Land Tax. One of those unpleasant imposts you must endure yet can’t conceivably think of what you’re getting in return for the pleasure of forking over your hard-earned cash. If you know this pain then think of how much more it would hurt to have to pay land tax on a property you don’t even own!
Despite the property market dipping over the past year, the Victorian State Revenue Office has recently issued land tax assessments which (to the surprise and frustration of many) appear to be based on pre-downturn property values. This has for a large number of landlords meant a significant increase in their land tax bill just as the value of their investments begin to lose their shine.
As a result many landlords will likely be looking anew to see if they can recover land tax (in part or in whole) from their tenants. A traditional bug-bear of many commercial landlords has been the inability to recover land tax from a tenant where the lease is covered by the Retail Leases Act 2003(Vic) (the Act) (Section 50).
Because of the wide definition of retail premises under the Act, in Victoria there are many circumstances where a landlord simply cannot avoid a lease falling under the operation of the Act -even where premises are not traditionally considered “retail”, for example some office premises. In this regard, the Victorian Small Business Commissioner has published useful guidelines to assist small business in understanding what are ‘retail premises’ for the purposes of the Act. The guidelines can be found at this link.
Where premises are not classed as ‘retail premises’ (and thus not covered by the Act), it is not uncommon for a landlord to include a provision in a lease allowing recovery of land tax from a tenant as part of their share of outgoings- a provision which can often be overlooked by unsuspecting tenants who have never been required to pay land tax previously.
The lesson here for many tenants negotiating a lease is to ask the following critical questions:
- Is this lease covered by the Act?
- If not, can we agree with the landlord (say, because of our intended use of the premises) that the lease should be covered by the Act?
- If not, can we ensure that land tax is excluded as an outgoing payable by the tenant?
In circumstances where land tax on say a showroom and factory located in metropolitan Melbourne could amount to tens of thousands of dollars (depending upon the size, location and the landlords overall landholdings), asking these simple questions can avoid a lot of pain further down the track.
Of course, key to negotiating transparent and fair lease terms is being guided by experienced legal advisors. If you would like assistance in negotiating your next lease, contact Rankin Business Lawyers for practical and commercial leasing advice.
Joseph Carneli, Senior Associate