Permitted use clauses and the Retail Leases Act: can a landlord contract out?
Many Victorian commercial leases say the Retail Leases Act does not apply, or ban retail use. Whether that works depends on how the premises are really used, and on whether the clause reflects the real bargain or is only a label.
The clauses landlords use
Landlords of warehouses, factories, yards and offices often want their lease to sit outside the Retail Leases Act 2003 (Vic), mainly so that land tax and other outgoings can be passed on. The usual drafting devices are:
- a statement in the lease particulars or special conditions that the Act does not apply;
- a permitted use that describes a non-retail use, such as manufacturing, storage or wholesale distribution; and
- a prohibition on using the premises wholly or predominantly for the retail sale or hire of goods or the retail provision of services, or in any way that would cause the Act to apply.
None of these is automatically effective. The basic test of whether premises are retail premises is in does the Retail Leases Act apply to my lease, and what the Act requires once it applies is in our guide to the Retail Leases Act 2003 (Vic).
No contracting out: section 94
Section 94 of the Act provides that a provision of a retail premises lease, or of an agreement, is void to the extent that it is contrary to or inconsistent with anything in the Act, including anything the lease is taken to include because of the Act. It also makes void a provision to the extent that it purports to exclude the application of a provision of the Act.
So a statement that the Act does not apply has no effect if the premises are in fact retail premises. The County Court has read the Court of Appeal’s cold storage decision as holding that a lease provision of similar effect was ineffective to take otherwise retail premises outside the Act. In a 2025 case about a long lease, the County Court also held that a recital that the Act did not apply was an attempt to contract out, and that the landlord could not rely on it as an estoppel either (see leases of 15 years or more).
Permitted use and actual use
A use restriction is harder to dismiss than a bare label, because the Act asks how the premises are used, or are to be used, under the lease. The permitted use is therefore relevant. VCAT has relied on it: in a 2018 case, the premises were used for production and storage, consistent with a lease that permitted that use and noted it was not retail, and they were held not to be retail premises.
But the permitted use is not the whole picture. The courts have long accepted that both what the lease permits and what actually happens at the premises are relevant. Where a tenant runs a retail business with the landlord’s knowledge, a clause banning retail use may not keep the lease outside the Act. The question is asked when the lease is entered into or renewed.
Two decisions from 2026
The storage yard case (County Court, April 2026)
The lease, on a standard form, permitted storage of caravans, watercraft and storage units. The particulars said the Act did not apply, and an added provision banned retail use and any use that would cause the Act to apply. The tenant ran a storage business open to members of the public for reward, and the managing agent, the tenant’s only point of contact with the landlord, had visited a site where the business was carried on.
The Court held that the premises were used, or were to be used, for the retail provision of services, so the Act applied and the landlord’s possession claim belonged in VCAT. It looked at the actual use, not only the permitted use. It attributed the agent’s knowledge to the landlord, and found that the landlord knew the nature of the business and that the restrictions on retail use were, to both parties’ knowledge, not intended to have contractual effect. It said the ineffectiveness of clauses like these must be explained by s 94.
A 2026 Supreme Court decision
In May 2026 the Supreme Court considered a similar issue. As reported, the Court said that evidence of actual use, or the permitted use provisions themselves, may show that a retail prohibition is merely an attempt to characterise the lease as non-retail, which is an attempt to contract out of the Act and void under s 94. It added a caution: because such a finding may deprive a landlord of relief for breach of the permitted use covenant, it should not be made without careful consideration of all the relevant factors and the ordinary principles of construction.
When a use restriction can still matter
The cases do not say that a permitted use clause is worthless. A restriction that reflects the real bargain, which the tenant actually follows, still shapes how the premises are to be used under the lease, and the landlord can generally enforce it. What is unlikely to work is a restriction both sides know is not meant to operate, attached to a business that is retail in substance. Between those two positions the law is still developing, and each case turns on its facts.
Drafting leases of mixed-use premises
For landlords, these steps reduce the risk:
- Start with the real use. Ask the tenant who its customers are, whether they will visit, and whether it sells to businesses that use the goods or services themselves. Services to businesses can be retail.
- Describe the permitted use accurately. A precise description of a genuinely non-retail use helps. A label that contradicts what both parties expect does not.
- If retail use is realistic, comply. Give the information brochure when negotiations begin, a disclosure statement at least 14 days before the lease is entered into, and an outgoings estimate. See disclosure statements. Complying usually costs less than a dispute about it.
- Draft for both outcomes. Rent review and outgoings clauses can say what happens if the Act applies and if it does not. VCAT gave effect to a rent review clause drafted that way in 2025, holding that it was not void under s 94.
- Price the rent on a realistic basis. If the Act may apply, set the rent knowing that land tax and CIPT cannot be recovered as outgoings.
- Know the actual use at the start and at each renewal. That is when status is tested, and what your agent knows may be treated as known to you. If the tenant later departs from the permitted use, take advice promptly, because accepting rent with knowledge of a breach can affect a landlord’s remedies.
- Use a real exclusion if one applies. Occupancy costs over $1 million a year, a listed tenant, or a lease within a Ministerial determination take a lease outside the Act on the facts, not by label.
See also preparing a lease and warehouses, offices and retail leases.
How we help
- A free 15-minute phone call about a lease you are preparing or a dispute about whether the Act applies.
- For landlords: permitted use, rent review and outgoings clauses for premises whose status is uncertain.
- For tenants: advice on whether a clause excluding the Act is effective, and what you can recover if it is not.
- We quote in writing before we start. A lease review costs $1,100 including GST ($1,000 + GST) for most leases.
Common questions
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No. A provision of a retail premises lease is void to the extent it is inconsistent with the Act or purports to exclude any of its provisions. A clause saying the Act does not apply has no effect if the premises are in fact retail premises.
Not necessarily. The permitted use is relevant, but so is what actually happens at the premises. A restriction both parties know is not meant to operate may be treated as an attempt to contract out, which is void.
The landlord may have remedies for breach of the use covenant, but acting on them needs care. Retail status is fixed when the lease is entered into or renewed, so a later change of use matters most at renewal, and accepting rent with knowledge of a breach can affect a landlord’s remedies. Take advice early.
Yes. Clauses that operate one way if the Act applies and another way if it does not are not an attempt to contract out. VCAT has given effect to a rent review clause drafted that way.
Law referred to
- Retail Leases Act 2003 (Vic) ss 4(1), 11, 15, 17, 46, 50, 89 and 94.
- Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333.
- IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178.
- Bulk Powders Pty Ltd v Seicon Pty Ltd [2018] VCAT 2000.
- LFRACM Inc v Halski Pty Ltd [2025] VCC 1506 (appeal listed for 10 November 2026).
- Tiba Kebab Pty Ltd v G8 Education Ltd [2025] VCAT 987.
- Volk Road 2020 Pty Ltd v John White Pty Ltd (County Court of Victoria, CI-25-07630, 13 April 2026).
- Karam Investments Pty Ltd v Close the Loop [2026] VSC 270, [216].
Last reviewed: October 2026, by a Victorian solicitor with a current practising certificate. This page is general information about Victorian law as at October 2026. It is not legal advice about your lease.
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