Australia: Applying the ultimate consumer test – When is a lease for services a retail premises lease?

Last Updated: 20 April 2018
Article by Jaclyn Tang

CB Cold Storage further clarified the requirements to determine whether a lease for services is a retail premises lease and confirmed the ultimate consumer test as one of the key indicators when considering whether the services offered are retail in nature.

In brief:

The devil is in the detail when it comes to what is considered retail premises and, following the recent Court of Appeal decision in the CB Cold Storage1 case, tenants and landlords alike should be in the know or risk the potential for major unexpected consequences. CB Cold Storage further clarified the requirements to determine whether a lease for services is a retail premises lease and confirmed the ultimate consumer test as one of the key indicators when considering whether the services offered are retail in nature.

What you need to know:

  • When making a determination as to whether a lease for services is a retail premises, the ultimate consumer test continues to be one of the key indicators that should be satisfied.
  • The ultimate consumer test generally considers whether the services provided by the tenant are used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to another third person
  • A close examination will also need to be had of:
    • the service being offered;
    • whether a fee is paid; and
    • whether the service is generally available to anyone willing to pay the fee2.
  • The ultimate consumer test will be telling but not conclusive in determining whether there is a "retail provision of services" under the lease.

What is a retail premises?

The Retail Leases Act 2003 sets out that retail premises are premises that "are used...wholly or predominantly....for the sale or hire of goods by retail or the retail provision of services"3. Now, thanks to the Court of Appeal's recent decision in CB Cold Storage, there is increased clarity about when exactly a provision of service will be considered 'retail'. The decision in CB Cold Storage highlights that in determining whether premises are retail premises, one should apply the ultimate consumer test and consider where and how the services are provided.

So, what is the ultimate consumer test? It emerged in the case of Wellington4 where the Court was required to consider whether the premises from where the patent attorneys conducted their business were 'retail premises' even though the attorneys did not see clients in the premises and communicated with clients via fax and phone. The conclusion? The premises were considered retail. The Wellington decision shows that the ultimate consumer of the services does not need to be an ordinary member of the public and that one should consider what the service is, where it is provided and whether the service is generally available to anyone willing to pay the fee5.

The decision in CB Cold Storage

Whilst VCAT decided that the premises were not retail premises6, Justice Croft held that VCAT erred by finding that the customers who used the tenant's service for a business purpose were not ultimate consumers. In granting the appeal, Justice Croft reasoned that VCAT did not identify precisely the service that is being provided and where it is provided or consumed and the focus must be on the service that is being provided. Further, it does not matter that the ultimate consumer is or is not a business.

The Court of Appeal stated that "the concept of the 'retail provision of services' in the Retail Leases Act and its predecessor legislation is that it involves close consideration of the service that is offered, whether a fee is paid, where it is a service that is generally available to anyone who is willing to pay the fee and whether the persons who use the service are the 'ultimate consumer'. On one view, to talk of an ultimate consumer of services may appear strained. Most services that are purchased are not susceptible to being passed on to a third person. This may be contrasted with a sale of goods where the difference between wholesale and retail is easily discernible. Nevertheless, the authorities that apply an ultimate consumer test as one indicia of the retail provision of services are of long standing7."

Conclusion

As demonstrated in Wellington and CB Cold Storage, in applying the ultimate consumer test, it is not necessary that members of the public can walk into the premises off the street. If a member of the public can access the service for a fee via telephone or fax, it is sufficiently considered 'open to public'8. However, whether or not there are restrictions on access to the service can be significant. For example, if the service provider had a restriction that access was by invitation only, this may be considered "restrictions on access to the service and who could use it"9.

The decision in CB Cold Storage shows that it is vital to ascertain whether premises are retail premises (despite the lease stating otherwise) as there are major consequences for landlords and tenants, especially with regard to land tax and maintenance provisions.

Footnotes

1IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178
2 Fitzroy Dental Pty Ltd v Metropolitan Management Pty Ltd [2013] VSC 344 [16 ] and [34]; CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 [23]; IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 [23] and [48]
3 Section 4, Retail Leases Act 2003
4Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333
5 Fitzroy Dental Pty Ltd v Metropolitan Management Pty Ltd [2013] VSC 344 [16 ] and [34]; CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 [23]; IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 [23] and [48]
6CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2016] VCAT 1866
7 IMCC Group Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 [23]
8 See Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333 and Fitzroy Dental Pty Ltd v Metropolitan Management Pty Ltd [2013] VSC 344
9 IMCC Group Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 [46]

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.

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