Written by Philippa Callan, Associate
The Victorian Supreme Court recently considered several issues that are of particular importance to every commercial and retail landlord and tenant. The case, Karam Investments v Close the Loop [2026] VSC 270, arose from a fire that started on the tenant's production line and caused significant structural damage to the premises.
The case is a timely reminder that leasing law in Victoria is complex and misunderstanding can have significant financial consequences. If you are a landlord or tenant in Victoria, this case highlights why it is essential to understand how the Retail Leases Act 2003 ("RLA") works and when it applies.
If you need advice about your lease, the commercial team at Maddens Lawyers can help. Contact us today to discuss your situation.
Karam Investments v Close the Loop
The tenant, Close the Loop, operated a production line for recycling and remanufacturing toner cartridges and other print consumables. A fire broke out on the production line, causing extensive structural damage to the building. The parties disagreed about who was responsible for repairs and at the centre of the dispute was the question: does the Retail Leases Act apply to the lease?
The permitted use of the premises under the lease was "warehousing and manufacturing of toner and inkjet cartridges, toner bottles and other print consumables and products". Both parties had operated for years on the assumption that the RLA did not apply. The lease even included a clause stating that the Act did not apply.
Understanding the Retail Leases Act
One of the central issues in the case was whether the RLA applied to the lease. The RLA applies to premises used for the "sale or hire of goods by retail or the retail provision of services".
Since the 2016 case of CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2016] VCAT 1866 ("Cold Storage"), the scope of what has been considered 'retail provision of services' for the purpose of the RLA has been expanded significantly. It held that a service is retail if it is provided to the ultimate consumer, even if the consumer is another business, and therefore the RLA will apply.
In Karam Investments v Close the Loop, the Court applied the ultimate consumer test from Cold Storage and looked at the actual use of the premises, not just the permitted use in the lease. The Court found that the predominant use of the premises was for retail provision of services, and the lease was therefore a retail lease and the RLA applied.
The lease itself had a clause stating that the RLA did not apply, however you cannot contract out of the RLA. The Court was quite clear that a clause in the lease does not avoid the application of the RLA.
If you are unsure whether the RLA applies to your lease, speak with our commercial team today. We can review your lease and advise you on your rights and obligations.
Why it matters whether the RLA applies
The RLA is a form of consumer protection, so the Court's finding had significant consequences to the Landlord, including:
- Liability for structural repairs - Despite a provision in the lease that said otherwise, the Court held that the landlord was responsible for the structural repairs caused by the fire. This was pursuant to section 52 of the RLA, in that landlords are responsible for maintaining the structure of the building, including essential safety measures relating to it.
- Abatement of rent - Section 57 of the RLA provides that rent must be abated when a tenant cannot use the premises due to damage. In this case, the tenant was entitled to an abatement of rent for the period that the premises was damaged.
- Land tax refund - During the proceedings, it was also found that the tenant had mistakenly paid land tax. Under the RLA, landlords cannot pass on land tax to tenants and therefore the tenant was refunded almost $44,000.
- Unpaid outgoings - Also during the proceedings, it was discovered that the tenant was not required to pay outgoings as they had not been issued with a statement as required under section 46 of the RLA.
Key lessons for landlords and tenants
The Karam Investments v Close the Loop decision provides several important takeaways for anyone involved in retail leasing in Victoria.
- Does the RLA apply to your lease?
A clause in the lease stating that the RLA does not apply is not relevant. The scope of the RLA is broader than what you might consider to be 'retail', particularly where the tenant is providing services on the leased premises. - Understanding how the tenant uses the premises
Landlords should ensure they understand how their tenant uses the premises, not just what the lease says. If the tenant's use falls within the scope of the RLA, the landlord must comply with the Act. - Maintain Essential Safety Measures
Whilst the cause of the fire could not be determined, the Court found that the lack of a fire suppression system contributed to the significant damage and was very critical of the landlord's inaction in response to reports from the CFA and Council noting the ESM deficiencies in the building. - Issue outgoings statements every year
Don't forget to issue a section 46 statement of the outgoings estimate every year. The tenant can withhold payment of outgoings until this statement is provided. - Be careful with land tax
If the RLA applies to the lease, landlords cannot pass on land tax. Tenants who have paid land tax may be entitled to a refund.
Need assistance with your retail lease? Maddens Lawyers are here to help
Retail and commercial leasing is a complex area of law, and misunderstandings can be costly. Whether you are a landlord wanting to ensure your lease complies with the RLA or a tenant seeking advice about your rights, the experienced commercial lawyers at Maddens Lawyers can help.
We regularly assist clients in Warrnambool and the wider South West Victorian region with drafting and reviewing leases, resolving lease disputes and advising on the Retail Leases Act.
Learn more about our commercial law services here, and contact us today to discuss your legal obligations.
