Bevendale Pty Ltd v Lucky Eights Pty Ltd - [2020] VSCA 312

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2020 0014

BEVENDALE PTY LTD (ACN 006 392 267)	Applicant
v
LUCKY EIGHTS PTY LTD (ACN 056 500 022)	Respondent

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JUDGES:	KYROU, McLEISH and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	15, 16 October 2020
DATE OF JUDGMENT:	4 December 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 312
JUDGMENT APPEALED FROM:	[2019] VCAT 1668 (Judge Macnamara)

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RETAIL PREMISES LEASE – Hotel with gaming machines – Premises approved as suitable for gaming – Market rent review – Whether valuer erred in treating premises approval as being available to hypothetical tenant willing to lease premises – Victorian Civil and Administrative Tribunal erred in setting aside valuation – Gaming Machine Control Act 1991 pt 2A, s 163(5); Gambling Regulation Act 2003 ch 3 pt 3 – Appeal allowed.

RETAIL PREMISES LEASE – Valuation – Principles for determination of market rent – Retail Leases Act 2003 ss 37, 94.

RETAIL PREMISES LEASE – Valuation – Principles for determination of market rent – Attributes of ‘hypothetical tenant’ – Whether hypothetical tenant assumed to have necessary approvals for uses permitted by lease – Approval of premises as suitable for gaming – Gaming machine entitlements.

RETAIL PREMISES LEASE – Valuation – Principles for determination of market rent – Existing tenant’s goodwill – ‘Profits method’ – No error by Tribunal – Serene Hotels Pty Ltd v Epping Hotels Pty Ltd [2015] VSCA 228 followed.

RETAIL PREMISES LEASE – Valuation – Circumstances in which valuation of market rent for retail premises can be set aside – Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 applied.

WORDS AND PHRASES – ‘Free and open market’ – ‘Willing landlord and willing tenant’ – ‘Arm’s length transaction’ – ‘For the same, or a substantially similar, use’ – ‘Take into account the value of goodwill created by the tenant’s occupation’ – Retail Leases Act 2003 s 37(2).

WORDS AND PHRASES – Lease of retail premises – Valuation – Market rent – ‘Market rental values for comparable premises in the vicinity of the [leased premises]’.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr S R Morris QC with Mr S Hopper	MinterEllison
For the Respondent	Mr A J Myers QC with Mr B Holmes	Gilbert + Tobin

TABLE OF CONTENTS

KYROU AND McLEISH JJA

1

Introduction and summary

1

Factual and regulatory background to leases and use of Premises for gaming

2

Entering into and renewal of the leases

2

Regulatory approvals under the Gaming Machine Control Act 1991

4

Regulatory framework under the Gambling Regulation Act 2003

8

Transitional provisions in the Gambling Regulation Act 2003

12

LE’s current VOL

14

Broad outline of the Valuer’s Determination

15

Broad outline of VCAT’s decision

16

Grounds of appeal and notice of contention

17

Ground 1 and Contention 1 — Who can utilise the Premises Approval?

19

Valuer’s Determination relevant to Ground 1 and Contention 1

19

VCAT’s decision relevant to Ground 1 and Contention 1

19

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] VSCA 312
Decision Date: 4 December 2020

CaseChat Overview and Summary

The appeal in Bevendale Pty Ltd v Lucky Eights Pty Ltd involved a dispute over the valuation of market rent for a retail premises lease of a hotel with gaming machines. The respondent, Bevendale, leased the premises to the appellant, Lucky Eights, under a lease which allowed for gaming. The Victorian Civil and Administrative Tribunal (VCAT) had set aside a valuation that the valuer conducted for determining the market rent, leading to an appeal by Bevendale to the Supreme Court of Victoria. The appeal raised issues about the correct interpretation and application of the Retail Leases Act 2003 and the principles governing the determination of market rent, particularly concerning the hypothetical tenant's attributes and the value of goodwill created by the tenant's occupation.

The court had to decide whether the valuer erred in treating the approval of the premises as suitable for gaming as available to a hypothetical tenant willing to lease the premises. The appeal also involved the question of whether the VCAT erred in setting aside the valuation. The court examined the principles for determining market rent under the Retail Leases Act 2003, including the concept of a 'free and open market' and the 'willing landlord and willing tenant' principle. It was essential to determine whether the hypothetical tenant was assumed to have the necessary approvals for the uses permitted by the lease and whether the Tribunal had correctly applied the relevant legal principles.

In resolving the appeal, the court found that the VCAT had erred in setting aside the valuation. The court held that the valuer did not err in treating the approval of the premises as suitable for gaming as available to a hypothetical tenant willing to lease the premises. The court also determined that the VCAT had not applied the correct principles in setting aside the valuation. The court followed the decision in Serene Hotels Pty Ltd v Epping Hotels Pty Ltd, holding that there was no error by the Tribunal in valuing the goodwill created by the tenant’s occupation using the 'profits method'. The court held that the Tribunal had correctly applied the principles under the Retail Leases Act 2003 in determining the market rent.

The Supreme Court allowed the appeal, set aside the decision of the VCAT, and restored the valuation conducted by the valuer. The court held that the Tribunal had erred in law by setting aside the valuation and that the correct principles for determining market rent had not been applied. The court's decision underscored the importance of correctly applying the principles for determining market rent in retail premises leases, particularly in relation to hypothetical tenants and the value of goodwill created by the tenant’s occupation.

Orders