Time for commercial lessees to pick up the Land Tax bill?
In September 2016 the case of Vikpro Pty Ltd v Wyuna Court Pty Ltd ATF Wyuna Court Unit Trust  QCA 225 was heard before Holmes CJ, Phillipedes and Phillip McMurdo JJA in the appeal division of the Supreme Court of Queensland. The outcome of the case was a fundamental, 360-degree change in respect of the party that bears the land tax liability in a commercial lease arrangement.
The tenant leased land under a lease which provided that the lessee was liable to pay, or otherwise recompense the lessor for land tax incurred during the period of the lease. The lease was entered into in August 2006 for a 70-year term. Prior to the amendments to the Land Tax Act (see below), Clause 11.2 was unenforceable against the lessee.
The Land Tax Act 1915 (Qld) (repealed) (1915 Act) rendered unenforceable contractual provisions that required the lessee to pay all taxes and rates in respect of demised land. Therefore pursuant to section 44(1A) of the 1915 Act, the landlord’s rights to recover land tax from a tenant under a commercial lease entered into after 1 January 1992 were suspended.
44A Provision to pay land tax etc. unenforceable
1. A provision in a lease entered into after 1 January 1992 requiring a lessee to-
This section was removed and replaced by transitional provisions in 2009. The enactment of the Land Tax Act 2010 (Qld) (2010 Act) sought to reverse this position.
Sections 88 and 89 of the transitional provisions to the 2010 Act provided as followed:
88 Application of this Act
1. This Act applies to—
This section applies subject to section 93.
89 Continued application of repealed Act
Despite its repeal, the repealed Act continues to apply to—
Section 86 defined “post” and “pre” commencement liabilities:
The lessee contended it was not liable to pay land tax levied in relation to the land because provisions of the 1915 Act still continued in a relevant manner.
The Court held the deliberate failure by the Government to re-enact a provision equivalent to section 44(1A) of the 1915 Act illustrated an intention to reverse this position in the 2010 Act. Thereby, this allowed a landlord with appropriate lease provisions to recover land tax (imposed on or after 30 June 2010) from a tenant.
Chief Justice Holmes rejected the Appellant’s contentions, and held that the transitional provisions (sections 88 and 89), when read together, clearly drew a distinction between the continuation in the same manner under the 1915 Act of pre and post-commencement liabilities to land tax. Principally, Her Honour confirmed that the 2010 Act contemplated the following:
Her Honour confirmed that the Explanatory Notes to the Transitional Provisions did nothing to indicate that the legislature contemplated that a lessee’s relief from liability to land tax should continue as it had under the 1915 Act, but rather the clear implication from the repeal of section 44A of the 1915 Act was to change a lessee’s immunity from payment of land tax.
Phillip McMurdo JA agreed with the reasons of Chief Justice Holmes, however Phillipedes JA was in the minority.
This case has two major implications for lessors of commercial or industrial premises:
1. A lessor may now offer a lease to a potential lessee in Queensland on terms that include recovery of land tax from the lessee for the duration of the lease.
2. It appears that there has been a general practice of lessors including such clauses in leases despite their unenforceability under the 1915 Act. Should a lessor and lessee have a current existing lease agreement in Queensland that contains such a clause, that clause will now be enforceable against the lessee.
As a proceeding before a superior court of Queensland, this case provides a great deal of certainty for lessors and lessees.
For more information or discussion, please contact HopgoodGanim Lawyers' Taxation team.