The Full Court of the Supreme Court has determined when a landlord of a retail shop lease can seek payment of land tax as an outgoing from a tenant.

When the Retail and Commercial Leases Act 1995 (the Act) applies to a lease it exempts tenants from the payment of land tax.  The Act applied to retail shop leases if the annual rent did not exceed $250,000 pa. From April 2011 this threshold increased to $400,000.

Before the Buffalo Motor Inn case of 2012 it was thought that if the Act applied at the commencement date of a lease, then it continued to apply for the entire term of the lease plus renewals even where rent reviews took the annual rent above the threshold. The Court has now clarified that the question of whether or not the Act applies is actually a moving target during the term of the lease, depending on the rental amount.

This decision may have particular significance for landlords and tenants of leased retail premises.  As a tenant you may be faced with a large land tax bill through “rent creep”.