In brief: Leases granted at commercial rents
can be excluded from the operation of the Retail Leases Act
2003 (Vic) (Act), if the lease complies with
the Ministerial Determination dated 20 August 2004
(Determination). In order to comply, the lease
must be for a term of 15 years or more and require the tenant to
carry out substantial work on the premises.
What you need to know:
A lease can be excluded from the Act if it is for a term of 15
years or more and requires the tenant to carry out substantial work
on the premises.
To ensure that the lease is excluded from the operation of the
Act, the lease must be carefully drafted to satisfy the
requirements of the Determination.
There has been some conjecture in recent years as to whether a
lease for a term of 15 years or more, with a requirement that a
tenant undertake substantial work on the premises, will be excluded
by the Act. The Determination sought to exclude such leases from
the Act but the Small Business Commissioner refused to provide a
certificate confirming such leases are excluded by the Act, unless
the leases are granted at a nominal rent.
In June 2016, in the matter of Luchio Nominees Pty Ltd v
Epping Fresh Food Market Pty Ltd, VCAT determined that the
lease was excluded from the operation of the Act by virtue of the
Determination. This was because the lease was for a term of 20
years, and contained an obligation on the tenant to carry out
construction works on the Premises.
When undertaking a market rent review, or assisting a party in a
lease negotiation, if the term is 15 years or more you should
consider whether the lease will be governed by the Act. The lease
will not be governed by the Act if there is an obligation on the
tenant to carry out substantial work, pay the cost of any
substantial work, or the tenant is not entitled to remove works
undertaken by the tenant during the term of the lease. It should
also be noted that under the Determination, a lease can excluded
from the Act if there is a renewal granted of a 15-year lease, or
variation of such lease, where the lease would have been excluded
from the operation of the Act.
Whether a lease is or is not governed by the Act can have a
significant impact on a market rent review. Accordingly, we
recommend that you seek advice as to whether the lease is governed
by the Act in such circumstances.
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
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