In brief – Commercial laundry not a prescribed business under Retail Leases Act
In a recent case, the court found that as the retail use of the premises was not the predominant use, the tenant was not covered by the Retail Leases Act and therefore had to pay a contribution towards outgoings.
Dee-Tech v Neddam Holdings
On 22 March 2012, the NSW Supreme Court handed down a decision in the case of Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited  NSWSC 251. The case concerned premises at The Entrance Road, Erina which were originally leased for "computer sales, internet café & games".
White J agreed that the premises had originally been used as retail shop premises and were therefore covered by the Retail Leases Act 1994. However, due to a variation of the permitted use under the lease, the premises were no longer retail shop premises and were therefore not covered by the Act.
Landlord permits tenant to vary use of premises
In 2002, the landlord and tenant agreed that the tenant could vary the permitted use in the lease of the premises to become "computer sales, service, games, internet café, laundry/laundromat and associated uses".
The variation was to assist the tenant and so the tenant was permitted to sublease a substantial amount of the premises to a commercial laundry.
Dispute over payment of outgoings
The landlord and tenant had a falling out over many issues, including the payment of outgoings. The tenant argued that no amount in relation to outgoings was owed because the lease was a retail shop lease within the meaning of the Retail Leases Act.
If this is the case, then section 28A of the Retail Leases Act provides that the tenant was entitled to withhold payment of contribution for outgoings because the landlord had failed to give it a written estimate of outgoings required under section 27 or an outgoings statement required under section 28.
What was the predominant use of the premises?
The Judge held that at the start of the lease, before the variation, the permitted uses were clearly uses within the meaning of the Retail Leases Act.
However, a commercial laundry is not a prescribed business for the purposes of the Act, although the Act does include a collection centre for dry cleaning or laundry services.
Accordingly, the Judge had to look at what the predominant use of the premises was to determine whether it was used predominantly as a commercial laundry or for other retail uses.
Fraction of total area, fit out costs and number of employees
The larger area of the leased premises was used for the commercial laundry and Development Consent was obtained at the time of the variation to carry on a commercial laundry. This development application made it clear that it did not contemplate a collection centre for dry cleaning or laundry services.
It was not a domestic laundry. The customer base was mainly hospitals and restaurants. The cost of the fit out to create a commercial laundry was over half a million dollars, whereas the cost of the fit out for the retail computer sales and internet café was very little. The laundry had many employees, whereas the internet café had none.
Variation on use of premises removes protection of Retail Leases Act
Accordingly, the Judge found that the commercial laundry was the predominant business use and therefore the Retail Leases Act did not apply. The premises were not retail shop premises, so the tenant had to pay the outgoings.
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