How Land Tax and Commercial Lease changes can affect Landlords and Tenants
In Queensland under Commercial Leases, it has long been the practice of Landlords to include conditions in their Leases that require Tenants to contribute towards the Landlord’s Land Tax Assessment.
In many Leases, the description of ‘Outgoings’ will often include the words ‘(including land tax on the basis that this is the only property owned by the Landlord)’ which seeks to ensure that Tenants are not contributing towards a Landlord’s Land Tax Assessment for other properties that the Landlord may own.
Following the decision of Vikpro Pty Ltd v Wyuna Court Pty Ltd ATF Wyuna Court Unit Trust [2016] QCA 225 and the subsequent enactment of the Revenue Legislation Amendment Act 2017, we have a new sense of clarity surrounding the recovery of Land Tax under leases.
This article looks to explain how this might affect you.
What is Land Tax?
Land Tax is a Government Tax on freehold Land that you own calculated during the financial year. Your liability to pay Land Tax is based upon many factors, such as the type of entity in which you own the Property in, the dutiable value of that property, and the number of properties you own.
If the Commissioner of State Revenue determines that you have become liable for Land Tax, you will be issued with an Assessment Notice.
What do these changes mean for Tenants?
Leases in Queensland that are subject to the Retail Shop Leases Act 1994 (Qld) will not have to concern themselves with these changes. Pursuant to section 7(3)(a) of this act, Land Tax is not recoverable from a Tenant as an outgoing.
However, Commercial Leases not caught by the provisions of the Retail Shop Leases Act 1994 (Qld) may include provisions requiring Tenant’s to contribute towards the Landlord’s bill (or all of it) for their Land Tax Assessment. The effect of Vikpro is that Leases containing provisions that were previously unenforceable may now be enforced against the Tenant.
Legislative Changes and Ambiguities
Pursuant to section 44A of the Land Tax Act 1915 (‘the former act’), Land Tax recovery clauses in Leases entered into after 1 January 1992 were unenforceable.
In 2009, the transitional provisions replaced s 44A under what would later be known as the Land Tax Act 2010 (‘the new act’). The repeal of s 44A under the former act provided that this position was reversed for Leases entered into after 30 June 2010, however existing Leases were not affected.
The ambiguity is derived by the subsequent rewrite of the Land Tax Act in 2010 repealing the former act, and this rewrite containing no express statements about the continuation of s 44A and its application to the existing Leases.
Clarity from the Court of Appeal
The Court of Appeal confirmed in Vikpro that the legislatures decision not to expressly provide for the continuation of the provisions of s 44A, read together with the Transitional Provisions would indicate that it was the intention of the legislature to remove the Tenant’s immunity from the recovery of Land Tax.
Where to now?
If you are a Landlord you can include enforceable provisions in your commercial Lease that allows for the recovery of Land Tax from your Tenants.
Furthermore, if your Lease dated after 30 June 2010 provides for the recovery of Land Tax which may have been previously unenforceable, you may now have a right to reimbursement from the Tenant.
We again note that this will not apply to Retail Shop Leases, which specifically excludes the recovery of Land Tax.
If you are a Tenant and your Lease dated after 30 June 2010 contains provisions requiring the payment of Land Tax, you may be requested to provide reimbursement for unpaid Land Tax amounts notwithstanding the fact that recovery of Land Tax was unenforceable at the time the Lease was entered into.
Section 83A of the Revenue Legislation Amendment Act 2017 specifically confirms that recovery of Land Tax under Leases between 1 January 1992 and 30 June 2009 is unenforceable. This includes leases that arise due to a renewal under option, assignment or transfer of a Lease from this time period.
What should I do?
Whether you are a Landlord or Tenant, a review of your Lease Agreement may be necessary to ensure that you are aware of your rights and obligations in the wake of these changes.
Bradley & Bray Solicitors handle Commercial Leasing matters for a range of Tenants and Landlords, and can assist you with perusing, drafting or reviewing your agreements.
Please contact Jacob Corbett or Bridie Edwards if you wish to discuss on (07) 5441 1400.
Author: Jacob Corbett
Note: This summary is provided for general information only and should not be construed as Legal Advice. Should you require Legal Advice in respect of any of the matters raised above, we strongly recommend that you seek legal advice as soon as possible.