Protection For Small Lessees

Consumer protection is of paramount importance

The Retail and Commercial Leases Act 1995 (SA) was implemented to regulate the leasing of retail premises in South Australia, with the protection of lessees being of paramount importance.

In order to achieve its purpose, the Act regulated leases if the annual rent payable did not exceed a then reasonable threshold of $250,000.

Fast forward 15 years and, with inflationary pressures resulting in significant increases in rental prices, fewer and fewer lessees were falling within the ambit of the Act – meaning small businesses with little bargaining power were no longer protected.

Consequently, on 4 April 2011, the Retail & Commercial Leases Variation Regulations 2010 increased the rental threshold from $250,000 to $400,000 per annum, meaning if the rent payable under a retail lease does not exceed $400,000 per year, the lessee is afforded the protection of the Act.

However, despite the Regulations, it remained unclear whether the new threshold applied to leases entered into prior to 4 April 2011, plaguing the small business sector with uncertainty.

The first landmark case – WST Pty Ltd v GRE Pty Ltd & Ors

The first landmark case to raise this question and consider the scope of the Regulations proceeded to hearing before the Full Court of the Supreme Court of South Australia on 7 December 2012.

In the case – WST Pty Ltd v GRE Pty Ltd & Ors – the lessor claimed the Act no longer applied as the annual rent payable exceeded the $250,000 threshold as at 21 May 2012. Consequently, our client (the lessee) was required to reimburse the lessor for the payment of land tax in the sum of $54,511.12 for the first year and make payment of any amount of land tax payable thereafter for the remaining term of the lease.

Our client claimed the Act continued to apply and, therefore, that it was afforded protection under section 30 of the Act, which prohibits a lessor charging or claiming reimbursement from a lessee for land tax.

On 21 December 2012, in a case with statewide ramifications, the Full Court held that our client was not liable to pay land tax so long as the annual rent payable is not greater than the threshold prescribed by the Regulations at that time.

The Full Court also held that if, at any time, the annual rent payable exceeds the then applicable threshold, the lessee will be liable to pay land tax as assessed on the land.

This means that, in the event the annual rent payable under the lease in question exceeds the threshold of $400,000 (or any such higher threshold as prescribed by the Regulations), the lessee will be liable to pay land tax.

This decision represents a significant win for lessees and provides the protection of the Act to all lessees with annual rent of less than $400,000 – regardless of when the lease was executed.

What are your rights and obligations?

If you are a lessee with annual rent payable of less than $400,000, you may be paying land tax which you are not in fact liable to pay.

Similarly, if you are a lessor leasing premises where the annual rent payable is less than $400,000, you may not be entitled to pass on land tax to your lessee.  However, pursuant to section 30 of the Act, “the lessor’s liability for land tax in respect of the premises may be taken into account in the assessment of rent.

To better understand your rights and obligations, please contact our expert team to make an appointment or discuss your matter by telephone.

For more information, please contact:
Mark Gowans

Mark Gowans
Director
p.  +61 8 8124 1953
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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