision is also important in other respects that I will comment on in upcoming emails.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.