Clarification (and expansion?) of the retailing test

In November 2024 the County Court issued a ruling on a question of whether a premises used by a warehousing and logistics business was subject to the Retail Leases Act.

The landlord in W.G.Z Pty Ltd atf the W.G.Z Family Trust v Arva Investments Pty Ltd [2024] VCC 1777 had brought a claim in the Country Court against the (former) tenant seeking unpaid rent up to the end of the lease together with damages arising after the end of the lease. The matter came to hearing on an application by the tenant to have the proceeding struck out for want of jurisdiction on the basis that the Retail Leases Act applied to the lease (which would see the Tribunal holding exclusive jurisdiction over the dispute).

Large elements of the decision were unremarkable, with the Court following the principles set out in various prior decisions, notably the CB Cold Storage decision - the Court found that the tenant used the premises for the warehousing of customer's goods and on that basis that the Act applied to the lease.

The more interesting elements of the decision were around the edges and in this regard there are two interesting outcomes:

How is 'predominance' determined.

The Act will apply where a premises is used "wholly or predominantly" for the retail provision of services.

The landlord in this matter tendered financial statements of the tenant demonstrating that prior to commencement of the lease the tenant's income from warehousing activities was just over $250,000 while its total income (taking into account income from its transportation business) was more than $14.5 million. On that basis, the landlord argued, the 'retail' (warehousing) component of the tenant's business constituted less than 2% of the tenant's total business.

The landlord argued that the amount of floorspace used for the retail service (evidence was provided that more than 50% of the premises was used for warehousing) was not the test of predominance and that the Court should assess the value of the retailing to the tenant's broader business.

In considering the question Kirton J found:

In my view … the appropriate way to measure usage of a premises will depend on the circumstances of each case. In some cases it may be spatially (by floor space), in others it may be by volume of sales or income, in some it may be a combination of measures, and in others there may be some other measure not yet considered.

Accordingly - in a test on predominance of use there is no definitive test. Predominance will be assessed on a case-by-case basis. In this matter the Court found that the use by the tenant of greater than 50% of the space for unquestionably retail warehousing met the predominance test.

In concluding the decision in this regard Kirton J found:

…in the present matter, I am satisfied that the predominant use of the Premises measured spatially is the provision of warehousing and storage services.

Although not definitive, the comment (in its context) seems to indicate that if a tenant can establish predominance on any measure then it will satisfy the test of predominance in the Act.

A potential broadening of the ‘retailing’ test

Kirton J provided an alternative position if the finding as to the predominance of warehousing services was not correct.

Applying the 6-prong test that has been long established and perhaps best enunciated by SM Forde Eastcombe Pty Ltd v Fagersta Steels Pty Ltd Kirton J found that the transportation services conducted by the tenant "at or from" the premises made the premises a retail premises for the purposes of the Act.

Kirton J rejected the landlord's position that for the premises to be retail "the entire service must be performed at the premises that it is provided from" and found instead that use of the premises as a base for transport services conducted outside the premises gave the premises a sufficient nexus to the service as to comprise a retail premises.

The relevant finding is as follows:

In my opinion the storage of vehicles, along with the potential for the warehouse’s use as a logistical base of the transport operations, is sufficiently essential to the ultimate ‘service’ such that it forms part of the chain of tasks which in sum make up the service. If we look at the fee that the ‘end consumer’ pays, the fee takes into account that the vehicles need to be parked somewhere, the cost of the warehouse that is used to store the vehicles, and importantly the cost of driving from and then returning to the warehouse… Under this construction of the ‘service’, it is clear that the use of the warehouses played a central role, and in my view this supports the Premises as being considered ‘retail’.

Further or alternatively, if the plaintiff’s contention is that the transport services were provided on the road and not at the Premises, and so are not relevant when assessing the use of the Premises, I do not agree ... It is artificial to attempt to hive off one part of the defendant’s business from another.

The implications of this finding are substantial. The finding would seem to expand the definition of 'retail premises' beyond previous decisions and capture premises which form a central role in a tenant’s broader retail provision.

Landlords would be well advised to carefully consider the decision and the fact that a premises used “as a logistical base” of a separate retail operation might now be found itself to be retail. Similarly tenants might find themselves the beneficiaries of the protections of the Act in a broader range of circumstances than previously understood.

As always - if you would like advise on your particular circumstances please do not hesitate to contact our office.

Paul Nunan

Accredited Specialist - Commercial Leasing