Valuer and Retail Leases Update – Act applies to leases with the rent under $1 million?

In brief

In a recent decision of William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd [2018] VCAT 15, VCAT had to determine if GST was included in the rent for the purpose of deciding whether the Act applies. VCAT determined that GST is included in calculating the $1 million threshold for leases entered into prior to 2013. For leases entered into after 2013, being the year in which Regulation 6 of the Retail Leases Regulations 2013 (Regulations) were enacted, GST is not included.

What you need to know

If you are carrying out a valuation, or managing a property, whether the rent is close to the $1 million threshold, advice should be obtained as to whether the lease is, or is not governed by the Act. In a somewhat surprising decision, it now seems that leases, which commenced prior to the enactment of the Regulations, will include GST in calculating the threshold. As such, if the rent was say $930,000 plus GST, the lease will not be governed by the Act, as it is over the $1 million threshold. Conversely, if the lease commenced after the Regulations and the rent was $930,000 plus GST, the lease will be governed the Act, assuming it meets the other criteria.

Background

As is becoming the norm, this case involved a tenant seeking the repayment of land tax, on the basis that it claimed that the lease was governed by the Act. In this case, the tenant had paid over $250,000 in land tax over the term of the lease and if it could show that the lease was governed by the Act, it could potentially recover that amount from the landlord. The landlord had to show that the lease was not governed by the Act, so it is did not have to repay the land tax to the tenant. VCAT determined that in calculating the $1 million threshold for leases prior to the enactment of the Regulations, GST is included in the calculation. This is contrary to Regulation 6, which excludes GST, but that regulation only took effect in 2013. The lease in question was entered into in 2006.

Conclusion

It is now necessary to consider the date the lease was entered into to ascertain if the lease is governed by the Act, where the rent and outgoings are close to the $1 million threshold. As always, advice should be obtained.