Recovering land tax under commercial leases or retail shop leases

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If you are a landlord or a tenant, and currently hold a commercial lease in Queensland, you may be impacted by the recent Queensland Court of Appeal decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225 (“Vikpro”).

The current state of the law is as follows:

  • If the lease was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If the lease was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.
  • Residential Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).
  • Retail Shop Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Retail Shop Leases Act 1994 (Qld).

The crucial statutory provision in the Vikpro decision was section 44A of the Land Tax Act 1915 (Qld) (the “1915 Act”) [which has been repealed and replaced by a largely equivalent provision in s 83A of the Land Tax Act 2010 (Qld)]. It provided as follows:

 44A               Provision to pay land tax etc. unenforcable

(1)                  A provision in a lease entered into after 1 January 1992 requiring a lessee to –

                     (a) pay tax; or

                     (b) reimburse the lessor for land tax;

                     is unenforceable.

In summary, the Queensland Court of Appeal in Vikpro determined that landlords could claim land tax from their tenants before 30 June 2010 (although this has now been reversed as of 22 June 2017, when the Revenue Legislation Amendment Act 2017 came into force, inserting a new s 83A into the Land Tax Act 2010 (Qld)).

This decision was based on an extensive consideration of the 1915 Act and how the subsequent amendments to that Act should be interpreted.

Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225

Facts of the case:

The appellant (Vikpro) was a tenant and the respondent (Wyuna) was a landlord. In August 2006, the tenant had entered into a sub-lease of a property for a period of 70 years. There was a clause in the lease that required the tenant to “pay all taxes and rates in respect of the demised land”.[1] However, at the point in time when the lease was entered into, section 44A of the 1915 Act did not permit the recovery of the land tax.

Section 44A of the 1915 Act was repealed in 2009 by the Revenue and Other Legislation Amendment Act 2009. The following transitional provision inserted in the 1915 Act purported to continue to maintain the effect of section 44A:

“76                Application of previous s 44A

                      ‘(1) This section applies to—

   (a) a lease (the pre-existing lease) to which previous section 44A applied immediately before the commencement; and

                             (b) a lease that arises from—

(i) a renewal under an option to renew contained in the pre-existing lease; or

(ii) an assignment or transfer of the pre-existing lease.

‘(2) Previous section 44A applies to the pre-existing lease and a lease mentioned in subsection (1)(b) despite its repeal by the amending Act, section 19.”

In 2010, the 1915 Act was repealed, and the Land Tax Act 2010 (Qld) (the “2010 Act”) came into effect. The 2010 Act contained transitional provisions, including:

“88                Application of this Act

                     (1) This Act applies to—

                        (a) a post-commencement liability; and

                        (b) an act or omission done or omitted to be done for this Act on or after 30 June 2010.

                     (2) This section applies subject to section 93.”

(Section 93 stated that references to unpaid land tax in part 7 of the 2010 Act, which deals with land tax recovery, would include the relevant pre-commencement liabilities.)

“89                Continued application of repealed Act

                     Despite its repeal, the repealed Act continues to apply to—

                     (a) a pre-commencement liability; and

                     (b) an act or omission done or omitted to be done for the repealed Act before 30 June 2010.”

“Post-commencement liability” was defined in section 86 as “a liability for land tax arising on or after 30 June 2010”. “Pre-commencement liability” was defined in section 86 as “a liability for land tax, within the meaning of the repealed Act, arising before 30 June 2010”.

The question the courts needed to answer was whether the transitional provisions in the 2010 Act “continued to preserve the operation of section 44A”.[2]

The Courts’ Decision

In the first instance, the primary judge concluded that the transitional provision did not preserve section 44A and the tenant was thus liable to pay land tax to the landlord.

The primary judge’s decision

The primary judge considered submissions by the tenant, who claimed that, per section 89(b) of the Land Tax Act 2010, the landlord’s entry into the lease was an “act…done…for the repealed Act before 30 June 2010”, so the 1915 Act continued to apply. The tenant also argued that they could, in the alternative, rely on sections 20(2)(b) and 20(2)(c) of the Acts Interpretation Act 1954 (Qld), which state:

“(2)                The repeal or amendment of an Act does not—

(b) affect the previous operation of the Act or anything suffered, done or begun under the Act; or

(c) affect a right, privilege or liability acquired, accrued or incurred under the Act…”

The primary judge rejected the argument relating to section 89(b) of the 2010 Act on the following basis:

  1. On the assumption that the provision was meant to read “an act done for the purposes of the repealed Act,” which Her Honour felt was “less precise than, say ‘an act done pursuant to the repealed Act’”, the landlord’s entry into the lease could not be considered an act done for the purposes of the 1915 Act.[3]
  2. In the 2010 Act, the legislature had not drafted any specific provision to preserve section 44A, indicating that there was “legislative intent that section 44A had no further application”.[4] Section 4 of the Acts Interpretation Act 1954 (Qld) allows the application of the Act to be revoked if there is evidence of contrary intention appearing in an Act. Her Honour was of the view that “the repeal of the 1915 Act and the failure to re-enact a transitional provision equivalent to s 76 of the amended Act showed a clear legislative intention to end the prohibition imposed by s 44A, displacing the application of s 20(2)”.[5]

The tenant’s arguments on appeal

The tenant submitted that both of the primary judge’s conclusions were in error, and that “by virtue of s 89(b), s 76 remained in effect, in turn preserving the s 44A prohibition”. The tenant argued that the word ‘for’ should be read broadly and that in s 89(b), “for” should “be read as a compendious form of “for the purposes of”.[6]

The tenant also contended that the 2009 amendments to the 1915 Act were intended to change the law for new leases while keeping the prohibition for existing leases.

The tenant submitted that if there was a discontinuation of the prohibition on the collection of land tax from tenants who were previously protected, there would be “a change to an ‘exemption’ and a ‘significant policy change’”.[7]

The tenant also argued that the effect of sections 20(2)(b) and (c) of the Acts Interpretation Act 1954 (Qld), was to keep s 76 alive in spite of the repeal.

The tenant also submitted that “it could rely on the presumption against the alteration of rights, which had equal application to statutory rights”.[8] In particular, the tenant relied on the fact that the High Court had restated the presumption on multiple occasions, including in a passage from North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015):[9]

“…the principle of legality favours a construction, if one be available, which avoids or minimises the statute’s encroachment upon fundamental principles, rights and freedoms at common law.”[10]

In addition, the tenant relied on the rule that words used in the same matter are to be construed together. As such, the tenant argued that the 1915 Act and the 2010 Act should be regarded as one system, so they should operate in the same way including reference to land tax.[11]

Appellate court’s decision

The appellate court rejected the tenant’s submission “as to the effect of s 89(b) in continuing the operation of s 76 and hence s 44A of the 1915 Act”.[12]

Holmes CJ rejected the proposition that the word “for” in s 89(b) was as broad as the tenant argued. Per Philip McMurdo JA, “A sufficient answer to each of the appellant’s arguments is that none could result in an extension of the scope of s 44A, such that it would apply not only to land tax under the 1915 Act but also to any similar tax imposed by a later enactment”.[13]

In a 2-1 split decision (Philippides JA dissenting), the appellate court upheld the primary judge’s conclusion.

The 2017 Amendments to the Land Tax Act 2010 (Qld)

On 22 June 2017, the Revenue Legislation Amendment Act 2017 came into force. It inserted a new s 83A into the Land Tax Act 2010 (Qld):

83A               Provision to pay land tax etc. on particular leases unenforceable

                     (1) This section applies to the following leases—

                        (a) a pre-existing lease;

                        (b) a lease that arises from a renewal under an option to renew contained in a pre-existing lease;

                        (c) a lease that arises from an assignment or transfer of a pre-existing lease.

                     (2) A provision in the lease requiring a lessee to pay land tax, or reimburse the lessor for  land tax, is unenforceable.

                     (3) In this section— pre-existing lease—

                        (a) means a lease entered into after 1 January 1992 and before 30 June 2009; and

                     (b) does not include a lease that arises from—

                          (i) a renewal under an option to renew contained in a lease entered into on or before 1 January 1992; or

                          (ii) an assignment or transfer of a lease entered into on or before 1 January 1992.

It also inserted a new pt 10, div 7, providing:

 Division 7      Transitional provision for Revenue Legislation Amendment Act 2017

100                Application of s 83A

                     (1) Section 83A is taken to have had effect on and from 30 June 2010.

                     (2) However, if a lessee of a lease to which section 83A applies has paid an amount of land tax, or paid an amount to the lessor for land tax, before the commencement, the lessee is not entitled, only because of the operation of section 83A, to recover the amount.

                     (3) Subsection (2) does not limit the grounds on which the lessee may otherwise recover an amount from the lessor for land tax paid in relation to the lease.

                     (4) Also, if a court has made an order requiring a lessee of a lease to which section 83A applies to pay land tax in relation to the lease—

                          (a) despite subsection (1), the lessor may enforce the order; and

                          (b) section 83A does not affect the enforceability of the order.

                     (5) In this section— land tax includes land tax levied under the repealed Land Tax Act 1915.

These changes had the effect of reversing the effect of the Court of Appeal’s judgment in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225. The new provisions applied on a retrospective basis, from 30 June 2010.

The practical application of the changes means that despite what the Court of Appeal held in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, landlords cannot claim land tax from their tenants in pre-existing leases before 30 June 2010, unless they have already done so in the timeframe between the Vikpro decision and the amendments to the Land Tax Act 2010 (Qld) on 22 June 2017, or if they have obtained a court order (in that same timeframe) which compels the tenants to pay land tax.

Legislative Background

A brief overview of the legislative changes and their flow-on effects can be found below:

* This date includes leases arising from an option to renew, an assignment or transfer of a pre-existing lease

How does this apply to me?

  • If you have a lease that was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If you have a lease that was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.

However, land tax cannot be recovered in retail shop leases under the Retail Shop Leases Act 1994 (Qld), or in residential leases under the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).

How Corney & Lind Lawyers can help

Our team of experienced commercial lawyers here at Corney & Lind Lawyers can assist you if you have questions relating to the recovery of land tax under commercial leases. Call our Business Development Officers on 07 3252 0011 or email us today to make an appointment.
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This article was written by Miriam Sadler (Lawyer) and Andrew Lind (Director).

[1] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [1].

[2] Ibid.

[3] Ibid, per Holmes CJ at [7].

[4] Ibid.

[5] Ibid.

[6] Ibid, per Holmes CJ at [8].

[7] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [9].

[8] Ibid, per Holmes CJ at [13].

[9] [2015] HCA 41.

[10] Ibid, at [11].

[11]Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [14].

[12] Ibid, per Holmes CJ at [19].

[13] Ibid, per Philip McMurdo JA at [41].