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Level 1, 88-96 Bunda Street Canberra ACT 2601 Tel: 61 2 6156 4332 Fax: 61 2 9228 9299 Page 1

Cases Update for

Conveyancing &

Leasing

Retail Leasing Reform

Monday, 20 February 2017 7.30 to 8.30pm

SMC Conference Centre, 66 Goulburn Street, Sydney

Presented by Gary Newton, Partner

s3746823_1.DOCX/GN/CS Page i

Contents

1. Recent Cases on Conveyancing 1

2. Recent Cases on Leasing 10

3. Retail Leasing Reform 2016 89

4. Retail leasing timeline 95

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1. Recent Cases on Conveyancing

1.1. 5% deposit

In Kazacos v Shuangling International Development Pty Ltd [2016] NSWSC 1504, the

Supreme Court found that a special condition within the contract for sale of land requiring

payment of deposit in two instalments, 5% at exchange and 5% upon completion of the

contract, was in fact not a valid deposit but rather a penalty, thus making the provision for

the second instalment void.

Outline of the facts

In 2013 Peter and Vicki Kazacos (plaintiffs) entered into a contract to sell a property at

311-317 Sussex Street, Sydney to Shuangling International Development Pty Ltd (first

defendant) at the purchase price of $17 million. The Completion Date was set 12 months

after the date of the contract, and the deposit was said to be $1,700,000, however

special condition 52.1 provided that half of the deposit was payable on the making of the

contract and the other half was payable on actual completion of the contract or the

Completion Date (whichever was earlier). $850,000 was paid on exchange.

The purchaser failed to complete the contract despite multiple extensions as to the

Completion Date granted by the vendor. Consequently the vendor terminated the

contract on 10 June 2014. Soon after the vendors entered into a contract for resale of the

property for $18 million, making a profit over what they would have earned had the

original contract been completed.

The vendor sued the purchaser to recover the balance of the “deposit”, being the

remaining $850,000.

Issues

The Supreme Court had to deal with the issue of the contract for sale of land containing a

special condition requiring payment of deposit in two instalments. Although the vendor

managed to resell the property for a surplus and thus the question arose as to whether or

not the vendor is entitled to the second instalment due, and whether this second

instalment was really in the nature of a deposit or whether it is void as a penalty.

Supreme Court’s Decision and Legal Principles

The Court looked at the Court of Appeal case of Brien v Dwyer [1976] 2 NSWLR 420 in

which they described a deposit as an “earnest to bind the bargain” and “a guarantee that

the purchaser means business.”


When the contract was made, the parties were required to complete the contract by the

Completion date. If the “second instalment of the deposit” were to be paid on completion,

the instalment could not be characterised as an earnest of performance.

The question of whether the balance of the deposit is a penalty is to be assessed at the

time the contract for sale was entered into. The Court reaffirmed Brereton J’s decision in

Boyarksy v Taylor [2008] NSWSC 1415, where he rejected the vendor’s claim to be paid

the second instalment of the deposit, being five per cent of the purchase price. The

contract had fixed a completion date of 12 weeks after the date of contract, or 14 days

after the vendor notified the purchaser in writing that a certain subdivision plan, drainage

easement and height restriction had been registered. His Honour held that the special

condition that half the deposit was to be payable on the completion date was void as a

penalty. It is implicit in Brereton J’s reasoning that his Honour was of the view that the

deposit would not be payable on the completion date if completion did not occur on the

completion date due to the vendor’s default.

The Supreme Court held that it would not be a reasonable construction of the contract

that the vendors could potentially take advantage of their own default as to insist on

payment of the balance of the so-called deposit in advance of completion. For these

reasons the Court held that the second deposit was a penalty and that the vendors were

not entitled to recover the deposit balance.

Importance

The decision postulates that if lawyers choose to separate “deposit” payments so that the

“balance” falls due on completion of the contract, the deposit will be considered a penalty

and thus void as it allows for the vendor to obtain an advantage by having the ability to

default and then insist on the payment of the balance of the so-called deposit in advance

of completion.

1.2. Polbratek v Annross Partners Pty Ltd [2016] NSWSC 385

Real Estate Agents should only release deposits when they have the written

authorisation from both the vendor and the purchaser

In Polbratek v Annross Partners Pty Ltd [2016] NSWSC 385, Polbratek (the Vendor)

sought a declaration that she was entitled to the deposit paid by the purchaser to

Annross Partners (the Agent) following the termination of a contract for the sale of land.

The Vendor also argued that the Agent should pay the costs of the legal proceedings

because of the Agent’s reluctance to release the deposit. The Court found that without

written consent from both the vendor and purchaser or from a direct court order, the

Agent was within their rights to refuse the release of the deposit. Thus, the Court ordered

that the Plaintiff pay the legal costs of the Agent.


Summary

The Vendor entered into a contract for the sale of a property in Prestons with a purchase

price of $560,000, including a deposit of $56,000. The purchaser paid half of the deposit

($28,000) to the Agent with the remaining half of the deposit outstanding. The purchaser

allegedly failed to complete the contract and consequently the vendor terminated the

agreement.

The vendor made several requests for the Agent to transfer the $28,000 into the

Vendor’s solicitor’s trust account. The Agent refused to do so and referred to Part 10 of

the Residential Conveyancing Protocol which stipulates that agents hold deposits on

behalf of both the vendor and purchaser. The Protocol further notes that Agents cannot

release such a deposit without written authority of both parties or a court order.

When should an agent release deposit funds?

The Court found that without the authority of the purchaser, a court order would be

necessary to obtain the deposit funds. It also noted that the Agent did not hold the

deposit funds purely for the Vendor. Therefore the Agent was not obliged to release the

deposit funds even when the Vendor instructed the Agent to do so. The Court

emphasised that the Agent’s actions were consistent with the Residential Conveyancing

Protocol. Furthermore, the Agent was not in a position to have knowledge of all the facts,

nor could the Agent be sure that the purchaser held no rights to the deposit. Thus, the

Agent’s refusal to release deposit funds without a court order or written authority from

both parties was ruled to be reasonable.

Lessons

The key message to note from this case is that agents should be very cautious when

releasing deposit funds, especially following the termination of a contract. Agents should

only release funds following such a termination after obtaining written consent of both

parties to the contract or alternatively from a court order.

Although the court held that an agent could pay funds to a party if circumstances arose

which demonstrated a party was entitled to those funds, agents do so at their own risk.

Should they be wrong in their assessment, they could be liable to pay substantial

damages.

1.3. SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362

Auctioneer announced the Sale Price "exclusive of GST", overrides Contract for Sale

In SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362 the

Supreme Court found that a Contract of Sale should be rectified to reflect the common


intention of the parties when entering into the agreement that the purchase price of a

property was to be exclusive of GST.

Material Facts

The Vendor listed its industrial property at Wetherill Park for public auction on 19 August

2015. The Purchaser sent its agent, Mr Jody Parker, to the auction to bid on its behalf.

Mr Parker bid $3.325 million to purchase the property. The auctioneer accepted the bid.

Contracts were executed and exchanged in the form of a draft that had been circulated

prior to the auction. There was confusion as to whether the price was exclusive or

inclusive of GST. The effect of the contract, as executed, was to provide for a purchase

price of $3.325 million inclusive of GST.

The Vendor alleged that, despite the form of contract as executed, the “clear and

common intention” of the parties was that the contract price be $3.325 million plus GST

and sought rectification of the contract accordingly.

Court’s Decision

The Court held that rectification was available where there is “clear and convincing proof”

that by reason of the common mistake of the parties, the document they have signed

does not “embody the final intention of the parties”. The evidentiary burden of “clear and

convincing proof” placed on the party seeking rectification is high and relief is not easily

obtained.

The Court found that there was a striking difference between the recollections of the

witnesses called by the parties and their evidence could not be reconciled. The Court

found that the auctioneers email evidence reflected the actual recollection of what

occurred at the auction, in particular, his recollection that at the auction “it was clearly

stated that GST was payable above and beyond the sale price.” The evidence of the

auctioneer was corroborated by the “Reserve Price Letter” given by the vendor to the

agent before the auction, stating that the reserve price was “3,500,000 + GST”. The

Court held that Mr Parker must have heard the Auctioneer say that bids were to be

exclusive of GST, and furthermore that by the time Mr Parker made his final bid, he had

seen the Reserve Price Letter, and from that must have seen the Vendor’s intention was

that the sale price be “+ GST” and that his bids were being received by the Auctioneer on

that basis.

Thus the Court found that Mr Parker was well aware that his final bid of $3.325 million

was accepted by the Auctioneer on the basis that it was exclusive of GST. The Court

then held that the common intention of the parties was that the sale price would be

$3.325 million plus GST and that the contract should be rectified accordingly.

Importance


In this case the Vendor did not read the Contract prior to the auction, and hence the

Vendor did not notice that the Contract did not contain any special condition overriding

clause 13.2 of the standard terms of the Contract (“Normally, if a party must pay the

price…to the other party under this contract, GST is not to be added to the price…”). It is

important that the Vendor understand the nature of their contract, in particular whether or

not the sale price will be inclusive of GST, in this case the Vendor was fortunately able to

provide “clear and convincing proof” that the common intention of the parties was that the

sale price did not include GST, however this evidential burden is quite substantial and not

easily attained. If the Vendor was unable to satisfy this evidential burden they would have

suffered a significant loss of $325,000 (10% of the purchase price of $3.25 million).

Dealing with property, and large sums of money, confusion of whether GST is included or

not can become very costly.

1.4. Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32

Terminating a contract without being "ready, willing and able to complete", may render

the termination invalid

On 12 February 2016, the New South Wales Supreme Court of Appeal handed down its

decision in Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32

which found that the Vendor’s Notice of Termination was invalid as the Vendor

themselves were not ready, willing and able to complete the contract at settlement.

Material Facts

Barrak Corporations Pty Limited (Vendor) and Jaswil Properties Pty Limited (Purchaser)

entered into a contract for sale of land at Parramatta on 23 October 2014. The

contractually agreed date for completion of the contract was 30 January 2015.

On 2 February 2015, the date of completion having passed, the Vendor issued a notice

to complete, requiring completion “on or before 3 pm on Tuesday 17 February 2015”. The

notice indicated that time was of the essence, and that if the Purchaser breached the

time stipulation they had the option to terminate the contract. Settlement was scheduled

for 16 February 2015, however at the settlement, while the Purchaser had all the

necessary documents and cheques required, they rejected the Transfer as it was

incorrectly executed by the Vendor as it did not bear the form of words necessary for

execution by a company pursuant to the Corporations Act, s127.

The Purchaser requested that settlement be rebooked for 17 February 2015, however

this did not occur.

The Purchaser sought an acknowledgement from the Vendor that they were not able to

terminate the contract pursuant to the Notice to Complete, as the Purchaser was ready,


willing and able to complete, however the Vendor indicated that the Notice to Complete

remained valid. On 20 February 2015, the Purchaser served a further Notice to

Complete. On 26 February 2015, the Vendor served a Notice of Termination on the

Purchaser. On March 2015, the Purchaser commenced proceedings against the Vendor

for relief against termination of the Contract.

Initial Findings

The primary judge, Chief Justice Bergin, assessed the obligations of the Purchaser, and

found that it was the Purchaser’s obligation to include in the form of transfer provided to

the Vendor the proper clause for execution as a corporation. Her Honour concluded, that

settlement could have been effected on 16 February 2015 had the Purchaser included

the appropriate execution clause on the transfer, and was critical of the Purchaser for not

having arranged a time for settlement earlier.

Subsequently, Her Honour concluded that the Vendor was entitled to serve the Notice of

Termination however the Purchaser was entitled to equitable relief in all the

circumstances and order the parties to complete in April 2015.

Current Appeal

In this appeal, the Vendor wanted the deposit so the Court of Appeal reassessed whether

the Vendor was entitled to issue a Notice of Termination on 26 February 2015. The Court

overturned the primary judge’s findings, and considered the Vendor’s responsibilities in

contrast to the Purchaser’s obligations.

The Court reaffirmed that “it is a fundamental principle of land law that the party who

seeks to terminate a contract for breach of an essential stipulation, must itself be ready,

willing and able to complete” and carry out the agreement. This principle is well

established and is supported by both McNally v Waitzer [1981] 1 NSWLR 294 and Malouf

v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920.

The Court looked to Malouf v Sterling Estates Development Corporation Pty Ltd [2002]

NSWSC 920 as a precedent to the current case. In that case Chief Justice Young stated

that:

“If a vendor wishes to issue a notice to complete, it will only be able to do so, (a) if it is

free from any relevant breach of contract which may have provided the purchaser a good

excuse not to complete by the due date; and (b) it is able to proceed to completion and

deliver to the purchaser all the purchaser is entitled to under the contract no later than

the expiry of the notice to complete.”

Thus, it was the Vendor’s obligation to ensure that they were ready, willing and able to

carry out the contract; the Court held that they had failed to do so, and hence the Vendor


was not entitled to serve a Notice of Termination to the Purchaser. The Purchaser had

the option to terminate the contract due to repudiation, or to go ahead with the

agreement. In this case the Purchaser elected to go ahead with the agreement and was

granted equitable relief by the primary judge that the parties settle the contract on a later

date (30 April 2015) than what was previously agreed. The Court of Appeal confirmed

that the Vendor was not entitled to terminate and was not entitled to the deposit or any

other damages.

Importance

It is critical to note that a vendor relying on a Notice to Complete to terminate a contract

must have the documents of title available in order to be ready, willing and able to pass

legal title to the purchaser. Therefore, the onus is on the party seeking to terminate the

contract to ensure that they are ready, willing and able to complete. If the party is unable

to complete and wrongfully terminates, that may amount to an act of repudiation. The

other party will have the option to either terminate the contract and sue for damages, or

elect to enforce the contract and proceed.

1.5. Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3

Developer's application to rescind contract rejected in first case on new Sunset Clause

Laws.

The Conveyancing Amendment (Sunset Clauses) Act 2015 came into effect on 2

November 2015, as the new division 10 s66ZL of the Conveyancing Act 1919 (NSW).

The amendments require vendors to either obtain the consent of all of the purchasers

before they can rescind an off-the-plan contract in reliance on a sunset clause in the

contract, or alternatively, obtain the permission of the Supreme Court to rescind. These

new laws apply to all attempts to rescind for sunset dates in all off-the-plan contracts for

sale of residential lots in New South Wales after 2 November 2015, no matter when the

contract was entered.

The Case

Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3 is the first case in

which the Supreme Court had a developer's request to rescind a contract in reliance of a

sunset clause for an off-the-plan property since new laws came into effect. The Court

rejected the developer’s application to rescind a contract pursuant to a sunset clause.

Background

Mr Wu (defendant) entered into the contract with Xycom, the original vendor, on 6

December 2013, to purchase a home unit off-the-plan. It was in a 14 storey property

development project for 72 residential units and 7 commercial lots in Dora Street,


Hurstville. The sunset date for the registration of the Strata Plan was 31 December 2015.

After that date, either party had 14 days to rescind the contract. The developer’s right to

rescind the contract was qualified by the requirement to ‘use all reasonable endeavours

to have the Strata Plan registered by the sunset date'.

However, although Xycom obtained the development approval, they carried out little to

no construction work after entering into the contracts to the Purchasers. Subsequently, in

October 2014, Xycom sold the development site to Jobema Developments (plaintiffs)

which settled in January 2015. The sale was subjected to the existing off-the-plan sale

contracts, which were novated to Jobema. Jobema assumed the development and other

obligations of Xycom under the existing off-the-plan contracts, however was unable to get

the strata plan registered within the contemplated time in the contract.

On 1 December, Jobema served a notice to Mr Wu proposing to rescind the contract

under s66ZL(4):

"Jobema is proposing to rescind the contract because:

(a) Since the date that the Contract was entered into, construction costs have

increased significantly;

(b) (Xycom) did not advance the property to the time that Jobema acquired it in

2015;

(c) The contract does not meet the financial requirements for funding the project in

2015;

(d) Jobema has offered [Mr Wu] the opportunity to continue with the purchase at a

new price which reflects 2015 current market conditions;

(e) [Mr Wu] [has] elected not to continue on the basis set out in paragraph (d);

(f) Jobema has the opportunity to sell the property in the Contract at a price which

reflects the 2015 market and takes into account the increased construction costs

referred to in paragraph (a).

The lot which is the subject of a Contract has not yet been created for the following

reasons:

(a) From the date of the Contract until 5 February 2015 [Xycom] carried out little or

no physical work for the Project;

(b) Since 5 February Jobema has entered into contracts to sell other lots in the

Project in order to secure finance for the Project;


(c) Jobema has commenced physical works but anticipates that the lot will not be

created until sometime in 2017.”

Mr Wu did not consent to the rescission and Jobema applied to the Supreme Court under

s66ZL of the Conveyancing Act seeking the Court’s permission to rescind the contract

pursuant to the sunset date clause contained in the contract.

The Court's Decision

Justice Black of the Supreme Court found against the developer in all factors outlined in

s66ZL.

In s66ZL(7)(g) – any other matters or factors that the Court may consider to be relevant,

the developer raised two matters:

(a) That there was an increase in construction costs that affected the construction

funding. However, the Court noted that ‘an inability to rescind’ the contract would

not affect the availability of construction finance – it would only result in a

requirement ‘to contribute additional capital to meet its lender’s requirements’.

(b) That the new Sunset Clause Law was unforeseeable when Jobema purchased

the property from Xycom, and thus Jobema’s rights should not be restricted. The

Court disagreed, stating that legislative change is generally a foreseeable risk of

business activity.

Not Just and Equitable

An order under s66ZL(6) of the Act is only made if the Court is satisfied that the order is

just and equitable in all the circumstances to do so. Whilst the Court accepted that the

evidence indicated that since buying the site in 2014, Jobema had exercised diligence in

progressing the construction of the site, the court was unable to disregard Xycom’s lack

of diligence in considering an order where Jobema had expressly assumed Xycom’s

obligations.

The Court dismissed the application for an order allowing the developer to rescind for the

sunset date under s66ZL(6) because it was not satisfied that it was just and equitable to

make the order.

Importance

The reason sunset clauses are included in “off-the-plan” contracts is to protect both

parties and prevent contracts with no end date from going for too long. The new laws do

not prohibit or discourage sunset clauses, however they do put the onus on the

developer to show that the rescission is just and equitable (s66ZL(6)) when the

purchaser does not consent to the rescission.


The Court took into account the prescribed factors laid out in s66ZL of the Act, including

that it will look at what was done by the present vender developer and also what was

done by the prior vendors. This case serves as guidance as to how the Court is likely to

interpret these new provisions of the Act in the future.

2. Recent Cases on Leasing

2.1. Landlord’s consent for assignment of lease found by conduct

Outline of the facts - Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd

[2015] NSWCA 241

In 2009, Mr George Doro and his daughter, Ms Jane Doro, sought to purchase and

operate a child care centre. They registered Kids for Life Academy Pty Ltd, intended to

be the corporate vehicle that would own and run the child care centre. Mr Mourched was

the sole director of Chamberlain Group Pty Ltd the company which was the registered

proprietor of the property at 4 Chamberlain Road, Guildford (the Property), which was

constructed as a child care centre which was to be run by Chamberlain Early Learning

Centre Pty Ltd, a company controlled by Mr Mourched.

Mr and Ms Doro expressed an interest in leasing the Property and purchasing the

contents of the child care centre. Chamberlain Group (the Landlord) granted a five year

lease over the property to Kids for Life Academy (the Tenant) with four options to renew

for further terms of five years. Mr and Ms Doro then purchased Chamberlain Early

Learning Centre Pty Ltd from Mr Mourched, as the company already held the necessary

government licences to run a child care centre, which would take time for the Tenant to

acquire. They ran Chamberlain Early Learning Centre Pty Ltd (Assignee) on the leased

property from 1 February 2010.

In 2014 Mr Mourched gave notice to Mr and Ms Doro that the Property was being sold to

a Mr Joe Nasr, Mr and Ms Doro lodged a caveat on the title of the property shortly

afterwards. The issue at hand was whether or not the lease entered into by Kids for Life

Academy Pty Ltd was validly assigned to Chamberlain Early Learning Centre Pty Ltd

even though no transfer of lease was ever registered.

Court’s Decision and legal principles

The Court found that the terms of the lease did not require a binding agreement between

the landlord and the tenant to be in place in order for the tenant to assign their leasehold

interest. Thus the only pre-condition to assignment of the tenant’s interest was that the

landlord “consent” to the assignment, not that an agreement regarding landlord “consent”

be obtained first.


The Court remarked that the prohibition on assignment under the lease is “less stringent

than is often found in commercial leases”; for example, there is no requirement that

consent be given in writing.

The Court found that the landlord’s conduct supported a conclusion that “consent” had

been provided to the request for assignment of the lease regardless of the fact that no

formal documentation had been executed by the parties.

The Court considered the following factors to arrive at this determination:

1. The landlord was aware that the assignee (a childcare operator) was already in

possession of the Premises and was operating the business and held the relevant

business licence.

2. The landlord had continued to collect rent from the assignee.

3. The landlord had allowed the assignee to remain in the Premises at a time when the

previous tenant was deregistered as a company and ceased to exist.

4. The landlord raised no concerns with the tenant as to the assignee’s possession of

the property, or its conducting business from the property, despite these being rights

granted to the tenant, not the assignee, under the terms of the lease.

5. There was a handwritten note signed by the landlord and the assignee whereby the

parties agreed to the registration of the Transfer of Lease by the landlord.

The Court confirmed that while there was no registered lease to the assignee on the title

to the land, there was nonetheless an enforceable unregistered leasehold interest in the

Premises and the caveats lodged on the title to the land by the assignee to protect its

interests were upheld.

Importance

This case demonstrates that landlords should be wary when requests for consent to

assignment of leases are made by tenants. Lease documents and any applicable

statutory provisions will generally set out the requirements necessary for consent to

assignment of a lease; however the conduct of the parties may also be taken into

account when determining whether or not consent to assignment of a lease has been

obtained.

2.2. An option to renew a lease will only be enforceable when the lease provides a valid

means of determining rent payable

In Brief

In Pozetu Pty Ltd v Alexander James Pty Ltd [2016] NSWCA 208, Pozetu Pty Ltd (the

Lessor) sought to enforce Alexander James Pty Ltd’s (the Lessee) exercise of the option

to renew their lease. Applying s 18 of the Retail Lease Act 1994 (the Act), the Court


found that the option to renew provision was invalid and unenforceable because the

provision did not contain a term which validly determined the rent payable. The Court

also did not allow the Lessor to change arguments submitted at the initial tribunal

hearing.

Facts

In 2003, the Lessor entered into a lease with the Lessee for a shop in Woollahra. The

lease was to last for five years and included a provision which provided the Lessee with

an option to renew the lease. The clause in question stated that the rent payable under a

renewed lease would be the “greater of current market rent and 105% of the rent in the

last year of the previous term”.

In 2008, the Lessee exercised the option to renew the initial lease. However, in March

2009, the Lessee gave the Lessor notice of their intention to quit the lease of the

Woollahra shop.

The Validity of the Option to Renew

Section 18(3)(c) of the Act stipulates that a provision of a retail shop lease is void when

the provision provides for the base rent rate to change on a particular occasion and the

means of calculating the rent out of the methods suggested in the provision would result

in a higher or highest rent. In this case, the provision in the lease stated that the rent

payable would be the “greater of” the two mechanisms specified to determine rent

payable.

The Court therefore found that the provision was void under the Act and meant that an

essential term of the contract was absent. Hence, the option to renew was

unenforceable.

Changing Arguments on Appeal

At initial hearings, the Lessor argued that the option to renew provision breached the Act,

yet attempted to argue to the contrary at the Court of Appeal. The Court emphasised that

proceedings in the Tribunal are “not to be regarded as a rehearsal for an appeal”, nor

should an appeal be viewed as a “fresh opportunity” to adjust one’s case. The Court

therefore did not allow the Lessor to change arguments made at the Tribunal as it would

have been against the interests of justice.

Lessons

There are two key lessons to note from this case:


1. Provisions which provide an option to renew a lease should also provide a valid

mechanism to determine the rent payable under a new lease

2. Parties should develop the arguments they submit to an initial hearing body very

carefully. Submissions which contradict arguments made at initial hearings are

unlikely to be permitted.

2.3. A lease agreement may not be binding?

In Brief

In the recent case of Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016]

NSWCA 123, the NSW Court of Appeal agreed with the orders of the Primary Judge, but

for significantly different reasons. The Court found that the letter alleging to be a Lease

agreement was not a binding contractual lease document. Following this, it held that the

Karellas Investments (Lessee) had not repudiated the contract and that Harold R Finger

& Co Pty Ltd (Landlord) had no right of termination.

Fact Summary

This case related to the leasing of a supermarket premises in Newtown. In December

2009, the Lessee sent a letter to the Landlord for a ‘binding offer to enter into an

Agreement for Lease’. The Landlord accepted the letter of offer in January 2010. Some

of the provisions of the letter contained clauses which subjected the agreement to the

provision of further formal documentation and terms to be added which had not yet been

agreed on.

Following a low turnover forecast, the Lessee’s solicitors wrote to the Landlord on June 9

2010 seeking to adjust the lease terms ‘to see if the proposed lease terms could

accommodate’ the Lessee’s concerns.

After a series of letters, the Landlord alleged that the Lessee had repudiated the contract

and accepted this repudiation. The Landlord then sought to terminate the contract for

repudiation.

Was the letter a valid agreement for lease?

The Landlord argued that the letter’s statement that it was a ‘binding offer to enter into an

Agreement for Lease’ was that both parties were bound to the lease. The Lessee denied

that the letter of offer constituted a binding agreement but was simply an agreement to

negotiate.

The Court found that the letter established an agreement, but questioned its actual effect.

The Primary Judge held that there was an enforceable contract under which both parties

agreed to be bound by rent and other terms. Though Ward JA on appeal found there was


an agreement, this agreement did not bring into existence an enforceable contractual

lease.

The letter clearly stipulated that the agreement would be subject to further documentation

and negotiation of important terms not yet included in the letter. These clauses were

construed by the Court to indicate that the agreement would not be complete without

such additional terms. The letter also provided the Lessee with a right to withdraw from

the agreement if the formal documents required were not executed in 12 months. The

Court highlighted that the existence of such a withdrawal provision further indicated that a

final agreement may not actually be reached within 12 months. Therefore, the letter could

not be reasonably constructed as a final and enforceable lease document. It was an

agreement to negotiate in good faith.

Could Terms in the letter be re-negotiated?

As there was no provision which stated that the terms in the letter were set-in-stone, they

were open to re-negotiation. The only terms the Landlord could rely on were that the

Lessee would negotiate in good faith during the 12 month negotiation period. The

Landlord could not rely on any terms that were being negotiated with the Lessee until

such terms had been finalised.

Did the lessee repudiate the agreement?

The Lessee contended that the June 9 letter did not constitute a repudiation of the

agreement. The Primary Judge held that the June 9 letter was an indication of the

Lessee’s willingness to negotiate only in circumstances where their demands would be

met.

On appeal, the Court held that the Primary Judge’s interpretation of the June 9 letter was

incorrect. Ward JA noted that the June 9 letter was in fact an invitation to negotiate.

Whilst the letter may have indicated the Lessee’s potential refusal of terms presently

negotiated, it was not an ultimatum. Therefore there was no repudiation. As a

consequence, the Landlord did not have a valid right to terminate the contract.

Was the termination valid?

Whilst no right of termination arose, the Court still considered whether the contract was

validly terminated by the Landlord. In a letter on June 11 2010, the Landlord’s solicitors

wrote to the Lessee:

Your client’s withdrawal from the lease will result in our client incurring substantial losses.

Our client will endeavour to mitigate those losses. However, we are instructed to put your

client on notice that our client will hold it liable for all losses incurred by our client as a

result of your client's actions.


The Landlord alleged that this letter constituted a termination of the agreement. The

Court held that the letter did not reasonably make clear that the agreement was at an end

and hence the agreement was not validly terminated.

Inconsistency of clauses

Whilst the inconsistency of clauses within the letter of offer was not a vital issue in this

case, it is worth noting. The letter of offer gave the Lessee the right to amend their offer.

However, in a separate clause, it stipulated that the signing of the agreement would

create binding heads of agreement. Due to this inconsistency the right to amend the

letter of offer was only extended up to the point the letter was signed by the Landlord.

Lessons

This case holds four key take-away messages:

Firstly, if a document purports to be an agreement to lease but relies on subsequent

negotiations and/or documentation, it may not constitute a valid Lease Agreement.

Secondly, parties to an agreement should be very cautious in assuming a right to

terminate a contract. The consequences of wrongful termination may amount to a

repudiation and make the alleging party liable to damages.

Thirdly, if a party is intending to exercise a right to terminate, it should use clear language

and should not proceed on an assumption. Failing to do so may constitute serving an

invalid termination.

Finally, parties should be cautious when drafting terms and ensure clauses are not

inconsistent with one another.

2.4. Lessor’s issuing notices for breach of lease agreements should ensure the notice is

consistent with clauses within the Lease Agreement

In Fedeli and Santopadre v Alex Constructions Pty Ltd [2016] NSWCATCD 34, Fedelli

and Santopadre (the Lessees) sought an injunction against Alex Constructions (the

Lessor) to stop the proposed development of the courtyard/garden behind the leased

restaurant in question. The Lessees argued that the courtyard and toilets behind the

restaurant were part of the lease agreement and further stipulated that this land was

essential for storage, garbage and toilet space. The Tribunal found that the Lessees did

not have a proprietary right over the land in question and hence were unsuccessful in

their application. However, the Tribunal found that the Lessees could still validly exercise

the option to renew the lease as the Lessor had incorrectly issued a s133E notice under

the Conveyancing Act.


Fact Summary

The Lessees were leasing a restaurant in Surry Hills. A lease agreement in 1999

provided that the land in the lease included a ground floor shop and a rear courtyard. The

description of the premises in subsequent agreements omitted the inclusion of a rear

courtyard area. The Lessees used this rear area as a space for storage, garbage and

access to toilets for patrons.

The Lessor proposed plans to develop the land which would significantly reduce the size

of the courtyard. The Lessees sought an injunction in regards to the proposed

development plans and also sought to exercise their option to renew the lease.

On May 3 2016, the Lessees’ solicitor sent a letter to the Lessor exercising the Lessees

option to renew the lease. This letter had the signature of the solicitor but not the

Lessees. In response, the Lessor instructed his solicitor to issue a s133E notice to deny

the Lessees the ability to renew because of several alleged breaches of the lease

agreement such as late rental payments.

What land was included in the lease?

The Lessees contended that the courtyard was included in the lease. The Tribunal found

that the courtyard was not included as the lease agreement only specified the lease of a

lock-up shop. It was immaterial that a previous agreement in 1999 had included the

courtyard.

In the alternative, the Lessees argued that the courtyard was an implied easement. A key

element of an implied easement is that the easement must be necessary for the

reasonable enjoyment of the land granted.1 The Tribunal found that the use of the

courtyard area for recreational purposes for patrons and storage. Rather, the fact items

were occasionally stored in the courtyard area was evidence of a licence or an ancillary

right to the land. It did not give a proprietary interest in the land to the Lessee. Thus, the

injunction sought by the Lessees was refused.

Validity of s133E Notice

A lessor may provide a notice to the lessee in response to breaches of the lease

agreement. A notice issued under s133E of the Conveyancing Act must:

• Acknowledge the lessees’ specific breach

• Be issued within the specified timeframe under the act and;

• State that the breach precludes the lessee from exercising the option to renew.

1 Wheeldon v Burrows (1879) 12Ch D31.


In contrast, a s129 notice provides the lessee with an opportunity to remedy the breach

should the breach be capable of remedy. Unlike a notice under s133E, a s129 notice

does not require the lessee to immediately approach the courts to seek relief. The

Tribunal held that the Lessor should have issued a notice under s 129 rather than s

133E.

This is because Clause 4.4.3 of the lease stated:

The tenant can exercise the option only if at the time of service (of notice to renew

lease) all the other obligations of the tenant have been complied with or fully

remedied in accordance with the terms of any notice to remedy given by the

landlord.

The Tribunal found that clause 4.4.3 required the Lessor to issue a s129 notice as the

clause examined the opportunity for the lessee to remedy any breaches. Applying a

s133E notice would not fulfil the purpose of the clause.

Can a solicitor exercise an option to renew on behalf of a client?

The Lessor contended that a solicitor may only contract on behalf of his/her client if the

solicitor has been given express or implied authority from the client. Though the Tribunal

observed that the Conveyancing Act did not specifically allow a solicitor to sign a notice

on behalf of a client, it found that the Lessees’ solicitor had been given the requisite

authority from his clients to issue the option to renew the lease.

Furthermore, the Lessor relied on his solicitor to sign and issue the s 133E notice. The

Tribunal found that the Lessor could not simultaneously rely on the permissibility of his

solicitor issuing such a notice and deny the ability of the Lessees’ solicitor to exercise the

Lessees’ option to renew the lease.

Lessons

1. Terms which describe the subject matter of the lease should be unequivocally clear

to avoid any confusion

2. Generally a lawyer cannot bind clients to agreements unless given the authority to do

so as an agent

3. Parties should note that notices served under the Conveyancing Act are consistent

with the terms expressed in the lease document. Further, though the Tribunal did not

conclusively rule on this, Lessors should not issue s133E notices purely to

inconvenience a Lessee as it may be interpreted as unconscionable conduct.

2.5. Insolvency does not necessarily mean that Relief against Forfeiture will not be granted


In the case of Baby Zone (Aust) Pty Ltd (Administrators Appointed) v Keira Street

Ventures Pty Ltd [2016] NSWSC 528, Justice Robb granted relief against forfeiture of a

Lease in favour of Baby Zone, a tenant that failed to pay the rent in accordance with the

terms of the Lease and was about to be insolvent.

Facts

On 1 June 2013, the plaintiff, Baby Zone entered into a lease from Moschella Holdings

Pty Ltd of property 398 Keira Street, Wollongong (the Property). Baby Zone conducted a

retail business selling baby products from the Property. The defendant, Keira Street

Ventures Pty Ltd (Keira Street) became the registered proprietor of the Property and

subsequently Baby Zone paid rent to Keira Street until a date in September 2015, when a

monthly payment was not made on time.

On 28 October 2015, Keira Street purported to forfeit the Lease by re-entry on the ground

of non-payment of rent in accordance with the Lease. Baby Zone immediately paid the

rent that was overdue. On 10 December 2015, Administrators were appointed for Baby

Zone under s 436A of the Corporations Act 2001 (Cth).

On 18 December 2015, the Administrators of Baby Zone entered into a contract with

Baby Bounce Pty Ltd (Baby Bounce) for the sale of the stock on the Property, and 10

other locations. Not long after, Baby Zone entered into another contract with Baby

Bounce to sell Baby Zone’s retail business conducted from the Premises for a price of

$100,000, and planned to assign their Lease to Baby Bounce.

An issue arose between the parties as to whether the Court would grant Baby Zone relief

against forfeiture in order for Baby Zone to assign the Lease to Baby Bounce.

What is relief against forfeiture?

Relief against forfeiture (as it applies to leases) is where the Court makes orders that

allow the tenant to return and occupy premises that had been re-entered by a landlord

(usually after the tenant fails to pay rent, or has defaulted on the lease).

However, relief against forfeiture of a Lease does not rely on any mistake or failure to

properly act on the part of the landlord. The landlord may act in accordance with the

Lease, and relief may still be granted. It is up to the Court’s discretion whether or not to

grant relief. The principles behind relief against forfeiture, is reliant on fairness, equity,

and if the tenant can prove that it would be unfair to deny the tenant the right to return to

the premises. As part of asking the Court for that relief, the tenant will have to agree to

put the landlord back in the same position it would have been in, if the breaches were not

to have occurred.

Courts decision to grant relief against forfeiture


On assessment of the evidence, the Court found that Baby Zone paid Keira Street the

monthly rent late on a number of occasions, but not so late as to give rise to an event of

default. Keira Street was unable to prove that it warned Baby Zone that they might forfeit

the lease if any monthly rent payment was late by more than 14 days. The rent due on 28

September 2015 remained outstanding for more than 14 days, and Keira Street entered

the property and forfeited the lease on 28 October 2015. It did so following a single event

of default. Baby Zone then paid the amount in default immediately.

Thereafter, and particularly after the Administrators were appointed, the monthly rent was

paid on time, and the rent was consistently up-to-date. Accordingly, Keira Street did not

suffer any loss.

The Court found that, were it not for the possibility that Baby Zone could sell its business

and assign the Lease to Baby Bounce, it would be appropriate to refuse the application

for relief against forfeiture, since Baby Zone was to become insolvent, and the grant of

relief against forfeiture would be futile. However, Justice Robb stated that, the fact that

Baby Zone would inevitably soon be insolvent was not an absolute ground for refusing

relief against forfeiture.

The Court weighed the benefits of the relief against forfeiture, and found that if relief was

granted then Baby Zone would be able to realise the value of the Lease for the benefit of

the creditors. However they still had to decide whether allowing relief would sufficiently

protect Keira Street.

The principal of Baby Bounce, Mr Hamdache, agreed to provide a bank guarantee

equivalent to three months’ rent to secure an assignment of the Lease, as well as a

personal guarantee to Keira Street, as additional security for Baby Bounce’s obligations.

Keira Street did not make any submission that either the principal nor the company Baby

Bounce were not a respectable, responsible, solvent, fit and proper person or entity,

capable of adequately carrying on the business, whilst performing and observing the

terms and conditions of the Lease. Consequently, the Court granted relief against

forfeiture sought by Baby Zone.

The Court has shown that it is willing to grant relief against forfeiture to companies facing

insolvency so long as the interests of the Lessor are sufficiently protected.

2.6. Wilful breaches lead to the loss of an option for a winery

Tenant fails in bid to seek relief under section 133F of Conveyancing Act.

In Allsvelte Pty Ltd v Cassegrain Wines Pty Limited [2015] NSWSC 1370, the Supreme

Court refused to allow a tenant to exercise an option to extend its retail lease for another

three years due to the tenant's conduct throughout the original three-year lease and

several ‘wilful’ breaches by the tenant during the same time.


Cassegrain alleges that tenant breached some sublease provisions

The defendant, Cassegrain, leased the winery located at 764 Fernbank Creek Road, Port

Macquarie, from Hastings Estate Pty Limited pursuant to a registered lease. In 2011,

Cassegrain granted a registered sublease over the restaurant premises that form part of

the winery to the plaintiff, Allsvelte. The sublease was for a period of three years with a

three-year option. On 11 June 2014, Allsvelte purported to exercise the option.

In response, on 18 June 2014, Cassegrain served a notice pursuant to section 133E of

the Conveyancing Act 1919 (NSW) specifying a number of breaches of the sublease by

Allsvelte that it claimed disentitled Allsvelte from exercising the option. Allsvelte then

commenced proceedings seeking relief under section 133F of the Conveyancing Act

against the effect of the alleged breaches. As a result, the term of the original sublease

was extended in accordance with section 133G of the Conveyancing Act.

Subsequently, Cassegrain served two notices under section 129 of the Conveyancing

Act alleging that Allsvelte was in breach of a number of provisions of the sublease.

Late payment of rent found to meet section 133E standard

The court found that only one of the nine alleged breaches was sufficiently accurate and

detailed. The court expressed that a section 133E notice ‘must be specified with sufficient

particularity to enable the lessee to make a decision whether or not to seek relief under s

133F and to seek that relief if it decides to do so...’ (at [58]). The only alleged breach that

met this standard was the one in relation to late payment of one month's base rent.

The court specified that in any proceedings for relief under section 133E of the

Conveyancing Act, which specifies that the tenant's breach of the relevant obligation and

stating that the landlord proposes to treat the breach as preventing the tenant from

exercising an option, the burden of proof of a breach lies upon the landlord, while the

burden of demonstrating that relief should be granted, assuming that the alleged

breaches are made out, lies upon the tenant.

Supreme Court considers tenant's relationship with landlord and its ‘wilful’

breaches

The late payment breach that the court found to be sufficient was still relatively minor and

was found to be ‘clearly inadvertent’. However, the court did not grant relief under section

133F to allow the lease to continue because:

• The relationship between the landlord and the tenant had clearly deteriorated, and it

seemed likely that they would not cooperate in the future.


• The tenant ‘wilfully’ failed to provide relevant records, which included failing to

provide the landlord with sales records.

• The tenant ‘wilfully’ failed to follow rules that the landlord wished to enforce under the

terms of the lease.

Parties to a lease must understand their contractual obligations

The lessons for landlords and tenants from this case are that it is important to ensure that

formal lease documents are drafted correctly, and that both parties completely

understand the agreement and its contractual obligations.

2.7. Five year lease of shop premises found to be valid and enforceable despite being

unregistered

In a recent case in NSW, it was determined that a tenant under an unregistered five year

lease was liable to the landlord in damages for early termination of the lease. However,

the damages awarded were only a portion of the sum being claimed, because the

landlord had failed to act reasonably in re-letting the premises.

Tribunal considers validity of lease and reasonable steps to take in re-letting

premises

In Loretta Suiwen Shen, Sarah Bonita, Joshua Lie, Timothy Go [2015] NSWCATCD 49,

Senior Member Dennis Bluth of the Consumer and Commercial division of the NSW Civil

and Administrative Tribunal considered whether a five year lease was void or of no effect

on the grounds that it was not registered and the premises had been sold during the

lease term.

The Tribunal also considered what reasonable steps a landlord had to take in reletting

premises should the landlord want damages for loss of rent.

Lease not registered when premises sold to new owner

Abou Ghaida Company Pty Limited was the owner of Shop 155, The Quadrant

Broadway, Ultimo (‘the premises’) and entered into a lease (‘the first lease’) with the first

respondent, Sarah Bonita. The first lease was for a term of five years, contained an

option to renew for five years and terminated on 10 June 2009.

On expiry of the first lease, Abou Ghaida and Ms Bonita entered into a new lease (‘the

second lease’) for a further term of five years from 11 June 2009 to 10 June 2014. The

second lease set out a commencement rent of about $84,000.00 per annum plus GST

and was to increase by 4% annually.


The guarantor named in the second lease was Joshua Lie, the second respondent. The

lease was the standard form Law Society commercial lease and despite being signed by

all relevant parties, was never registered.

On or about 7 July 2011, the premises were sold to the applicant, Loretta Shen, and the

transfer was registered at the office of Land and Property Information.

Tenant experiences financial difficulties and vacates premises

In the latter part of 2012, Ms Bonita's business experienced financial difficulties and fell

into arrears of rent. Mr Lie indicated to Ms Shen's agent, Joe Menggolo, that they

intended to vacate and return the premises to Ms Shen. The monthly rent at this point

was $8,304.30 inclusive of GST.

It is also important to note that whilst Ms Bonita was named as the tenant on both leases,

the evidence indicates that the business at the premises was conducted by her father, Mr

Lie. On 25 January 2013, Mr Lie advised that they could not continue to trade and keys

were returned to Mr Menggolo by 11 March 2013. The premises were not re-let until 10

July 2014.

Ms Shen commenced proceedings in the Tribunal and sought damages from Ms Bonita

and Mr Lie for loss of rent for the early termination of the second lease.

Is the lease valid and enforceable?

In order to claim damages, Ms Shen had the onus to prove that the lease was valid and

enforceable. This required the Tribunal to consider the effect of:

• an unregistered five year lease

• the transfer of premises

Could the lease be enforceable after the applicant became the registered

proprietor of the premises?

Section 42(1)(d) of the Real Property Act 1900 (NSW) provides that a lease which

exceeds a term of three years needs to be registered on the title of the land in order to

pass with the land. Where land is transferred, the purchaser who becomes the registered

proprietor is only bound by registered leases. One exception to that is a lease for a term

of three years or less.

The primary submission of Ms Bonita and Mr Lie is that on registration of the transfer to

Ms Shen, the unregistered lease was destroyed and their occupation of the premises

became a tenancy at will under section 127 of the Conveyancing Act 1919 (NSW). If this


submission is accepted, the second lease would have operated as a monthly tenancy

that was terminable with one month's notice.

Although the Tribunal observed that registration of a transfer ‘destroys’ an unregistered

lease, it held that an equitable lease can still survive and determine the relationship

between the parties.

On this construction, the second lease operated as an equitable lease after registration of

the transfer to Ms Shen and accordingly, the parties' rights and obligations as landlord

and tenant continued pursuant to section 117 and section 118 of the Conveyancing Act

1919 (NSW), entitling the landlord to claim damages for the rent which was due to be

paid until the end of the second lease.

What is the national position on the issue of unregistered leases?

As acknowledged previously, in New South Wales, section 42(1)(d) of the Real Property

Act provides exceptions to indefeasibility and gives protection to leases of no more than

three years. The concept of an exception to indefeasibility for unregistered leases is

carried through in the Torrens Title legislation of other states and varies from state to

state.

In South Australia, the home of Torrens Title, section 119 of the Real Property Act 1886

(SA) only gives protection to an unregistered lease ‘for a term not exceeding one year to

a tenant in actual possession thereunder’. In Western Australia protection is given to an

unregistered lease of up to five years. In Victoria the convention is that leases are not

registered at all.

Tenant argues that lease void for uncertainty about true tenant

Counsel for Ms Bonita submitted that the lease was void for uncertainty as it was not

clear who the true tenant was, on the basis that Ms Bonita did not take any active role in

the business that was conducted from the premises.

While the evidence indicated that Mr Lie conducted and controlled the activities from the

premises, the Tribunal found that Ms Shen was entitled to rely upon the signed lease to

reflect the true nature of the relationship between the parties. Further, the Tribunal held

that it would be inappropriate to allow Ms Bonita and Mr Lie to raise the issue regarding

the true status of the tenant, given that Ms Bonita presented herself as the tenant and

had signed both the first and second lease.

Damages for loss of rent reduced as landlord acted unreasonably

The prima facie position is that a landlord is entitled to recover damages for a breach of

lease, including for loss of rent. In this case, Ms Shen sought damages for loss of rent


from the terminating date of the lease to the date at which the premises were relet. The

period of time in which the premises were vacant was about sixteen months.

The Tribunal determined that four months' rent at $8,304.30, being the rent under the

second lease at the time Ms Bonita vacated, was the appropriate measure of

compensation for Ms Shen, as Ms Shen had acted unreasonably in advertising the

premises for a rent of $100,000.00 per annum for a significant period of time after Ms

Bonita had vacated.

In particular, the Tribunal observed that Ms Shen was obliged to try to lease the premises

on ‘reasonable terms’ as required under the terms of the lease and that it was

unreasonable for her to hold out for the maximum rent possible.

Commercial leases should be registered

This case provides useful guidance on the effect of an unregistered commercial lease

and the implications it has for landlords and their tenants in circumstances where the

premises are transferred to a third party during the term of the lease.

While the case suggests that an unregistered lease for a term of more than three years

can be valid and enforceable, landlords should be aware that it remains common practice

to register such leases to ensure that they are afforded protection under the Real

Property Act 1900 (NSW).

Landlords should act reasonably in re-letting vacated premises

The reasoning adopted in the Tribunal also indicates that landlords must act reasonably

in re-letting the vacated premises so that they adequately mitigate their loss, as the

Tribunal will not be in a position to award compensation for the entire period for which the

premises are not tenanted if the landlord had not acted reasonably.

2.8. Challenging a valuation can be difficult

In brief:

On 17 March 2015, the New South Wales Supreme Court handed down its decision in

122 Pitt Street Pty Ltd ACN 104825961 v Universal 1919 Pty Ltd [2015] NSWSC 234

which found that the Lessor had failed to make out the deficiency which it alleged in the

rental valuation determination submitted by valuer Scott Robertson. The parties are

therefore bound by the valuers rental valuation determination.

Material facts


Under a lease made on 20 May 2004, the plaintiff (the 'Lessor') leases the basement,

ground floor, mezzanine level and level 1 of 122 Pitt Street, Sydney (Premises) to the

defendant (the 'Lessee'). The Lease was for an original term of 10 years terminating on

31 May 2014 with an option for a further 10 years. The Lessee exercised this option.

The Lessor proposed a new base rent for the leased premises of in excess of $1,000,000

per annum. The Lessee invoked the rent dispute mechanism under the Lease, which

allowed for there to be a market review of the base rent, resulting in the appointment of

an independent valuer, Scott Robertson, to determine the current market rent for the

Premises. This would become the new base rent.

Scott Robertson's determination of the market rent, submitted on the 1 June 2014, was

approximately $500,000 less than the rental figure proposed by the Lessor (the

Determination).

The Lessor claimed that there was a deficiency in the determination as the Lease

contained specific provisions as to how Scott Robertson was to determine the market

rent for the Premises. These included the injunction that he should 'disregard the value of

any goodwill attributable to the Tenant's Business and the value of the Tenant's Fixtures

or fitout' found in clause 5.9. The Lessor bases this claim on the fact that Scott Robertson

made it clear that he had taken into account the Lessee's obligation under Clause 28.5.3

of the Lease to spend a minimum of $1,000,000 on what was described as 'Fitout work'.

Issues before the Court

The key issue the Court had to tackle was whether or not Scott Robertson had breached

the provisions outlined in the Lease. If he did not then the Determination would stand,

and it would become the new base rent. If he did, then the Court would have directed the

parties to restart the mechanism under the Lease with the nomination of a valuer by the

President of the NSW Division of the Australian Property Institute. With it solely the

decision for the President as to whether they nominated Scott Robertson again or

somebody else.

Relationship between Fitout and Fitout Work.

The Lessor's argument depended upon the Court accepting that 'fitout' is at least

included within, if not coextensive with, 'fitout work'. The Lessee's arguments depends

upon the Court accepting either that 'fitout' is different from the obligation in Clause

28.5.3 to spend money on the 'fitout work' or that 'fitout' does not become part of 'fitout

work' until it is completed.

The Court applied the approach set out by the High Court in Electricity Generation

Corporation v Woodside Energy Ltd [2014] HCA 7, that ‘the meaning of terms of a

commercial contract [are] to be determined by what a reasonable businessperson would


have understood those terms to mean.’ This led the Court to find that 'fitout work' is

distinct from 'fitout', with the latter being the product of the former. Therefore finding that

the Lessor and Lessee are bound by the Determination.

The Court also found Clause 28.6.2 ‘... unless the Landlord otherwise requires, remove

the Fitout Work and the Signage...’ to be constructed poorly. Given the specific definition

of ‘Fitout Work’ assembled by the Court, the Court deemed its inclusion in the clause

absurd, as one cannot 'remove' the work that was done. What the parties intended it to

mean cannot be determined and thus the Court rejected the provision.

Alternative Answer

If, however, the Court found that 'fitout' was classified within 'fitout work', there is an

alternative basis on which the Court can find that Scott Robertson complied with Clause

5.9(a). Scott Robertson had taken into account the Lessee's obligation to ‘spend a

minimum of $1,000,000 on the fitout work.’ Clause 5.9(a) required Scott Robertson to

disregard the 'value' of specific things. The Court concluded that Scott Robertson took

into account an obligation to spend but not the value of the result of the expenditure and

hence was not in breach of the provision.

Importance

This case analyses the proper meaning of 'value', and the Court clearly differentiates

value from cost. Cost being what one has expended on something, neither means the

same thing as nor necessarily equates with value, which is what something is worth.

Furthermore the Court also delves into the importance of parties constructing coherent

contracts, as if there are 'bespoke provisions,' then it may be necessary for the Court to

modify the strict wording and even reject words or whole provisions.

This case also shows that in the case of a market rent determination there can be an

enormous difference between what the valuer determines and what the parties may have

expected.

2.9. Repayment clauses of leasing incentive agreement found to be a penalty

While incentive agreements are common in commercial leasing transactions, a recent

Queensland Supreme Court case shows that landlords may not be able to claim for

repayment of incentives if tenants terminate the lease.

Plaintiff fails in bid to claim for repayment of incentives

In the case of GWC Property Group Pty Ltd v Higginson & Ors [2014] QSC 264, the

Supreme Court of Queensland found that repayment clauses in an incentive deed which


arose as a result of termination of the corresponding lease, amounted to penalties which

are unenforceable at common law.

GWC Property Group brings proceedings against guarantors

The plaintiff, GWC Property Group Pty Ltd, owns office premises at Montpelier Road,

Bowen Hills in Queensland. Its predecessor in title let the premises to Hynes Lawyers Pty

Ltd. This arrangement involved the execution of a lease and an incentive deed.

Hynes are now in liquidation and GWC brought proceedings against the first, second and

third defendants as guarantors under the incentive deed for $1.2 million in incentives

which Hynes failed to repay on termination of the lease.

Standard form lease supplemented by incentive deed

The lease and the incentive deed were entered into on 11 November 2010. The lease

was in the standard form and provided for a term of seven years with three options to

renew. In particular, the lease provided for rent and a signage fee and prohibited the

lease from being assigned or sub-let without the landlord's consent.

The incentive deed was ‘intended to supplement’ the lease and granted Hynes a fit-out

incentive, rental abatement and signage fee abatement (‘the incentives’).

Repayment clauses included in deed on termination

Under the repayment clauses of the incentive deed, namely 2.4, 3.3 and 4.3, the tenant

was required to repay a proportion of the fit-out incentive and all of the rental and signage

fee abatements at the date of termination.

Guarantors responsible for observance and performance of deed obligations

The first, second and third defendants were guarantors under the incentive deed and

guaranteed the observance and performance of Hynes' obligations under the deed. In

addition, the indemnity clause of the deed required the guarantors to indemnify the

landlord against any liability, loss and damage arising from the tenant's breach or

repudiation of the deed.

Tenant abandons premises and landlord terminates lease

GWC's predecessor in title paid out and provided Hynes with the incentives. GWC then

obtained title to the premises by way of assignment of all the rights and interests of its

predecessor under the incentive deed.


On 20 May 2013, it was alleged that Hynes abandoned the premises in breach of the

lease. Subsequently on 12 June 2013, GWC accepted the repudiation and accordingly,

terminated the lease.

Court accepts that repayment clauses not enforceable

The court accepted the defendants' claim that the repayment clauses of the incentive

deed were unenforceable on the following grounds:

• The repayment clauses were wholly penal upon breach of the lease and were not

restitutionary repayments.

• The repayment clauses were only triggered by the tenant's breach of the lease which

resulted in termination.

• The repayment clauses imposed obligations which were substantially in excess of

any genuine pre-estimate of damages and any damages which would be payable to

GWC at common law. Further, if enforced, GWC was entitled to recover monies to

which it would never have been entitled had the lease not been terminated.

GWC not entitled to repayment of incentives but can sue for common law damages

On this reasoning, clauses 2.4, 3.3 and 4.3 of the incentive deed amounted to penalties

which are unenforceable at common law. As a result, GWC was not entitled to any

repayment of the incentives.

It is important to note, however, that although GWC was precluded from entitlements

under the repayment clauses, the court observed that it was entitled to sue on the lease

and the guarantees which were contained in the lease for common law damages.

Landlords may not be able to claim repayment of incentives if tenants terminate

lease

Landlords and tenants should be aware of the implications of this case, as incentive

agreements which require tenants to repay incentives if a lease is terminated may not be

enforceable.

This is particularly important as incentive agreements are very common in commercial

leasing transactions and according to the reasoning of this case, landlords may be

precluded from making any future claim against their tenants for repayment of incentives

on termination of the lease.

2.10. A case where the premises were not a retail shop


In the case of Honings Bakery Pty Ltd v Serialis Pty Ltd [2014] NSWCA TCD 87, a

decision handed down on 26 March 2014 in the Civil and Administrative Tribunal of New

South Wales known as NCAT, it was held that the Tribunal did not have jurisdiction to

determine an application to seek declarations that the tenant had validly rescinded or

validly terminated a lease it had entered into in 2012 in respect of premises at Shops 1 &

2, 144 George Street, Hornsby.

The tenant had sought orders that the landlord repay the holding deposit and an amount

paid by the tenant to meet a call made by the landlord on a bank guarantee and to pay

damages that the tenant had incurred in association with the lease of the premises. The

landlord had not handed over any disclosure statement. The landlord asserted that the

tribunal did not have jurisdiction to hear and determine this matter as a lease was not a

retail shop lease as the permitted use in the lease was express to be ‘commercial bakery

including retail sales’.

It was conceded that the Tribunal in determining whether it is a retail tenancy dispute had

to first look at the lease to see what is the permitted or agreed use of the premises, then

secondly, if the agreement clearly defines what the use of the premises are to be, then

the question would become as to whether or not the premises are a retail shop under

section 3 of the Act and will be determined whether or not that use appears within the

schedule 1. Lastly, if the permitted or agreed use is not clear or is uncertain or the use

covers a number of totally different types of business uses, of which some are or some

may be within schedule one described businesses, then an analysis is required of the

actual use of the premises to determine whether that actual use if the predominant use

and it does fall within one or more of the prescribed businesses in schedule 1.

The Tribunal found that it does not necessarily follow that if the use under the lease is

listed in schedule one as one of the retail shop businesses that it automatically means

that the Tribunal has jurisdiction. As with the second hand goods shops and with the

bakeries being listed, so is patisserie. However, following the decisions in various cases

regarding bakeries and patisserie, they did not necessarily hold that in the end it was a

retail shop use. In this case the Tribunal found that it was a commercial bakery as stated

in the lease and that the retail sales were only a small part of the commercial bakery.

The Tribunal found that it was not a retail shop lease within the meaning of the Act and

secondly, that the Tribunal does not have jurisdiction to determine this application.

2.11. Retail lease disputes: should parties should access the NSW Civil and Administrative

Tribunal or the Supreme Court?

In brief :

Tenant ordered to deliver possession of pharmacy premises


On 4 February 2014, the New South Wales Supreme Court handed down its decision in

Anka (Civic Center) Pty Ltd v Sahyoun [2014] NSWSC 17, which considered whether the

plaintiff lessor could repossess leased premises and claim relief in the said court where

proceedings had already commenced in NSW Civil and Administrative Tribunal.

Tenant enters three year lease commencing May 2009

The plaintiff, Anka (Civic Center) Pty Ltd is the registered proprietor of a shopping centre

at 23 Lindfield Avenue, Lindfield, known as the Lindfield Arcade, in which the defendant,

Monique Sahyoun, leased retail premises to operate a pharmacy.

In April 2009, Ms Sahyoun entered into a three-year lease with the previous proprietors

of the shopping centre for the pharmacy premises. The lease commenced on 31 May

2009 and did not confer an option to renew. Subsequently, in November 2010, Anka

became the registered proprietor of the shopping centre and sought to redevelop the site

at some point in time.

Landlord announces intention to redevelop site after expiry of lease

Prior to the expiry of the lease on 31 May 2012, Mr Stringer, a representative from Anka,

indicated that it intended to ‘leave [her] on a month to month basis on the same terms

and conditions as the original lease’, terminable upon one month's notice.

At a meeting on 8 October 2013, Mr Stringer announced that Anka was proceeding with

the redevelopment of the site, which required Ms Sahyoun to vacate in early January.

On 4 December 2013, a letter purporting to give notice that the tenancy would terminate

on 6 January 2014 was delivered to the pharmacy and emailed to Ms Sahyoun.

Tenant asserts that termination notice invalid and landlord commences Supreme

Court proceedings

On 11 December 2013, Ms Sahyoun's solicitor issued a letter to Anka asserting the

following:

• the notice provided was invalid as it did not comply with section 129 of the

Conveyancing Act 1919 (NSW)

• Anka acted oppressively in giving notice to their client

By 6 January 2014, Ms Sahyoun had not vacated the premises and remained in

occupation. Anka had issued a notice specifying the relevant breach of the lease was the

failure to vacate by the required date in accordance with section 129(1).


On 15 January 2014, Anka brought proceedings in the Supreme Court, seeking

repossession of the pharmacy premises. On the following day, Ms Sahyoun commenced

proceedings in the NSW Civil and Administrative Tribunal (NCAT) for relief.

Could the Supreme Court hear the matter? Could the tenant claim relief?

In the present proceedings, the court considered a number of arguments advanced by

Ms Sahyoun's representatives. However, of particular importance was the court's

determination of the following matters:

• Whether the Supreme Court could hear the matter by reason of section 68 and

section 75 of the Retail Leases Act 1994 (NSW)

• Whether Ms Sahyoun could claim relief under section 129 of the Conveyancing Act

on the grounds that a valid notice was not provided

Necessity for mediation under section 68 of the Retail Leases Act

Pursuant to section 68 of the Retail Leases Act, a retail tenancy dispute may not be the

subject of proceedings before any court unless and until the Registrar has certified in

writing that mediation under this Part has failed to resolve the dispute or matter, or the

court is otherwise satisfied that mediation under this Part is unlikely to resolve the dispute

or matter.

In this case, Beech-Jones J determined that mediation under Part 8 was unlikely to

resolve the dispute in circumstances where both parties had engaged lawyers for over

six weeks, had commenced litigation against each other, had attended informal

mediation and had not reached agreement.

Notwithstanding the fact that mediation under Part 8 of the Retail Leases Act would have

had the benefit of a mediator, the court was still not persuaded that mediation would have

resolved the issue between the parties. Therefore in light of the ongoing dispute, Ms

Sahyoun could not rely upon section 68(1) to prevent the court from hearing the matter,

which commenced without the dispute being submitted to mediation.

Transfer of proceedings to the NSW Civil and Administrative Tribunal under

section 75 of the Retail Leases Act

Under section 75 of the Retail Leases Act, retail tenancy disputes must, on the

application of any party, be transferred to the NCAT if the court is satisfied that:

• the dispute may effectively be dealt with as a claim under this Division and that it is

appropriate that the dispute be dealt with by the Tribunal, and


• the interests of justice do not require that the matter be dealt with by the court.

Although section 75(2) further indicates that retail tenancy disputes are intended to be

conducted with informality, the court considered a number of factors in finding that it was

in the interests of justice for the matter to proceed in the said court.

Due to the commercial urgency of the matter and in particular, the fact that the NCAT

could not offer the parties an earlier hearing, the court found that the removal of current

proceedings from the court would have the effect of depriving both parties of a fair

hearing of the case by the passing of time.

However, in refusing to transfer proceedings to the NCAT, it is also important to note that

Beech-Jones J expressly stated that in the ordinary course, matters will generally be

heard in the NCAT as opposed to the courts as contemplated by section 75(2).

Notice under section 129 of the Conveyancing Act

Section 129 of the Conveyancing Act governs the restrictions on and relief against

forfeiture of a lease that requires a lessor to serve on the lessee a notice in accordance

with section 129(1). However, the protection of this section expressly does not extend to

leases under section 129(6) and namely, any lease or tenancy for a term of one year or

less (section 129(6)(a)).

In considering the judgment of Easy Buy International Pty Limited v Macquarie Goodman

Property Services Pty Limited and Ors [2006] NSWSC 148, the court accepted the

reasoning that a lessee holding over on a month to month tenancy was still entitled to the

protection of section 129, as the period of the original lease should be included in the

assessment of the length of its term for the purposes of applying section 129(6)(a).

Although this reasoning favoured Ms Sahyoun, the court remained of the view that she

could not claim relief by operation of this section, as the subject lease had expired on the

giving of the requisite notice and that expiry was not a direct consequence of any alleged

breach of a ‘covenant or agreement, express or implied in the lease’ which was governed

by section 129.

Court finds in favour of landlord; tenant ordered to vacate premises

In rejecting the claims adduced by Ms Sahyoun's representative, the court found in

favour of Anka and ordered Ms Sahyoun to deliver possession of the pharmacy

premises. The decision of this case emphasises the intended operation of the court

system and NCAT in dealing with retail tenancy disputes, with the latter having

jurisdiction to hear such matters ordinarily.


Further, the consideration of section 129 of the Conveyancing Act reveals that its

operation has the ability to protect lessees who are holding over pursuant to a month to

month tenancy. However, it will only afford relief in circumstances of an invalid notice

provided there has been a breach of any covenant, condition or agreement.

2.12. High Court confirms that liquidators of landlord companies can disclaim leases,

terminating lessees' rights

On 4 December 2013, the High Court of Australia delivered its judgment in Willmott

Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (In

Liquidation) [2013] HCA 51. The majority found that under the Corporations Act 2001

(Cth), a liquidator of a landlord company has the power to disclaim a lease granted to a

lessee, and the disclaimer terminates the lessee's rights arising under the lease.

It remains unclear what this means in terms of compensation for a lessee whose lease

has been disclaimed by the liquidator of a landlord, and how in practice a liquidator would

go about the process of disclaiming such a lease.

Managed investment schemes for forestry operations

Willmott Forests Limited (‘Willmott Forests’) was the responsible entity and/or manager of

a number of registered and unregistered managed investment schemes (MIS). The MIS

were forestry operations conducted on land either owned by Willmott Forests or leased

by Willmott Forests from third parties.

The MIS members (‘the Growers’) had rights to grow and harvest trees on that land

pursuant to project documents, including lease and licence agreements with Willmott

Forests for the use and occupation of the land.

Liquidators seek to terminate or extinguish rights of Growers

After liquidators were appointed to Willmott Forests, they entered into contracts for the

sale of part of the land, unencumbered by the rights of the Growers conferred by the

project documents (including the leases and licences). A transfer of clear title to the land

could not be effected unless the Growers' rights were terminated or extinguished.

On 29 June 2011, the liquidators sought and obtained orders from the Federal Court

including an order that they were justified in disclaiming the project documents of the

contractual and partnership MIS as onerous (including the leases and licences) pursuant

to section 568(1) of the Corporations Act, on the condition that the court's consent was

obtained before doing so.

First instance decision: disclaimer of lease does not end lessee's proprietary

interest


It is well recognised that a liquidator of a company may terminate a lease under which

the company was a lessee. In this case, the company, Willmott Forests, was the lessor.

The liquidators then applied to the Supreme Court of Victoria. At first instance, Davies J

found that:

• a lease creates both contractual and proprietary rights;

• under section 568D(1) of the Corporations Act, the effect of a disclaimer is to

terminate ‘the company's rights, interests, liabilities and property in or in respect of

the disclaimer property, but does not affect any other person's rights or liabilities

except so far as necessary in order to release the company and its property from

liability’;

• although disclaimer of a lease agreement by the liquidator of a lessee would

terminate all of the lessee's rights arising from that lease agreement, including by

extinguishing the lessee's leasehold interest, this is not the case with the disclaimer

of a lease contract by the liquidator of a lessor;

• a leasehold interest is the property of the lessee, and disclaimer of the lease by the

liquidator of the lessor only terminates the lessor's rights, interests and liabilities

under that lease. Such a disclaimer would not bring the lease to an end for all

purposes, and ‘would not bring the tenant's proprietary interest in the land to an end’;

• a leasehold interest cannot be described as a liability or encumbrance upon the

property of the lessor and it is not necessary to extinguish such an interest to release

the lessor or its property from a liability.

Court of Appeal decision: disclaimer of lease extinguishes leasehold interest

Davies J's decision was subsequently overturned by the Victorian Court of Appeal. The

liquidators argued that disclaimer of the lease agreements would have the effect of

extinguishing the leasehold interest of the Growers under section 568D(1) as this was

‘necessary to release the company and its property from liability’. The court found that if

the contract was disclaimed, the leasehold interest would also be extinguished,

concluding that:

...any leasehold interest cannot survive the termination of the very contract that

created it and regulated the tenure of the Grower. It is this tenure which creates,

and is the basis of, the obligation or liability on the part of [Willmott Forests] to

provide quiet enjoyment. Section 568D(1) allows the liquidator to terminate this

obligation or liability despite its intrusion into the property rights of an innocent

third party. The evident policy is to permit the loss of these rights in order to


enable the company in liquidation to be free of obligations so that it can be wound

up without delay for the benefit of its creditors. To compensate, the rights of the

affected parties are transmuted into various statutory rights and claims.

Does a liquidator have the power to disclaim a lease granted by the company to a

tenant?

Special leave was then granted to the Growers to appeal the Court of Appeal's decision.

In a 4:1 judgment, the majority (French CJ, Hayne, Kiefel and Gageler JJ) dismissed the

appeal. Keane J provided a dissenting judgment.

French CJ, Hayne and Kiefel JJ identified the relevant questions as being: (1) does

section 568(1) give a liquidator the power to disclaim a lease which the company granted

to a tenant; and (2), if a liquidator has power to disclaim such a lease, what does section

568D(1) provide to be the effect of that disclaimer?

High Court majority decision: leases may be disclaimed, liabilities of lessor

terminated

In relation to the first question, their Honours found that the leases to Growers were

property of the company which may be disclaimed, with each lease being a ‘contract’

within section 568(1)(f).

In relation to the second question, their Honours found that the liabilities of Willmott

Forests that would be terminated by the disclaimer of the leases included its obligations

to provide quiet enjoyment and not derogate from the grant of exclusive possession of

the land. It necessarily followed that the tenants' rights to quiet enjoyment and non-

derogation were terminated by the disclaimer of the leases with ‘consequent termination

of the company's correlative liabilities or duties’. Their Honours found that it therefore

followed that the tenants' estates or interests were also brought to an end.

Gageler J, delivering his own judgment, found that the liquidators of Willmott Forests had

the power to disclaim the leases on the basis that they were contracts between Willmott

Forests and the Growers, pursuant to which Willmott Forests had ongoing obligations to

give the Growers exclusive possession of the land owned or leased by Willmott Forests.

High Court minority judgment: disclaimer not effective to deprive tenant of right to

possession

In his dissenting judgment, Keane J concluded that:

• without the leave of the court pursuant to section 568(1A), the liquidators' disclaimers

were not effective at all; and


• if the liquidators were to disclaim Willmott Forests' contracts to lease the parcels of

land in question with the leave of the court, that disclaimer would free Willmott

Forests from further observances of its obligations under the leases, but it would not

be effective to deprive the Growers of their right to possession for the balance of the

term.

His Honour noted that in his view the Growers' interests under their leases would be

sufficient to support the grant of an injunction to prevent the liquidators taking possession

of the land leased to them.

Potential issues: tenant compensation, leave requirements, assessment of

prejudice

It is interesting to note that French CJ, Hayne and Kiefel JJ foreshadowed some potential

issues that may arise as a result of their decision and which were not explored in

argument.

Section 568(9) does give the court power to award the affected party damages, and

section 568(11) acknowledges that such amount may be proved as a debt in the winding

up of the company. Their Honours observed that a tenant whose lease has been

disclaimed by the liquidator of a landlord may consider that simply being left to proof as

an unsecured creditor in the winding up gives little effective compensation for what has

been taken away.

Their Honours further noted that there had been no occasion to consider whether:

• the liquidators required the leave of the court under section 568(1A) before

disclaiming the investors' leases or could disclaim as of a right without leave of the

court under section 568(1); and,

• if they did require leave, what considerations would inform the court's decision to

grant or refuse leave.

Their Honours further noted that the Act expressly provides that the court on application

may set aside a disclaimer only if satisfied that the disclaimer would cause prejudice to

persons with interests in the property that is ‘grossly out of proportion to the prejudice

that setting aside the disclaimer would cause to the company's creditors’. Whether or

how that provision would apply in this case was not canvassed.

It will be interesting to observe how these issues are dealt with in future decisions.

2.13. Lessor found liable for the conversion of a lessee's goods upon repossession


The Supreme Court of NSW has determined that a lessor which terminated a lease and

repossessed the premises without giving the lessee a reasonable opportunity to remove

its fixtures and other property was in breach of the terms of the lease and liable to

compensate the former tenant.

Conversion and disposal of lessee's fittings, cash and trading stock

On 15 July 2013, the Supreme Court of NSW handed down judgment in NSL Pty Ltd v 2

Roslyn Street Pty Ltd [2013] NSWSC 930, which considered the liability of the defendant

lessor for the conversion and disposal of the lessee's fittings, cash and trading stock

upon exercising its right to re-entry.

The Supreme Court held the lessor accountable for the conversion of a number of the

lessee's goods upon the termination of the lease and repossession of the leased

premises.

This case demonstrates the need for lessors to comply sufficiently with re-entry clauses

of any lease to ensure they are not exposed to claims of conversion and detinue by

lessees upon termination.

Lessor's repossession of premises used to run a nightclub business

The plaintiff lessee, NSL Pty Limited, operated a nightclub business between October

2001 and June 2004 from the premises known as 2 Roslyn Street, Kings Cross. NSL

continued to trade until re-entry by the defendant lessor, 2 Roslyn Street Pty Limited on

15 June 2004 pursuant to clause 39 of the lease arrangement.

2 Roslyn Street effected its re-entry by replacing the locks on the premises and

terminating the lease.

Lessor obliged to give lessee a reasonable opportunity to remove its goods from

premises

Clause 39 of the lease agreement stated:

‘If the lessor shall enter into possession of the demised premises and the lessee

shall not have removed his goods or any of them after the lessor has given the

lessee a reasonable opportunity to do so, the lessor shall be at liberty to sell or

otherwise dispose of such goods or any of them as if the lessee were at all times

the beneficial owner thereof and had assigned all his right, title and interest in

and to such goods to the lessor and the lessor shall not be liable to account to

the lessee in respect of the net amount (if any) actually received by the lessor

following the sale or disposal of such goods after deduction of all moneys


outstanding by the lessee including expenses incurred by the lessor in detaining

or maintaining possession of the goods or selling or disposing of the same’.

Cash, trading stock and fittings not returned to lessee

In compliance with the above clause, 2 Roslyn Street sold or otherwise disposed of the

lessee's goods, including certain fittings, trading stock and cash which has not been

accounted for. By 12 October 2004, 2 Roslyn Street had re-let the premises to the

second defendant, Pink Star Entertainment Pty Limited, whilst NSL had not been

permitted to enter the premises before that occurred. Upon inspection of the premises on

13 October 2004, NSL contended that:

• $20,800 was stored in cash at the time of re-entry and was never accounted for

• Trading stock, namely bottled liquor and similar goods amounting to $29,800 that

was present at the time of re-entry have not been returned

• Certain fitout and fittings have been converted by 2 Roslyn Street, under the

subsequent lease arrangement between 2 Roslyn Street and Pink Star

It is important to note, however, that NSL accepts that 2 Roslyn Street had validly

exercised its right of re-entry, but alleges that it had failed to comply with the terms of

clause 39 which required it to permit the removal of fixtures and other chattels within a

reasonable time by giving NSL a reasonable opportunity to do so.

Court finds that lessee was entitled to immediate possession of its own goods

In considering the extensive affidavit sworn by the applicant and the balance of

probabilities, the court was satisfied that 2 Roslyn Street had breached the terms of

clause 39 and thus, awarded judgement in favour of NSL for $110,600. The court found

that the fixtures and fittings, cash and stock in trade allegedly converted by 2 Roslyn

Street were all items in respect of which NSL was either the owner or entitled to

immediate possession.

Although the lease had been terminated, clause 39 continued to apply to restrict the

conversion of the lessee's items by 2 Roslyn Street until it had given the lessee a

reasonable opportunity for removal of such items.

Terms of lease are still significant after termination of lease

This decision by Harrison J indicates that parties to a lease should be sufficiently aware

of any potential rights and obligations that may continue to arise after the repossession

and termination of the lease by the lessor. The terms of the lease remain significant and

therefore, a breach of any term of the lease may render either party liable for damages.


2.14. False and misleading conduct under section 18 Australian Consumer Law

In brief:

In a Federal Court decision handed down on 19 February 2014, the Court held that the

respondent vendor of a shopping centre had engaged in misleading and deceptive

conduct on the grounds that an erroneous representation as to a break-even figure was

provided to the purchaser. The decision of this case emphasises the importance for

vendors to ensure that information disclosed to prospective purchasers are accurate to

preclude claims of misleading and deceptive conduct from arising against them.

Merost Pty Ltd (as Trustee for CD Burgess Family Trust) v CPT Custodian Pty Ltd

(as Custodian for Centre MCS 5)

In Merost Pty Ltd (as Trustee for CD Burgess Family Trust) v CPT Custodian Pty Ltd (as

Custodian for Centre MCS 5) [2014] FCA 97, the Federal Court of Australia considered a

conveyancing transaction for the sale of a shopping centre which involved misleading

representation on the information memorandum in relation to the rent and the breakeven

provision for percentage rent of a tenant's lease.

Material Facts

The applicant, Merost Pty Limited (‘Merost’) purchased a shopping centre from the

respondent CPT Custodian Pty Limited (‘Centro’) located about two kilometre from the

central business district in Launceston, Tasmania. The shopping centre occupied an area

of approximately 3.5 hectares and had two major tenants, namely Kmart and Coles which

accounted for around 80% of rental revenue.

In late 2010, Mr Burgess, the director of Merost became aware that Centro intended to

sell the subject shopping centre. Subsequently in April 2011 liaised with Knight Frank,

Tasmania who were appointed the selling agents and obtained an information

memorandum (‘memorandum’) prepared by the agents on instructions from and with

documents provided by Centro. The memorandum was distributed to all prospective

purchasers and noted the details of the shopping centre zoning, site, improvements and

details of the lease profiles of its major tenants. In particular, the memorandum specified

the base rent and percentage rent for Kmart as contained in the lease, however the

breakeven figure of $21,032,000 was noted as opposed to $24,311,569 being the actual

breakeven figure. As variations to the calculation for rent were made and registered in

May 2010, the breakeven figure of $21,032,000 did not take into account the adjustments

which had been made.

In May 2011, Mr Burgess signed a confidentiality deed to seek access to the electronic

data room (‘data room’) which contained ‘comprehensive due diligence information’. The


data room contained approximately 100 documents and were operated by the law firm

Freehills. On 6 May 2011 Mr Burgess had accessed a document titled 'Launceston

Plaza Kmart % Rent Calculation for Rent Review 1/7/01' which noted the following:

• Existing breakeven being $21,031,729

• New breakeven being $24,311,569

Contracts for the purchase of the shopping centre were exchanged on 27 June 2011,

however it was not until 24 August 2011, that Mr Burgess learned of the variation of the

lease for the first time.

Material Issues

In the present proceedings, Merost contended that Centro had engaged in misleading

and deceptive conduct pursuant to s18(1) of the Australian Consumer Law (‘ACL’) on the

grounds that the amount of rent payable by the major tenant of the shopping was

erroneous. Further, Merost also sought damages amounting to $700,000 for the loss and

damage suffered upon reliance on Centro's representations.

In response, Centro denied that it had engaged in misleading or deceptive conduct and

claimed that Merost did not rely on the erroneous representation in its decision to

purchase the shopping centre. Further, Centro also sought reliance on section 137B of

the Competition and Consumer Act (Commonwealth) 2011 and argued that if the

purchaser suffered any loss or damage, such loss or damage was caused or contributed

by the purchaser itself. Therefore, the amount of damages should be reduced by the

extent of the contributory negligence by the purchaser itself . If Merost was found

proportionally liable, then the purchaser's lawyers Abrahams Meese Lawyers, the

solicitors for the purchaser, would have independently caused loss and damage pursuant

to section 87CD of the Act.

The whole problem came about when the original lease was registered it suggested that

above a certain amount, Kmart would pay a percentage rent. What went wrong was that

that figure had been significantly reduced by a registered variation which was signed on 8

December 2009 and registered in the Tasmanian Land Titles Office on 21 May 2010.

Was there misleading and deceptive conduct?

In ascertaining whether Centro had engaged in misleading and deceptive conduct, the

Federal Court considered all the circumstances which surrounded the transaction

between Merost and Centro including the memorandum, data room and the standing of

the professionals who were involved in the transaction.


The memorandum was prepared by Knight Frank, one of the leading agents in Tasmania

and was designed to equip potential purchasers with the materials necessary to submit

an expression of interest for the purchase of the shopping centre. The memorandum was

prepared on instructions from Centro who is the largest operator of community and

neighbourhood shopping centres. The documents in the electronic room were expressly

stated to provide ‘comprehensive due diligence information’ and was administered by

Freehills, one of the largest law firms in Tasmania.

As the erroneous statement of the breakeven figure was provided in the information

memorandum and in the document contained in the electronic data room, the Court

accepted the argument of Merost that they saw ‘no real requirement to go outside of’ the

information provided by the memorandum and electronic data room in finding that the

representations were misleading and deceptive within the terms of s18.

A part of this was looking at various High Court decisions including Kizbeau Pty Ltd v

WG&B Pty Limited decision 1995, 184 CRL at 281. The High Court said in relation to

statutory provisions which were materially the same as the present, that any actions

based on section 52 are analogous to actions of tort and it follows that in assessing

damages under the Act, the rules for assessing damage in tort are not the rules for

assessing damages in contract.

In an action for damages for deceit for inducing a person to enter a contract of purchase,

which is an action that is closely analogous to an action for damages for breach of

section 62, the Courts have consistently held that the proper measure of damages is the

difference between the real value of the thing acquired as at the date of acquisition and

the price that was paid for it. Accordingly, the difference on all the evidence submitted

was significant and held to be $325,000.

Although the Court accepted that Centro had engaged in misleading and deceptive

conduct, it also determined that Merost was partially responsible for the loss and damage

it suffered on the grounds that did not personally review the relevant title search which

would have revealed the variation. Therefore as some of the loss was contributory by the

purchaser, Centro's responsibility for the loss and damages was reduced by 20% and

accordingly, was ordered to pay Merost $260,000.

Importance

This is an exciting decision as it finally looks at a judgment based on the new Australian

Consumer Law and goes into much details about section 18 and the other provisions on

contributory negligence and other contribution for a proportionate liability of other

wrongdoers. This decision of this case emphasises the need for leasing deals to be

brought forward to the purchaser including rent reductions or special deals in confidential

side deeds as much as possible otherwise the vendor will suffer the consequences.


2.15. Dee-Tech v Neddam Holdings (2012) NSWSC 251

In a recent case, the court found that as the retail use of the premises was not the

predominant use, the tenant was not covered by the Retail Leases Act and therefore had

to pay a contribution towards outgoings.

On 22 March 2012, the NSW Supreme Court handed down a decision in the case of

Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited [2012] NSWSC 251. The

case concerned premises at The Entrance Road, Erina which were originally leased for

‘computer sales, internet café & games’.

White J agreed that the premises had originally been used as retail shop premises and

were therefore covered by the Retail Leases Act 1994. However, due to a variation of the

permitted use under the lease, the premises were no longer retail shop premises and

were therefore not covered by the Act.

Landlord permits tenant to vary use of premises

In 2002, the landlord and tenant agreed that the tenant could vary the permitted use in

the lease of the premises to become ‘computer sales, service, games, internet café,

laundry/laundromat and associated uses’.

The variation was to assist the tenant and so the tenant was permitted to sublease a

substantial amount of the premises to a commercial laundry.

Dispute over payment of outgoings

The landlord and tenant had a falling out over many issues, including the payment of

outgoings. The tenant argued that no amount in relation to outgoings was owed because

the lease was a retail shop lease within the meaning of the Retail Leases Act.

If this is the case, then section 28A of the Retail Leases Act provides that the tenant was

entitled to withhold payment of contribution for outgoings because the landlord had failed

to give it a written estimate of outgoings required under section 27 or an outgoings

statement required under section 28.

What was the predominant use of the premises?

The Judge held that at the start of the lease, before the variation, the permitted uses

were clearly uses within the meaning of the Retail Leases Act.

However, a commercial laundry is not a prescribed business for the purposes of the Act,

although the Act does include a collection centre for dry cleaning or laundry services.


Accordingly, the Judge had to look at what the predominant use of the premises was to

determine whether it was used predominantly as a commercial laundry or for other retail

uses.

Fraction of total area, fit out costs and number of employees

The larger area of the leased premises was used for the commercial laundry and

Development Consent was obtained at the time of the variation to carry on a commercial

laundry. This development application made it clear that it did not contemplate a

collection centre for dry cleaning or laundry services.

It was not a domestic laundry. The customer base was mainly hospitals and restaurants.

The cost of the fit out to create a commercial laundry was over half a million dollars,

whereas the cost of the fit out for the retail computer sales and internet café was very

little. The laundry had many employees, whereas the internet café had none.

Variation on use of premises removes protection of Retail Leases Act

Accordingly, the Judge found that the commercial laundry was the predominant business

use and therefore the Retail Leases Act did not apply. The premises were not retail shop

premises, so the tenant had to pay the outgoings.

Section 133E of the Conveyancing Act Challenge

Dee-Tech gave notice of the exercise of the options for renewal and the landlord

disputed the validity of the exercise of the option.

The Lessee commenced proceedings for specific performance and orders were made by

consent declaring that the Lessee had validly exercised the option for renewal. Dee Tech

purported to exercise the second option for renewal and claimed to be entitled to a

further lease of three years in accordance with earlier exercise of option, which was

disputed and the parties over many years had much litigation between each other.

For the purposes of this case note on 14 October 2010 the Lessee Dee Tech gave notice

of the exercise of the option to renew the lease for the final three year term.

The effect of section 133E and 133F of the Conveyancing Act is that a lessor cannot

dispute the validity of the lessee's exercise of an option to renew on the grounds that the

lessee was in breach of the lease unless the prescribed notice in accordance with section

133E had been served on the lessee and either the lessee does not within one month

apply for an order for relief or if such proceedings are brought no relief is granted or relief

is granted on terms with which the lessee fails to comply. The lessor served notices

expressed to be given under section 133E of the Conveyancing Act and these notices

allege breaches of the lease and therefore the purported exercise of the option of


renewal was invalid. The failure to obtain consent to use the premises for computer

sales, service, games and internet café was struck out. The breach in relation to painting

was struck out but the lessor was held to be entitled to give the notices in respect of the

breaches for non-payment of interest and GST and not ensuring that insurance policies

contained correct clauses set out in the lease and for taking a dog onto the premises.

There are also many other breaches alleged.

The Judges held that they did not consider the lessee's failure to pay the outgoings and

interest and GST as wilful whilst the lessee may have been in breach of the lease they

were not substantial breaches. They are not of a serious nature or warrant denial to the

lessee Dee Tech of the option for renewal provided the amount due on account was

promptly paid.

The tenant exercised the option to renew the lease and the landlord gave the prescribed

notice to deny the exercise of the option in respect of alleged breaches of the lease, the

alleged invalidity of notices of alleged breaches pursuant to section 133E of the

Conveyancing Act. The tenant sought an application for relief from breach of certain

obligations, the circumstances which the Court had to consider to be relevant to grant

relief and relief was granted conditionally against forfeiture of the option for renewal

pursuant to section 135F of the Conveyancing Act 1919.

For the option to renew the lease, alleged invalidity of exercise of option to renew, it was

established that the breaches were not of such a serious nature as to warrant the denial

of the option to renew so the established breaches did not adversely affect the lessor so

the exercise of relief against forfeiture was given in favour of the tenant.

2.16. Scarcella v Linknarf Management Services Pty Limited (in liq) [2004] NSWSC 360

The lease in Scarcella's case was not a retail lease but the decision is still relevant to

retail leases.

Scarcella was the landlord of a shop at Bowral, New South Wales, leased as a Franklins

Supermarket. The tenant was a subsidiary of Franklins Limited, Linknarf Management

Services Pty Limited. By the time of this litigation, Linknarf was in liquidation. The lease

was for 10 years from 12 August 1994, with two options for renewal for 10 years and 5

years respectively.

The lease contained the usual covenant of a prohibition coupled with a right to assign

provided that the prior approval of the sub-landlord was obtained. The words ‘such

approval shall not be unreasonably withheld’ had been added at the end. There was no

guarantor for the original lease. However, one of the conditions in the lease had the usual

type of provision requiring any proposed assignee, or transferee if a corporation, to have

covenants guaranteed by the directors or principal shareholders.


When the landlord's consent was first obtained there was a two month delay. There was

a request for assets and liabilities of each of the company directors of the assignee who

were each required to guarantee the lease, talk of the landlord securing a friend of the

landlord as a tenant, and a suggestion that the rent should be increased, the term

extended, and a bank guarantee for 6 months rent be provided. Some 7 months after the

request for consent, the deal went off with Pick 'n' Pay. In January 2002, the consent was

sought for the transfer to Woolworths and by 3 February 2002 Franklins closed its doors.

Franklins stated that they had accepted a repudiation of the lease by the landlord for its

unreasonable refusal to consent to the first assignment and later to the second

assignment. The case was brought about because the landlord had commenced action

against Franklins for the arrears of rent.

Hamilton J decided that the issue of reasonableness or unreasonableness of the

withholding consent was not necessary to be decided because the wording or provision

for consent was in the nature of a ‘proviso’ and not a covenant or promise by the landlord

to give consent. If the provision is truly a proviso then it imposes no obligation upon the

landlord which could support an action for damages for breach, and so the tenant is free

to proceed with the assignment without any consequence against it. The case discussed

a long series of judicial authorities which showed that provisos of the kind under

discussion had been regarded as not exposing the landlord to any liability in damages for

such refusal. If a tenant believes the landlord is unreasonably withholding consent it is

free to assign the lease without consequence. The tenant can seek a declaration that the

withholding was unreasonable. It is not open to the tenant to terminate the lease.

Several important points were made in the judgment. Significantly, that in the form of the

covenant relating to assignment (which is fairly usual in commercial leases) there was no

positive covenant by the landlord and the lessee was not entitled to recover damages for

breach of the landlord's obligation to consent (in an appropriate case). That may be

contrasted with the position under the RL Act in New South Wales where, by reason of

the statutory provisions, the lessee may claim damages for unreasonable refusal of

consent by the landlord. The tenant also could not treat a wrongful refusal of consent as

a repudiation of the lease. The tenants remedies in that situation are either to seek a

judicial declaration that consent was unreasonably refused, or to assign without having

obtained the landlord's consent. This is a very useful decision in discussing these issues.

2.17. AWPF Management Pty Ltd v Red Roll Pty Ltd [2009]

The case of AWPF Management Pty Ltd v Red Roll Pty Ltd & Ors (RLD) [2009] a case of

the New South Wales Administrative Decisions Appeal Panel, page 3, handed down on

23 January 2009, overturned an earlier case.

The question that had to be determined on the appeal is whether the liability of a party to

a retail shop lease established by section 10(1) of the Retail Leases Act 1994 to

compensate another party to the lease for damages suffered by virtue of any prelease


misrepresentation actually runs with the land? In more specific terms, the question is

whether the assignee of the freehold interest in the land, for that matter it could be either

the assignee of the tenancy as well can be ordered to pay such compensation even

though the assignee was not privy and not aware of the misrepresentation when the

assignment occurred. In the original decision before the Administrative Decisions

Tribunal, that question was answered in the affirmative.

The background history of the case was that it concerned a café premises in World

Square Retail. A retail shopping centre where Red Roll entered an agreement for lease

with the then owner of the building. After the lease was signed by both parties, the owner

of the building transferred its interest in the lease to the second respondent and the

appellant as part of a sale of World Square Retail.

The new owners gave notice to the tenant of their intention to terminate the lease and re-

enter the premises if the amount of $160,000 in arrears of rent was not paid immediately.

Red Roll commenced proceedings in the tribunal naming the former owners and the

current owners as the respondents. The new owners alleged that because they were not

parties to the misrepresentation they should not be liable under either section 10 or under

the Unconscionable Conduct provisions as alleged by the tenant.

The appeal panel decided that under section 10 of the Retail Leases Act, the new owners

could not be liable to the tenant as they were not aware nor parties to the original

misrepresentation. They did not have to decide on the unconscionable conduct under

section 62B as that was not pursued in the original tribunal nor on the appeal but

accordingly they set aside the decision in relation to section 10 and said that that could

only bind the actual parties to the misrepresentation unless the assignee was a party to

the misrepresentation or was aware of the misrepresentation and privy to it.

2.18. Almaron Pty Limited v Jonamill Pty Limited [2009] NSWADT 89

This Administrative Decisions Tribunal case concerned whether the tenant, the franchisor

of a Michel's Patisserie in North Ryde, validly exercised its option to renew the lease.

Clause 12.6 of the lease required that the notice be served by ordinary post to the

landlord's address specified in the lease (the address would be varied if written notice of

the change of address was provided to the tenant).

The tenant had from 31 July 2007 to 31 October 2007 to serve the landlord with its notice

of renewal. On 18 March 2007 the landlord gave the tenant a notice advising of a change

of address to PO Box 6180, North Ryde (its prior postal address was PO Box 144, North

Ryde).


The tenant sent a notice of renewal on 16 October 2007 to PO Box 144, North Ryde. The

landlord only received it after 31 October 2007, ie after the expiry date. Due to receiving

the notice late, the landlord refused to renew the lease.

The tenant contended that the change of address notice sent by the landlord was invalid

because the letterhead read ‘Sena Developments, a division of Alramon Pty Limited’.

(The landlord was Alramon Pty Limited.) The letter also failed to identify the address of

the property, the registration number of the lease, the landlord 's former address, the

person responsible for the change of address, etc.

Judicial Member Rickards looked to the ‘relevant objective contextual scene’ to

determine whether the change of address notice was valid.

He held that although details were omitted from the notice, a reasonable recipient would

have considered that a business called Sena Developments, apparently conducted by

Alramon Pty Limited, wished to notify the recipient of Alramon Pty Limited's change of

address.

Even though the tenant dealt with many Michel's Patisserie franchises, a reasonable

recipient in the tenant's position would have realised that the notification was in

connection with the lease of the property to which the letter was delivered.

The consequence of this finding was that the change of address notice was valid and that

the notice of renewal, sent to PO Box 144, North Ryde, was invalid. The option to renew

was not validly exercised and the landlord was within its rights to refuse the tenant's

purported exercise of the option.

2.19. Home Ideas Centre Sydney Pty Ltd v Alem Pty Ltd [2010] NSWSC 695 a decision of

Palmer J in the New South Wales Supreme Court

This is a long term lease of 10 years where almost immediately the tenant fell into arrears

of rents and outgoings. The landlord came to an arrangement in accepting a substantially

less amount of money per month and structured it as a loan and it will be written off at the

end of the lease if the tenant otherwise complied with its obligations under the lease.

Again, the tenant fell into substantial arrears of the rent and the landlord gave a demand

to the tenant and then terminated the lease by re-entry. The lease provided that if the

tenant default in its obligations, the landlord could serve a written demand on the tenant

and the lease was at an end if the tenant failed to remedy the breach within seven clear

days after receiving that demand. However, the demand was given to the tenant but not

in the manner prescribed in the lease.

The demand was not served as per the lease but rather was sent by the landlord on 21

May 2010 as an ‘attachment’ to an email.


The officer of the tenant who read the demand several days later realised what the

demand had entailed.

The Supreme Court Judge Palmer J said that if a party gives notice in a manner other

than as prescribed in the lease, that party cannot rely on the ‘deemed time of receipt’

clause in the document, instead the party will need to actually prove to the Court's

satisfaction both the actual fact of service and the actual time at which it occurred.

In the case of service on a corporation, this means the party giving the notice must prove

that the notice actually came to the attention of an officer of the corporation who was

authorised even expressly or implicitly to deal with that particular notice.

The landlord had re-entered the premises on 31 May 2010 and purportedly terminated

the lease. Technically this was one day earlier than it would have been entitled to do so

on the assumption the tenant had only become aware of the actual letter of demand on

24 May 2010 and so therefore there wasn't seven clear days. The landlord continued to

occupy the premises until 1 June 2010 when it would have been the correct day to re-

enter.

Accordingly, the landlord had re-entry being premature had ineffectively terminated the

lease. The landlord was liable for damages to the tenant for the day that it improperly

was in possession.

There was another clause in the lease that provided for the tenant to pay outgoings.

What happened in that clause was the landlord would give the tenant a statement setting

out details of the outgoings to the premises, the landlord had given that statement on 7

September 2009. The tenant was obliged to pay its proportion of the outgoings within 21

days of receipt of the statement. The tenant failed to do so, so after that period expired,

the landlord was automatically entitled to re-enter the premises as a result irrespective of

whether the landlord had re-entered the premises early. Under one aspect of the default

clause it was entitled to do so under another aspect of the lease and that actual date that

it re-entered the premises on 31 May 2010.

What should the tenant do when it wants to say well if I have been in breach of the lease

and the lease is terminated, how do I get relief against forfeiture? The tenant paid up all

outstanding rent and outgoings before the trial. The tenant offered a bank guarantee for

six months rent and outgoings together with a guarantee from its parent company. In this

lease, there had been no requirement for the tenant to provide any security. The Court

decided to give relief against forfeiture on terms that the tenant pay all of its arrears

within a short time while also satisfying its financier's requirements to procure a bank

guarantee for the landlord. Palmer J ordered the tenant to pay the landlord's costs on an

indemnity basis. The landlord should not have been put in the position of having to take

Court proceedings to compel compliance with the lease.


2.20. Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No. 2) [2011] VSC 485

This is an interesting case because it concerned the powers of the Court to grant relief

against forfeiture as an option to renew a lease.

The lease contained an option to renew. The exercise of the option was conditioned on

the tenant not being in continuing breach of the lease. However, in this case the tenant

was in continuing breach of the lease.

The judge held that the tenant's purported exercise was invalid.

The tenant claimed relief against forfeiture of the right to exercise the option.

In New South Wales we have section 133C to 133G of the Conveyancing Act 1919

(NSW). There is legislation in most of the other jurisdictions of Australia but there is no

such legislation in the jurisdiction in Victoria, then went to general principles of law but

the trouble lies with the lease under an option to renew. The tenant had to show that the

loss of the opportunity to exercise the option should be classified as a forfeiture. In the

judge's views the right to a further term is a contractual right not a proprietary one and the

loss of such a contractual right does not attract an equity to relief against forfeiture. The

tenant by virtue of its continuing breach of the lease had disqualified itself from exercising

the option.

2.21. Kim v Kim [2012] NSWADT 27

This is a decision of the Retail Leases division which was handed down on 5 December

2011.

The lease was part of level 2, 41 Beecroft Road, Epping for a term of three years

commencing 8 October 2011 and contained two options to renew each of three years.

The lease was for a karaoke venue so it was held to be used for amusement and

entertainment services pursuant to the Retail Leases Act and not as alleged and argued

for purposes of the sale of beer, wine and spirits for consumption on the premises which

would not be part of the Act.

There had been a letter of demand by the Landlord about default by the tenant which

alleged various breaches of the lease regarding evidence of insurance for public liability

and other insurance provisions and that also there were other breaches of the lease to do

with music for audio equipment had not been updated in accordance with the terms of

the lease and the premises were not maintained or a reasonable standard in accordance

with the lease. The furniture and equipment had not been maintained and repaired in a

proper manner and a significant number of damaged items had been stored rather than


repaired, failure to properly clean and there was a general failure to maintain the

premises in a clean and suitable order and to prevent damage to the timber flooring and

carpet, with cigarette burns etc. The existing kitchen facility was not adequate for the

current use for the amount of food preparation and needed to be upgraded if the access

from the courtyard at the top should only be used for delivery of heavy items and bins

during certain and should not be for general access as it was and the curtaining in the

premises maintained in good order.

There were order alleged breaches to do with trading in excess of permitted hours under

the Liquor Licence and development approval and also in relation to the noise levels

reaching that levels that cause damage to the fabric of the building and there was much

correspondence going back and forward about these breaches. Shortly after the landlord

took physical possession of the premises and changed the locks. Firstly, was this a

repudiation of the lease as it amounted to a substantial willingness or inability to comply

with the lease. The tribunal said no. They thought the alleged breach of the lease

referred to but did not evidenced that sort of unwillingness were simply breaches of

contract.

Accordingly, as a breach of lease, they were required by section 129 of the

Conveyancing Act to give the applicant a notice (see Macquarie International Health

Clinic Pty Ltd v Sydney South West Area Health Services (2010) NSWCA 268 at 297).

There were also arguments as to whether it endangered the licence under the Liquor Act

but there were no submissions or anything to prove that.

There was also argument whether these letters that were referred to constituted sufficient

notice for the purpose of section 129 thus plain from the terms they did not follow

schedule 6 and they did not refer to section 129 and they were not even in the form.

There are many cases so you do not have to be exact in the form, you have to be

something close to the form. However, in the opinion of the tribunal, the landlord's failure

to give the tenant a notice complying with section 129 meant that the landlord was not

entitled to re-enter the possession of the premises.

The Landlord's action in doing so constituted an unlawful repudiation of the lease which

was accepted by the tenant and as a consequence entitled them to substantial damages.

As a consequence of the acceptance of repudiation, the lease did come to an end, the

tenant is entitled to damages for loss of his bargain but in addition the landlord's rights in

respect of any accrued cause of action were also preserved. So in the absence of any

evidence quantifying the tenant's loss, the best the tribunal could do to take into account

the adverse potentiality of the police report on the tenant's business and other issues was

to assess the loss of bargain damage at $15,000 and an order for return of the security

bond of $46,800.

The landlord's claim for damages could not be in relation to anything other than accrued

rights as at the date of re-entry so they cannot recover any damages beyond 23


November 2010 nor in relation to their assertion that the tenant's obligation to restore or

repair the premises upon the termination or expiration of the lease because that didn't

happened.

It was also difficult as there was no evidence of the state of the premises at the

commencement of the lease. This is why it is always important to have some sort of

dilapidation or condition report so that the parties can look at this in case of some sort of

damages claimed by a landlord one day even if the tenant is the one who is successful in

the Court case.

In relation to a claim of unconscionable conduct whether by the landlord or by the tenant,

nothing in the evidence amounted to that and as each party had a measure of success

and failure, the tribunal also thought there was no order as to costs though they were

prepared to take submissions on that.

The orders and declarations were as follows:

1. a declaration that the lease was a retail shop lease and regulated by the Act

2. the landlord was to refund or procure the refund to the tenant of the full bond

3. the landlord was to pay the tenant the sum of $15,000 for wrongful repudiation of the

said lease

4. the tenant was to pay the landlord the sum of $7,500 in accrued damages for breach

of covenants in the lease up to the date of re-entry.

2.22. Gumland Property Holdings v Duffy Bros Fruit Market (Campbelltown) [2008] HCA 10

(a) Transit Management leased Shop 10 in a Campbelltown Shopping Centre to

Duffy Bros (Lessee) to conduct a fruit vegetable and meat market (the Lease).

Timely payment of the rent was expressed in the lease to be ‘essential’ and

‘fundamental.’ By mid-1999 the Lessee was experiencing trading difficulties and

began to fall into arrears with rent and outgoings. The Lessor and Lessee

decided to execute a Deed, agreeing that the Lessor would act as the Lessee's

attorney and locate lessees for a sublease.

(b) The Lessee then sub-leased part of the premises (Shop 10A) to Woolworths (the

Sub-lessee) for a 3 year term. Meanwhile, Transit's sale of the premises to

Gumland was completed. Gumland thus became the Lessor.

(c) The initial term of the Sublease was due to expire on 31 July 2002. Woolworths

informed the Lessee it would not be renewing the Sublease. It nonetheless

remained in occupation pursuant to the holding over provisions of the Sublease

and unilaterally decided to pay only half the rent payable thereunder. The Lessor


served a notice on the Lessee demanding payment of the shortfall in rent under

the Sub-lease, and claimed this shortfall entitled the it to terminate its lease with

the Lessee for breach of the covenant to pay the full rent.

(d) Duffy Bros did not pay, and Gumland served a notice terminating the Lease. It

then commenced proceedings in the NSW Supreme Court seeking arrears for

unpaid rent, loss of bargain damages for the remaining period of the 15 year

lease, and damages for the cost of re-letting Shop 10.

(e) The trial held that Gumland was entitled to terminate the lease for the short

payment of rent under the sublease. The trial judge also held that there was a

breach of an essential term of the lease which gave rise to an entitlement for the

damages. The judgement was given against the tenant for $2,096,514 which

consisted of $78,635 for the shortfall of payments by Woolworths, $283,597 for

arrears of rent in outgoings and loss of bargain damages of $1,624,737 that is

mainly rent for the balance of the terms and $109,545 for reinstatement and

repair and make good damages. The trial judge held that the claim against the

guarantors was dismissed because the deed had required that the subtenant

would pay the rent directly to the landlord but, the sublease that was eventually

created did not have that particular term.

The case was appealed to the NSW Court of Appeal and the Court of Appeal

agreed also with the shortfall of payments to Woolworths and arrears of rent

outgoings but the landlord was not entitled to loss of bargain damages or to the

reinstatement made good in repair damages because the landlord was not

entitled to terminate the lease. The Court of Appeal held that the shortfall in

payment by Woolworths was a breach of the deed and not of the lease itself but,

in relation to the arrears of rent, the guarantors were held to be also liable to the

landlord.

Accordingly, the landlord appealed to the Court of Appeal's judgement to the High

Court of Australia.

The High Court of Australia unanimously allowed the appeal and effectively

restored the judgement of the trial judge and so damages were awarded against

both the guarantors and the tenant for $2,096,514 plus interest.

The issues, which the High Court listed, and their responses are as follows:

(i) Was the Lessee in breach of clause 10.2(c) of the 1999 Deed?

Answer – Yes

(ii) If yes to (a), was that breach a breach of clause 3 of the Lease?

Answer - Yes


(iii) If yes to (b), did clause 7.1.1 of the Lease render that breach of clause 3

a breach of an essential term of the Lease entitling the appellant to

terminate the Lease and (subject to question (d)) obtain an award of loss

of bargain damages?

Answer - Yes

(iv) If yes to (c), did s117 of the Conveyancing Act 1919 (NSW) (the

Conveyancing Act) entitle the appellant to recover loss of bargain

damages for breach of clause 3?

Answer - Yes

(v) If not to (d), was there an assignment by the Lessor to the appellant of the

benefit of all the covenants in the Lease and the 1999 Deed by:

(A) the Sale Contract, or

(B) the Deed of Assignment.

Answer - Does not arise

(vi) If not to (d) and (e), was the Lessee estopped from denying that the

appellant could take advantage of the Lease and the 1999 Deed?

Answer - Does not arise

(vii) If the appellant were entitled to recover loss of bargain damages, was the

quantum to be limited by assuming that the Lessee complied with clause

10 of the 1999 Deed?

Answer - Effectively no

(viii) Were the second and third respondents liable on the Guarantees for the

whole of the judgement against the Lessee?

Answer - Yes

(f) Shevill's Case gave rise much clever drafting by lawyers acting for lessors

attempting to get around the case. While the clauses in evidence here were

complex and repetitive, they did the work they needed to do: the covenant to pay

rent was expressly designated as ‘essential.’ The High Court has thus implicitly

endorsed what have been pejoratively known as ‘Anti-Shevill’ clauses - clauses

explicitly included to avoid the effects of that case.

(g) A number of other issues arose in the case. This summary attempts to highlight

only some of them:

(i) A deed varying a lease can be regarded as just a variation, so that the

amended covenants of the lease arise under the lease itself. A breach of

the amended covenant is thus a breach of a covenant of the lease itself.


(ii) The covenant to pay rent ‘runs with the land’ so that on sale of the

reversion the benefit of the covenant ‘runs’ so as to be enforceable by the

purchaser.

(iii) A guarantee of the lessee's obligations to pay rent runs with the land too,

and thus enables the purchaser to enforce the guarantee at common law.

(iv) Making the covenantor to pay rent an essential term.

2.23. Enviro Remote Sensing Australia Pty Ltd v Bankstown Airport Limited [2008] NSWSC

1001

A decision of the Equity Division of the NSW Supreme Court, handed down on 25

September 2008 (Windeyer J).

The plaintiff was the lessee of part of the land at Bankstown Airport pursuant to a lease

dated 29 July 1997 from Federal Airports Corporation (FAC). There was a long term

lease for 25 years. All rights under that lease were transferred from FAC to Bankstown

Airport Limited by the Airports Act 1996 (Cth) and a government instrument called the

Bankstown Airport Transport Instrument.

On 2 September 2002, the defendant served the plaintiff with a notice of breach of

covenant pursuant to section 129 of the Conveyancing Act 1919 (NSW). The breach

alleged a breach of clause 30.4 of the lease in failing to complete works listed as the

lessee's works in clause 30 of the lease in a workman-like manner and requiring the

breach to be remedied. The alleged breach related to construction of one stage of the

works with merely a steel frame and no concrete floor, cladding or internal walls. The

works commenced in January 1998 and were discontinued by the plaintiff in January

1999.

The notice was served by Mr Pritchard, solicitor of Emil Ford & Co, the solicitors for the

defendant lessor, and was generally in the prescribed form. There was a letter that

covered the notice, also from the solicitors, giving them a reasonable time after service of

the notice which was nominated as 31 December 2002. The failure to remedy within that

period allows the lessor to regard itself as legally justified to terminate the lease.

Windeyer held that the notice to determine the lease for breach of covenant was invalid

because it was signed by lessor's solicitors rather than by the lessor. The lessor's

subsequent re-entry and termination of the lease for the lessee's failure to comply with

the notice constituted a repudiation of the lease by the lessor because (at 33):

‘In my view the ordinary authority of a solicitor would not extend to signing a

notice on behalf of the lessor client nor would the solicitor, without other

authorisation, be the agent the client, in this case lessor, for that purpose. As I


have pointed out the lessor is not mentioned by name in the notice and the

solicitor is not claiming to sign as agent for the lessor.’

Unfortunately for the lessee, although the lessee was entitled to damages, the judge was

not satisfied with the evidence of the losses shown and awarded the lessee only nominal

damages of $20.

2.24. Solowave Pty Ltd v. Nechi Holdings Pty Ltd [2005] NSWSC 837

This was a decision of Justice White in the New South Wales Supreme Court.

It involved an application to continue an interlocutory injunction restraining the lessor

from keeping the lessee from possession of premises at Levels 1 & 2, 31-35 Oxford

Street, Darlinghurst. On 1 March 2003, the lessee entered a ten-year lease, with a ten-

year option to renew. The lessor re-entered the premises and terminated the lease on 11

August 2005 for non-payment of rent and other moneys. The lessee denied that the

lessor was entitled to terminate the lease and in the alternative claimed relief against

forfeiture of the lease.

Before the termination, the parties had orally formed an agreement that an application

would be made for development consent because it was unclear whether the nightclub

use was permissible. Eighty percent of the costs would be borne by the lessor and twenty

percent by the lessee. All rent would be paid to the lessor's solicitors and out of that

account the costs of the development application would be paid. However, rent stopped

paying the rent in early 2004. Eventually, the parties entered a deed in relation to the

costs of the development application.

The Court decided that it would grant the lessee the injunction on the basis that there

was a strong claim for relief against forfeiture. It was important to get the lessee trading

again and the employees back at the premises, and there were serious questions to be

tried in relation to the deed and what was incurred in future development costs, but the

amount that was calculated by the judge as being due as rent was to be paid by the

lessee and the mandatory injunction was granted.

2.25. D & M Pelle Holdings Pty Ltd v Cottrell Pty Ltd [2005] ACTSC 67

This case concerned a lessee in a shopping centre in the Australian Capital Territory.

The lessee had a 5-year lease with two five-year options. The lessor had given the

lessee exclusivity in relation to being a delicatessen. Shortly after the first option was

exercised, a supermarket in the centre commenced operation as a serviced delicatessen.

The lessor did nothing to prevent the operation and the lessee's trade wound down. The

lessee commenced proceedings for an order terminating the lease and for damages. The

case involved the assessment of damages.


There was argument that the lessee had failed to mitigate, but that was not made out.

The lessee was awarded loss of bargain damages to restore it to the position it would

have been in had the lessor complied with the exclusivity covenant. This involved several

stages to the termination of the lease, and then on the assumption that if the lessor had

not breached the lease the lessee would have exercised the option, then up to the

expiration of that. The Court looked at the lessee's trading records before the breach of

its actual trading and then looked at the losses after the breach, interest was allowed at

half the Supreme Court rate to take into account the payment of damages in advance,

rather than waiting for payment in due course.

The lessee was even awarded indemnity costs. This was because it had made a

Calderbank offer.

2.26. Easy Buy International Pty Limited v Macquarie Goodman Property Services Pty Limited

& Ors [2006] NSWSC 148 (22 March 2006)

(a) The tenant, Easy Buy, sought orders to prevent the landlord from interfering in

the quiet enjoyment of the premises pursuant to an unregistered lease for the

premises at 165 Mitchell Road, Alexandria.

(b) The tenant had been in arrears of rent but those arrears had been remedied by

the trial. There was also an allegation of breach of permitted use. The permitted

use under the lease was warehousing and distribution. This was expressed to be

an essential term of the lease. The tenant had been carrying on retail sales. This

was banned by the local environmental plans.

(c) The case went into some discourse on what the word 'distribution' and what the

word 'sell' means and was of the view that sales directly to customers off the

street was still a breach of the lease. There was an argument that section 129(6)

of the Conveyancing Act 1919 did not apply, because this was a holding over

tenancy, but this was rejected on the basis of the fact that the lease was for a

specified period followed by a periodical tenancy.

(d) It was held that the defendant/landlord was required to serve a Notice under

section 129(1) prior to exercising its rights pursuant to the lease. Accordingly,

injunctive relief was granted despite the fact that the tenant may have come to

equity without clean hands because the Court would be allowing an illegal activity

to pertain. However, the tenant had offered an undertaking that it would stop

selling direct to the public.

(e) The injunction was granted subject to the conditions that the tenant had to stop

making any retail sales to members of the public. The tenant within 10 business

days had to provide to the landlord proof of consent from Council that the

permitted use is in place and the Landlord must otherwise comply with the lease.


2.27. Azkanaad v Galanos (No. 2) [2008] NSWSC 476

Azkanaad entered into occupation of land owned by Galanos at Woolooware on 4 March

2003. Negotiations as to the terms of a lease of the land were demonstrated by

correspondence between the parties' solicitors dating from 29 March 2002. There was no

formal lease executed or registered by the parties. Azkanaad argued that the

correspondence established an equitable lease. In March 2008 Galanos served a one

month notice to quit. Azkanaad sought specific performance of the equitable lease

alleged, or in the alternative, relief from forfeiture of it.

For an equitable lease to arise, there would need to be in evidence a concluded

agreement for lease that equity would specifically perform. The parties had agreed to the

initial and maximum duration terms, the amount of rent to be paid, the number and timing

of options to renew, the rent free period, and terms relating to use of the land (service

station) and payment of outgoings. Azkanaad was in possession, and had installed petrol

bowsers and completed fit-out of its convenience store.

A number of crucial matters, however, were outstanding:

(a) The land the subject of the negotiations changed after the correspondence relied

upon by Azkanaad had ended. After that correspondence had ended, a vacant

block of land adjoining the service station site was included in the proposed

lease.

(b) There was to be in the lease an option to purchase provision. No agreement had

been reached about this provision - neither when nor how it was to be exercised

had been settled between the parties.

These matters were clearly important to the parties. Gzell J described them as 'essential

provisions in an agreement for lease for a substantial period with a substantial

consideration for purchase.' In the absence of a concluded bargain on these points

between Azkanaad and Galanos, His Honour was unwilling to recognise a concluded

agreement to lease.

Furthermore, even if there was such an agreement, Azkanaad's failure to pay rent and

rent increases in accordance with the contractual terms it alleged precluded it from an

entitlement to specific performance. In the absence of such an entitlement, no equitable

lease arose. Instead, under the provisions of s 127 Conveyancing Act 1919, Azkanaad

had a tenancy at will terminable by one month's notice. That notice had been provided.

Relief against forfeiture was denied.

2.28. Nameless, Shameless and Legless Pty Limited v 2 Roslyn St Pty Limited [2004] NSW

SC 519


In this case, the tenant was clearly in breach of the lease, particularly with respect to its

obligation to pay rent. The tenant had taken an assignment of the lease and spent

approximately $400,000 on a substantial fitout of the premises. The Supreme Court of

New South Wales granted relief against lost option to renew.

On 1 July 2002 premises were leased to Pambena Pty Limited comprising part ground

floor at 2 Roslyn St in Kings Cross, with a 3 year lease plus a 3 year option. The lease

was transferred on 10 October 2001 to Legless. The lessee spent $400,000 fitting out the

premises, so in return the lease was amended to include 3 options for renewal of 3 years

each. The option clause was fairly standard, but provided that the tenant ‘shall in the

meantime duly and punctually pay the rent reserved by this lease at the times herein

appointed for payment and shall duly perform and observe the covenants and

agreements by and on the part of the lessee contained in this lease up to the expiration

of the term here or by granted’. The lessee got behind in the rent, the lessor re-entered,

terminating the lease. The lessee obtained by consent relief against forfeiture. On 25

March 2004 the lessee served notice of exercise of option. On 6 April the lessor served

on the lessee a notice under section 133E of the Conveyancing Act 1919, that is, the

notice that due to breach(s) of the Lease the Lessee has lost its option to renew and

must go to the Court pursuant to section 133F to obtain orders that the option is not lost

or if so then for relief.

The court found that the option clause was constructed so that the entire period for the

lease had to be covered in terms of requiring the lessees to comply with the obligation to

duly perform and observe all covenants and agreements up to the end of the lease term.

This was seen as a ‘condition precedent’ to the entitlement to exercise the option.

Accordingly, the lessee's claim for declaratory relief had to be dismissed.

The lessee argued that the lessor's notice incorporating an incorrect reference to section

133E when it should have been pursuant to section 133F as required by the terms of the

Conveyancing Act. The Court looked at section 80(1) of the Interpretation Act 1987

(NSW) which states: ‘If an act or statutory rule prescribes a form, strict compliance with

the form is not necessary but substantial compliance is sufficient’. Accordingly Einstein J

found that the lessee was given the substance of the information in order to come to

Court.

The Court held that it was entitled to take into account a wide range of facts, matters, and

circumstances in determining whether to exercise its discretion under section 133E and

F. The only thing that persuaded Einstein J was that the lessee had incurred expenditure

of some $400,000 following its fitout of the premises and so should be given just one last

chance.

Einstein J said that the tenant despite coming ‘within a straw of having lost the present

application, should be given one only last chance’.


2.29. Ace Property Holdings Pty Limited v Australia Postal Corporation

Most retail and commercial leases contain the standard assignment clause which states

that any lessee shall not assign, transfer, sublet, charge, encumber, part with or

otherwise deal with its interest in or possession of the premises without the prior written

consent of the lessor, with such consent not to be unreasonably withheld or where that

consent can be withheld at the lessor's absolute discretion.

There is also often a separate clause that whenever there is a change in the

shareholding of any company other than any company listed on the Australian Stock

Exchange and the effect of that change in shareholding changes the control of the

lessee, then this is also deemed to be an assignment of the lease and the lessor's

consent is required.

There is a fine line between whether allowing a related entity of the lessee to occupy the

premises constitutes subletting or an assignment of the lease.

This was demonstrated in a recent Queensland Supreme Court of Appeal decision of

Ace Property Holdings Pty Limited v Australian Postal Corp. In this case, the lessor had

leased premises to Australia Post (lessee). The lease between the lessee and the lessor

commenced in 1998. There was a provision in the lease where the lessee was not

permitted to sublet, licence or otherwise part with possession of the premises unless it

obtained the lessor's prior consent. A company by the name of Decipha which was a joint

venture company in which the lessee was a shareholder and which eventually became a

wholly owned subsidiary of the lessee occupied the premises from 2003. Decipha

occupied the premises and conducted its own business and had its own employees who

had no association with the lessee. The lessee had not obtained consent from the lessor

for Decipha to occupy the premises. The lessee argued that Decipha was only acting as

the agent of the lessee and that such consent from the lessor was not necessary.

The lessor provided the lessee with a notice requiring remediation of breaches of

covenant of the lease pursuant to section 124 of the Property Law Act 1974 (Qld). The

Trial Judge had to determine whether the lessee had parted with possession of the

premises without the lessor's consent. The Judge decided that the lessee had not parted

with possession of the premises because the lessee was still able to exercise control

over Decipha due to their corporate relationship ie Decipha being a subsidiary of the

lessee.

On appeal, it was noted by the Court that a lessee may permit another occupant to

occupy the premises without the lessee being deemed to have parted with possession of

the premises by assignment. However this depends on the facts of each case. Whilst the

lessee continued to pay rent to the lessor and the lessee could change the state of affairs

of the possession of those premises, the Court considered that the employees of

Decipha were not employees of the lessee. This was a factor going to the exercise of


control of the premises and the business conducted by Decipha on the premises

appeared to be carried out by Decipha in their own right. There was no agency

relationship between Decipha and the lessee. Decipha had its own customers which

were independent of the lessee. The lessee argued that the lessor had given consent to

the lessee's parting with possession of the premises as the lessor was aware of

Decipha's occupation. The lessor's argument, which succeeded on appeal, was that the

lessor was not aware that Decipha was a separate legal entity carrying on its own

business at the premises.

The Court held that Decipha was a separate legal entity carrying on its own business on

the premises and that the lessee had parted with possession of the premises without the

lessor's consent. Consequentially, this amounted to a breach of the lease and entitled the

lessor to terminate the lease, as the lease had been assigned without the lessor's

consent. The Court commented that it was in the lessee's best interests to obtain the

consent of the lessor by allowing the lessee to occupy as sub-licensee and for a sub-

licence to be entered into between the lessee and its subsidiary.

Each lessee must take care when allowing related entities to occupy leased premises

and carry on business. To avoid any uncertainty, a lessee should obtain the lessor's

consent every time someone other than the lessee occupies the premises and inform the

lessor of the particulars of the occupying entity to avoid the lessee being in breach of the

lease and the lessor therefore having the right to terminate the lease.

2.30. Barecall Pty Limited v David Hoban [2010] NSWCA 269

In a judgment handed down on 12 October 2010, the New South Wales Court of Appeal

upheld the original decision of the New South Wales Supreme Court to dismiss

proceedings seeking to enforce guarantees of the debts of a company pursuant to

various instruments of lease, sub-lease and variation of lease. The three documents

were in relation a building in Manly, partly owned and partly leased by the appellant,

Barecall Pty Limited (Barecall).

In 2001 Aqualounge Manly Pty Ltd (Aqua Lounge) subleased and occupied the land for

carrying on a nightclub, restaurant and bar. In 2003 Aqua Lounge was allowed to occupy

an additional floor provided that documentation varying the original lease would be

entered for higher rent. In a conversation between Mr Oppedisano (on behalf of Barecall)

and Mr Spadina, Mr Rossi and Mr Harvey; it was established that Mr Oppedisano would

let Aqua Lounge have the additional floor on the same terms as the previous tenant

provided that he received personal guarantees from all five of the directors of Aqua

Lounge.

Mr Tocchini, the solicitor acting for Aqua Lounge as well as Mr Hoban, Mr Rossi, Mr

Spadina, Mr Lussick and Mr Harvey individually as directors of Aqua Lounge, wrote to

Barecall giving an assurance that the aforementioned people will guarantee the lease. A


few months later Mr Tocchini sent a letter to the solicitor for Barecall and Mr Oppedisano

enclosing the documents that had been executed by three of the five guarantors, along

with instructions that the other two guarantors would attend the other solicitor's office to

execute the documents. Aqua Lounge ceased use of the premises in 2005 due to

financial difficulties and Barecall brought an action to enforce the guarantees of the debts

of Aqua Lounge.

The Court of Appeal held that although Mr Oppedisano had not been told by his solicitor

that only three of the guarantors had executed the guarantee, Mr Oppedisano's

knowledge of the situation could be imputed by his solicitors knowledge (at [18]).

Therefore the Court of Appeal held that Barecall and Mr Oppedisano could not rely on

estoppel because Mr Oppedisano had allowed Aqua Lounge to have possession and use

of the premises despite having ‘knowledge of the absence of the fulfilment of the

assurance that had been given’ (at [19]). The Court of Appeal further noted that even if

the guarantees had been properly executed, the lease had not been registered so it

would not have been effective anyway: per Chan v Cresdon Pty Ltd [1989] HCA 63; 168

CLR 242 (at [20]).

This case illustrates that a lessor must be satisfied with all lease documents before

allowing the lessee to take possession of the premises. The case also highlights the

effect of solicitors knowledge being imputed upon their client and the imperativeness that

solicitors relay all relevant information to their client.

2.31. World Best Holdings Limited v Sarker [2010] NSWCA 24

On 15 April 2010, the New South Wales Court of Appeal handed down its decision in the

case of World Best Holdings Limited v Sarker [2010] NSWCA 24. The decision marks

what could be the end of almost six years of litigation in this dispute. The case highlights

practical points for landlords and tenants and their lawyers on the issues of lease

termination and interpretation.

Factual matrix

On 1 July 2003, the landlord, World Best Holdings Limited (World Best), granted the

tenant, Mr Abdul Sarker, a lease of shop 48B in Minto Mall Shopping Centre, Minto,

NSW. The lease stated that the permitted use was to be ‘Asian supermarket’ or ‘Asian

grocery shop’. It also granted the tenant exclusivity, meaning that the landlord would not

permit any other retailer to operate an Asian grocery shop. Earlier (17 June 2002), the

landlord granted Dhaka Corporation (Dhaka) a lease of shop 50A in the Minto Mall

Shopping Centre, which Dhaka called ‘India Imports’. The permitted uses under the lease

included: retail sale of Indian grocery and spices, Islander, Fijian specialty foods and

spices, Halal meat and poultry, Indian Garments, Asian vegetables [sic], pre-cooked

Indian foods, phone cards and rental Indian videos (no other language, Indian only). The

landlord had granted Dhaka exclusivity over the above uses.


What does it mean to be ‘Asian’?

When Mr Sarker began selling Indian groceries and Halal meats (among other things),

Dhaka wrote to the landlord to complain. The landlord insisted on Mr Sarker not selling

those products. Mr Sarker said that he was within his rights to do so as the products fell

within the ‘Asian supermarket’ use. The landlord's reply was that Indian groceries were

not ‘Asian’. It asserted that although India is situated on the Asian continent the ordinary

Australian use of the term ‘Asian’ refers to Chinese, Japanese, Vietnamese, Thai, etc.

The matter was fought out in the Administrative Decisions Tribunal. The Tribunal noted

that the earlier lease granted to Dhaka should have been at the forefront of World Best's

mind when granting the lease to Mr Sarker and that a prudent landlord would have

defined ‘Asian’ as not including Indian. However, considering that the term ‘Asian’ was

not so defined, the Tribunal said that Indian groceries fell within the permitted use. The

NSW Court of Appeal agreed with this.

Landlord's purported termination

Before the Tribunal proceedings, the landlord sent a notice to Mr Sarker claiming that by

insisting on selling Indian groceries, he repudiated the lease (demonstrating that he did

not intend to comply with it). The argument at that stage from the landlord's perspective

was that selling Indian groceries was a breach of the lease (although the Tribunal and

Court of Appeal later rejected the argument). The notice stated that due to the tenant's

repudiation, the landlord terminated the lease.

Handy trick for landlords wanting to avoid section 129(1) of the Conveyancing Act

The Court of Appeal made some comments about the way in which the landlord

terminated the lease. If the tenant had actually repudiated the lease, the landlord's

termination would have been rather clever. Where breach of lease is the ground of

termination and provisions of the lease expressly provide for the landlord to terminate for

breach, section 129(1) of the Conveyancing Act 1919 (NSW) must be complied with. This

section can be irritating for landlords. It essentially provides that if they want to terminate

the lease, they must do the following:

• send a notice to the tenant which specifies the particular breach and requires the

tenant to remedy it or pay compensation for it, and

• wait for a ‘reasonable’ period of time for the tenant to remedy the breach or pay the

compensation.

There are two practical problems with this for landlords. First, who is to say what is

‘reasonable’? If the court determines that the amount of time the landlord waited was

actually unreasonable, the landlord may be sued for damages for wrongful termination


and trespass and may need to give possession of the premises back to the tenant.

Secondly, the process under section 129(1) takes time and sometimes landlords just

want the tenants to leave as soon as possible. However, the grounds of termination

relied on by the landlord in the notice was repudiation, not breach. These two grounds

are quite separate. The landlord could potentially have relied on either of the two grounds

(or so it thought) but chose to rely solely on repudiation. If the tenant had actually

repudiated the lease, the landlord would have been able to avoid section 129(1) and

terminate the lease straightaway. It is advantageous for landlords or managing agents

wishing to remove tenants from premises quickly if the tenant had repudiated the lease. If

it is suspected that a repudiation occurred, legal advice should be obtained to confirm

whether this is the case. There is no room for error when it comes to termination – if the

grounds of termination are not in fact present (as was the case for World Best), then the

terminating party will be held liable.

Comments on lease interpretation

The NSW Court of Appeal made some helpful comments about how to interpret a lease.

The starting point for any lease is that it is just an ordinary contract and should be

interpreted as such.

Parties' subsequent conduct

In the Sarker case, the NSW Court of Appeal specifically commented on the effect of

what the parties say or do after the contract was entered into (this is called ‘subsequent

conduct’). The issue was, when and how can one use the landlord's or tenant's

subsequent conduct to determine the meaning of the provisions of the lease? This is an

issue which causes some confusion among practitioners and which the Administrative

Decisions Tribunal got wrong. The Tribunal – both at first instance and on appeal – noted

that Mr Sarker selling Indian groceries straightaway after entering into the lease suggests

(as it does) that he honestly believed that the lease allowed him to do so. The Tribunal

relied on this, in part, in determining that ‘Asian groceries’ should include Indian

groceries. The Court of Appeal rightly said that the Tribunal's reasoning was faulty. It

restated the principle that generally, subsequent conduct is irrelevant, relying on the 2008

High Court case of Agricultural and Rural Finance Pty Limited v Gardiner. It went on to

explain that although subsequent conduct might sometimes shed light on the parties'

actual intentions, aspirations or expectations at the time of entering into the lease, these

matters are irrelevant and must be disregarded when interpreting a lease. The proper

question is not ‘what did the parties actually intend to do’, it is ‘what does the lease

actually mean’. Lease interpretation, therefore, requires practitioners to reconstruct the

parties' intentions as expressed in the lease.

Surrounding circumstances


A second useful point raised by the Court of Appeal concerned ‘surrounding

circumstances’, ie the circumstances surrounding the entry into the lease by the parties.

The ‘parol evidence rule’ provides that where a formal, written lease is executed, any oral

representations or representations contained in documents not expressly incorporated

into the lease cannot be used in interpreting it. This would knock out some surrounding

circumstances. However, other more general surrounding circumstances – such as pre-

contractual negotiations or facts known to both parties – may be used. Say,

hypothetically, that World Best and Mr Sarker were aware before the lease was entered

into that there was an Indian grocer nearby the premises and the parties were mindful of

not encroaching on that business by introducing competition. This could arguably be

given weight in interpreting the phrase ‘Asian groceries’. However, the Tribunal found

that the question of competition with the established Indian grocer did not arise in the

negotiations between World Best and Mr Sarker.

Result of the litigation

After almost six years of litigation, Mr Sarker must have been delighted to win the appeal.

The Court of Appeal upheld his award of $72,233.79 in reliance damages (loss of profits

due to being locked out by the landlord) and awarded him costs. The landlord may

attempt to appeal to the High Court although we would not expect the Court to grant

leave to appeal.

2.32. Cakirgoz v Crouch [2008] NSWSC 1124

This decision of Palmer J in the Equity Division of the New South Wales Supreme Court

was handed down on 24 October 2008.

On 24 July 2006, Mr Cakirgoz entered a lease with Mr Crouch of the ground floor of

premises in Addison Street, Shellharbour for use as a fish and chip shop. The lease did

not expire until 29 November 2008. Mr Cakirgoz had been in the shop since March 2000,

although through a company as tenant.

On 14 October 2007, Mr Cakirgoz sold the company Fish & Chips Shellharbour Pty

Limited. Completion was due on 14 January 2008; the sale price was $150,000. On 2

January 2008 the purchaser approached the landlord for consent to assignment.

On 11 January 2008, the purchaser obtained a building inspection report on the many

issues regarding the building and the shop premises, as they were very old and

dilapidated. The basic recommendation was that the building be replaced entirely with

repairs and replacement as $269,940. The purchaser raised concerns with Mr Cakirgoz

who wrote to the landlord. The landlord arranged for a licensed plumber to fix water leaks

and prevent water penetration to the shop. Mr Cakirgoz through a solicitor wrote to the

landlord enclosing a copy of the building inspection report and requesting all repairs be

made. The letter threatened legal proceedings and the tenant had refused to pay the


rent. The tenant had taken the position that the landlord should do all works. However it

appeared from clause 11 of the lease that much of it could have been repair and

maintenance work for which the landlord was responsible. Shellharbour City Council

issued notices under section 58 of the Food Act 2003 (NSW) requiring a substantial

amount of work to be done to comply with the Food Standards Code. Council issued an

infringement notice after an inspection. On 4 April 2008, Mr Cakirgoz ceased trading in

the shop and it was closed.

On 9 May 2008 the landlord's solicitors wrote to Mr Cakirgoz giving notice of termination

for non-payment of rent since 14 January 2008. On that date the landlord re-entered the

premises, took possession and changed the locks. Later that day the tenant broke into

the shop premises and retook possession.

The tenant argued that the abatement of rent provisions must apply under the lease,

which were standard type provisions in relation to damage or destruction. There was a

substantial amount of water penetration but not enough to invoke the operation of the

provision. Nor could it be said that the premises were substantially unfit for use and

occupation. The tenant had in fact traded throughout the whole period of the premises

being flooded.

Section 36 of the RL Act was looked at. This allows the lessee to not pay rent or any

other amounts during any period that the shop cannot be used under the lease or is

inaccessible due to that damage. However in the present case the premises were able to

be used, as evidenced by the tenant's use during the flooding.

The non-payment of rent from 14 January 2008 was not justified under the lease or the

Act and the landlord's termination of the lease on 9 May 2008 was valid.

The landlord was entitled to damages being the amount of rent payable under the lease

from the date of termination (9 May 2008) until the date of judgment. The tenants had

illegally retaken possession of the premises, which prevented the lessor from reletting the

shop in order to mitigate its losses.

2.33. Eather v Ngyen [2011] NSWADT 80

A landlord's failure to effect repairs to leased premises may result in the tenant being

entitled to compensation for any losses that it incurs as a result, particularly if the tenant's

business is affected. The landlord also risks breaching the lease and having the tenant

terminate it.

Lost stock, loss of profits and rent abatement


The Administrative Decisions Tribunal of NSW recently awarded a tenant a total amount

of $28,186.27 which represented an amount for lost stock and loss of profit while the

business had been closed and after the business was reopened.

The amount also represented an abatement of rent which was paid by the tenant to the

landlord while the premises could not be used. The court also ruled that the landlord was

to pay the tenant's costs of $2,400.

The effect of this decision is that a landlord must carry out its repair obligations to

premises when they are required by the lease. If the damage to the premises is

exacerbated by the passing of time, the financial detriment could be even worse for a

landlord, who then needs to compensate the tenant for any disruption to its business.

Eather v Nguyen

In this case the tenant complained to the landlord about the condition of the floor in the

premises. The condition of the floor in the premises made it impossible for the tenant to

keep the premises clean and comply with the food regulations for the bakery operated at

the premises.

The lease required the landlord to repair and maintain the floor to the condition at the

commencement of the lease. The relevant authority served an order under food and

health legislation, requiring the premises not to be used until the defects including the

floor had been rectified.

The floor required replacement and this was the landlord's responsibility. Ultimately, the

tenant could not use the premises for months whilst the landlord replaced the floor. This

meant that the tenant's business was closed for that duration.

Neglecting repairs to premises can be costly for landlords

A landlord needs to ensure that it exercises its rights to inspect the premises regularly

and keeps up to date with repairs. This includes not only those repairs required by the

landlord, but also those required by the tenant.

This avoids the situation where necessary repairs are neglected, resulting in the

deterioration of the premises, the closure of the business and a compensation claim

being made by the tenant while the works are being done.

Depending on how a lease is drafted, such a situation may also give rise to a tenant

terminating the lease for the landlord's breach of lease for failure to effect repairs to the

premises

2.34. Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd [2008] VSCA 207


This decision of the Victorian Court of Appeal (handed down 22 October 2008) concerns

the provision of a clause in a lease for re-entry for non-payment of rent. The clause also

deals with termination of the lease but after notice of breach of an essential term. There

was discussion in the case as to whether the right of re-entry and a provision for re-entry

was subject to the requirements to give notice for the provision for termination of breach.

The case is very good as they look at the High Court cases of Shevill v The Builders

Licensing Board (1982) 149 CLR 620 and Progressive Mailing House v Tabali Pty Ltd

(1985) 157 CLR 17 and many other cases. The Court of Appeal by unanimous decision

handed down by Justice Neave JA, her Honour overturned the earlier decision of the

Supreme Court.

The respondent was a lessee of shop in a shopping centre and had been unable to pay

the rent for a short period of time due to works that were carried out in the building by the

lessor disrupting that lessee's business. On 24 January 1994 the lessor re-entered the

premises and terminated the lease without any formal notice being given before re-entry.

Clauses 12.01 and 12.05 are the material clauses that related to the dispute and they

provide as follows:

‘Clauses 12.01 and 12.05 of the lease provided as follows:

12.01 If –

(a) the rent hereby reserved or any part thereof or any other moneys payable

by the Lessee hereunder shall be in arrear and unpaid for a period of

seven days after any of the days on which the same ought to have been

paid whether formally demanded or not, or

(b) the Lessee shall at any time fail or neglect to perform or observe any of

the covenants conditions or agreements herein contained and on the

Lessee's part to be performed and observed and if such default is

continued for fourteen days after notice in writing calling on the Lessee to

remedy such default shall have been given by or on behalf of the Lessor,

or

(c) the Lessee while the said demised premises or any part thereof shall

remain vested in a Company shall enter into liquidation whether

compulsory or voluntary (not being a voluntary liquidation for the purpose

of amalgamation or reconstruction) or enter into any arrangement or

composition for the benefit of its creditors, or

(d) the Lessee while the said demised premises or any part thereof shall

remain vested in a person not being a Company shall assign his estate or

enter into a deed of arrangement for the benefit of his creditors (provided

always that any deed of assignment or a deed of arrangement made

under the Bankruptcy Act 1966 and any suit or action by or against the

Lessee or his property which is or may be deemed to be an act of

bankruptcy under the said Act shall be excluded from the operation of this

clause), or


(e) any execution either by writ or warrant or by appointment of a Receiver

be levied on or against any of the property or assets of the Lessee –

then and in any one or more of such events the Lessor at any time or times

thereafter shall have the right to re-enter into and upon the demised

premises or any part thereof in the name of the whole to have again

repossess and enjoy the same as its former estate anything herein

contained to the contrary notwithstanding and thereupon this Lease and

the term hereby created shall absolutely determine but without prejudice

to any action or other remedy which the Lessor has or might or otherwise

could have for arrears of rent or breach of covenants or for damages as a

result of any such event and thereupon the Lessor shall be freed and

discharged from any action suit claim or demand by or obligation to the

Lessee under or by virtue of this Lease

...

12.05 The Lessor and the Lessee hereby acknowledge and declare that the

obligation of the Lessee to pay the rent hereby reserved and the obligation to

make other payments of money are fundamental and essential provisions of this

Lease and that upon the happening of any default by the Lessee in respect of

such obligations the default may be treated by the Lessor upon notice to the

Lessee as being a fundamental breach of the Lease by the Lessee entitling the

Lessor to the rights conferred by clause 12.01 and also the right to recover from

the Lessee all damages and losses which may be occasioned by such breach.’

In Victoria, section 146(1) of the Property Law Act 1958 (Victoria) exempted the need for

notice in case of non-payment of rent. This is largely the same as the section in New

South Wales being section 129 of the Conveyancing Act 1919 (NSW) which provision is

set out in this paper.

In the Supreme Court of Victoria the lessee won on the basis that the combined effect of

clause 12.01 and 12.05 of the lease was to require prior notice given in accordance with

the lease including in cases of non-payment of rent. As no notice was given then the re-

entry was ineffective and repudiation by the lessor.

The Court of Appeal unanimously agreed with the lessor that these two provisions,

clause 12.01 and 12.05, had different objectives and should not be read together.

Normally prior notice is not required and that is very clear from clause 12.01. The

purpose of clause 12.05 in accordance with the Shevill case and other cases, was to

enable recovery of damages for the repudiation. This was not possible under clause

12.01. So termination for non-payment of rent without formal notice was effective in

accordance with clause 12.01.

At [50] the Court of Appeal summarised the High Court's holding in the Progressive

Mailing House Pty Ltd v Tabali Pty Ltd 157 CLR 17 at 53 as follows:


‘The High Court held that the presence of a right of re-entry in the lease did not

exclude other methods of terminating the lease, including the right to terminate

for repudiation or breach of a fundamental term and that, on the facts, the

lessee's non-payment of rent amounted to a repudiation or fundamental breach of

the obligations imposed by the lease, entitling the lessor to bring the lease to an

end and sue for loss of bargain damages. Deane J's reference to the dual

character of leases was intended to make clear that a breach of the rental

covenant, without more, does not necessarily amount to repudiation.’

2.35. Comdox v Robins [2009] NSWSC 367

This is a decision of Bryson AJ of the Supreme Court of New South Wales which

considers when an option to renew a lease is validly exercised.

The tenant operated a Mexican restaurant on Oxford Street, Bondi Junction. A clause in

the lease conferred an option to renew on the tenant in the following terms:

9 OPTION TO RENEW

9.1 If the Lessee desires to take a renewed lease of the Demised Premises

and the lessor shall grant a new lease under this clause 9 for a further term and

in accordance with the particulars as set out in Item 4 of the Reference Schedule

if:

(a) the Lessee gives the Lessor a notice in writing stating that it desires a

renewed lease of the Demised Premises of the terms set out in Item 4 of the

Reference Schedule; and

(b) subject to clause 9.5 the Lessee serves on the Lessor a notice of

exercise of option not earlier than six months before the Terminating Date and

not later than three months before the Termination Date; and

(c) the Lessee shall have at all times during the Term of this Lease strictly

observed and performed its obligations under this Lease and, without limiting the

generality of the foregoing, there is at the time of service of the notice of exercise

of option no annual rent or outgoing that is overdue for payment.

Clause 27 of the lease provided that service of a notice would be effected by posting the

notice to the landlord's address for service as varied by notice.

The tenant's solicitor sent the landlord a notice purporting to exercise the option. The

notice was served in such a way that Bryson AJ considered clearly conformed with the

requirements in paragraphs (a) and (b) of clause 9.1.

Senior counsel for the landlord unsuccessfully submitted that paragraph (a) referred to a

notice and paragraph (b) also referred to a notice, meaning that two different notices

needed to be served.


Bryson AJ noted that if a particular means for exercising an option is intended, that

means must be complied with and there is no room for taking a non-complying course,

even if it appears to achieve the same result. For example, ‘if the language used really

means that it is a condition of effective exercise of option that the notice must be on blue

paper and delivered by a man in a clown suit, pink paper or a woman in a pixy suit will

not be effective’ (at [23]).

However, the language in this case did not require separate notices to be given for

compliance with paragraphs (a) and (b) of clause 9.1.

Therefore, the tenant validly exercised its option to renew.

2.36. Nameless, Shameless and Legless Pty Limited v 2 Roslyn St Pty Limited [2004] NSWSC

519

In this case, the tenant was clearly in breach of the lease, particularly with respect to its

obligation to pay rent. The tenant had taken an assignment of the lease and spent

approximately $400,000 on a substantial fitout of the premises. The Supreme Court of

New South Wales granted relief against lost option to renew.

On 1 July 2002 premises were leased to Pambena Pty Limited comprising part ground

floor at 2 Roslyn St in Kings Cross, with a 3 year lease plus a 3 year option. The lease

was transferred on 10 October 2001 to Legless. The lessee spent $400,000 fitting out the

premises, so in return the lease was amended to include 3 options for renewal of 3 years

each. The option clause was fairly standard, but provided that the tenant ‘shall in the

meantime duly and punctually pay the rent reserved by this lease at the times herein

appointed for payment and shall duly perform and observe the covenants and

agreements by and on the part of the lessee contained in this lease up to the expiration

of the term here or by granted’. The lessee got behind in the rent, the lessor re-entered,

terminating the lease. The lessee obtained by consent relief against forfeiture. On 25

March 2004 the lessee served notice of exercise of option. On 6 April the lessor served

on the lessee a notice under Section 133E of the Conveyancing Act 1919, that is, the

notice that due to breach(s) of the Lease the Lessee has lost its option to renew and

must go to the Court pursuant to section 133F to obtain orders that the option is not lost

or if so then for relief.

The court found that the option clause was constructed so that the entire period for the

lease had to be covered in terms of requiring the lessees to comply with the obligation to

duly perform and observe all covenants and agreements up to the end of the lease term.

This was seen as a ‘condition precedent’ to the entitlement to exercise the option.

Accordingly, the lessee's claim for declaratory relief had to be dismissed.

The lessee argued that the lessor's notice incorporating an incorrect reference to Section

133E when it should have been pursuant to Section 133F as required by the terms of the


Conveyancing Act. The Court looked at Section 80(1) of the Interpretation Act 1987

(NSW) which states: ‘If an act or statutory rule prescribes a form, strict compliance with

the form is not necessary but substantial compliance is sufficient’. Accordingly Einstein J

found that the lessee was given the substance of the information in order to come to

Court.

The Court held that it was entitled to take into account a wide range of facts, matters, and

circumstances in determining whether to exercise its discretion under sections 133E and

133F. The only thing that persuaded Einstein J was that the lessee had incurred

expenditure of some $400,000 following its fitout of the premises and so should be given

just one last chance.

Einstein J said that the tenant despite coming ‘within a straw of having lost the present

application, should be given one only last chance’.

2.37. Mineaplenty v Trek 31 Pty Limited [2006] NSWSC 1203

In this case, Mineaplenty leased a caravan park from the lessor Trek 31. The lease had a

five-year term with three options to renew – each for a further five-year period.

Mineaplenty contended and Trek 31 disputed, whether the first option was validly

exercised.

At [17], Brereton J concluded that, 'the negotiations for the lease took place in haste and

against a background of urgency.' This led to some errors, oversights or omissions, as is

clear from the fact that amendments were made to the file copy of the lease, but not the

execution copy submitted for stamping and registration.

In the case, the court took note of the nature of the parties prior dealings, especially the

nature of the relationship between the principals of the lessor and lessee in determining

that there was a valid exercise of the option to renew.

One of the principals of Mineaplenty sent a personal letter to the principle of the lessor,

purporting to exercise the option to renew. The lessor then telephoned Mineaplenty and

spoke with the secretary, telling her that the letter needed to be sent to Trek 31 Pty

Limited (the company). This was confirmed by a fax. In response, a further letter was

sent to Trek 31 Pty Limited, again purporting to exercise the option to renew. The Court

decided this second letter was sent 'merely to cure formalities' at [32] and went on to

consider whether the first letter had been a valid exercise of the option, notwithstanding

that it was sent to a principal and not the company.

At [37], Brereton J stated:

the issue is whether the purported exercise communicated a clear and

unequivocal intention to exercise the option: Ballas v Theophilos (No 2) (1957) 98


CLR 193 at 205. This is resolved according to what a reasonable recipient of the

notice, familiar with the terms of the lease and the surrounding circumstances –

including the dealings between the parties – would have understood…So long as

the notice conveys an unequivocal intent, it is not fatal that it does not use

terminology precisely conforming to the terms of the option granted.

Furthermore, his Honour said at [38] that notice may be given:

by and to the duly authorised agents of the lessee and the lessor…Whether an

alleged agent had authority to give or receive such a notice is to be judged

having regard to the whole of the circumstances of the case, including the terms

of the lease, and the role of the agent in the relationship between the parties.

In this case, it was determined that the principals of the lessor and lessee often

corresponded in respect of the lease in their own personal names and both had authority

to act on behalf of their businesses. Therefore, the first letter was an effective exercise of

the option.

2.38. McGregor & Anor v Henry & Anor [2006] NSWSC 368

In the case, the court essentially decided that a notice exercising an option to renew must

be served strictly in the time allowed in order to be valid.

The lessees had operated a restaurant business from the premises at Windsor Road and

in 2005, sought a declaration that they had validly exercised an option to renew the lease

and for specific performance. They also sought an order that the lessors be restrained

from taking possession of the property. Later in 2005, the lessors sought to evict the

tenants, claiming that they were in arrears in paying rent.

The main issue before the Supreme Court was whether the option to renew the lease

had been validly exercised. This turned on the issue of whether an option, required to be

exercised by 1 November 2003, being a Saturday, could be validly exercised on the

following Monday.

After reviewing an extensive number of Australian and English decisions, the Court

stated that nothing in the common law prevented parties performing their contracts on

Saturdays, Sundays or any other day for that matter. Even if it were not possible to serve

the notice on the Saturday, it would not follow from any common law principle that the

time for doing so was extended. If a lease requires punctual performance, this must be

strictly done either on, or before the due date.

The Court also reviewed statutes that dealt with time for performance though nothing was

accepted to save the validity of the notice. In particular, the Court looked at section 170

of the Conveyancing Act, section 160 of the Evidence Act and section 160 of the


Interpretation Act. The Court also held that the notice could not be saved by estoppel or

relief against forfeiture.

Finally, in relation to the relief offered by equity, the Court held that, 'Equity regards the

time for exercise of an option as being essential,' (at 43) and therefore, only in limited

circumstances, such as in cases of unconscionable conduct, could equity be used to

validate a notice given out of time.

In the case, the Court concluded that the notice was served out of time and the lessees

did not validly exercise the option to renew.

2.39. A case where an option to purchase may be enforced in an assignment of a lease

We Are Here Pty Ltd v Zandata Pty Ltd [2010] NSWSC 262

This decision was handed down on 9 April 2010. The defendant, an owner of a property

at 25 Schwinghammer Street South Grafton in New South Wales on which a motel was

situated, granted a lease for 10 years. Clause 28 of the lease included an option to

purchase the property in favour of the lessee for $662,500 to be exercised within 35

months after commencement of the lease. The lease also contained an option for

renewal for five years, with two further options for renewals also for five years. All options

for renewal were identical to the lease except for rent and the exclusion of clause 28.

In 2007 Mr and Mrs Boyd, the lessees, exercised the first option for renewal of five years.

The renewal, unbeknown to the lessor, erroneously included clause 28, the option to

purchase. Clause eight of the lease gave the landlord a right of first refusal in respect of

the purchase of the tenant's motel business. Mr and Mrs Boyd sold their motel business

situated on the leased land, to the plaintiff, We Are Here Ltd, the defendant chose not to

exercise clause 8. The renewed lease was transferred from Mr and Mrs Boyd to We Are

Here Ltd and it was subsequently registered. In March 2009 the plaintiffs gave notice to

the defendant of their intention to exercise the option to purchase contained in clause 28,

along with a deposit cheque. The defendants solicitors returned the cheque and informed

the plaintiff that the option should not have been included in the renewed lease.

The New South Wales Supreme Court noted that if the claim for specific performance

had been made by ‘Mr and Mrs Boyd, I think it is clear that even after registration of the

lease, the landlord would have been entitled to rectification’ (at [36]). However, The

Supreme Court continued to state that the ‘lessor seeking to avoid an order for specific

performance in favour of a third party namely an assignee of a lease is different.

Knowledge of the lessee is not knowledge of the assignee’ (at [37]). Therefore, the

Supreme Court held that the plaintiff obtained an indefeasible title on registration of the

lease and noted that ‘something more than notice of an interest or mere equity attached

to an interest is required to defeat an otherwise indefeasible title. There must be conduct

to make it unconscionable to exercise the option to purchase’ (at [40]). Thus, the plaintiff


was not only entitled to exercise the option to purchase but was able to purchase the

land for a price determined more than 10 years earlier.

This case illustrates that erroneously included provisions may be rectified by the lessor

against the original lessee but that there is no such entitlement against an assignee of

the renewed lease.

2.40. The importance of a well drafted option to renew clause

Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 a decision of the Supreme

Court of New South Wales Court of Appeal handed down on 19 September 2011.

This is a case concerning construction of a lease on the clause dealing with option to

renew whether the lease required the lessor to make payment on the lessee's exercise of

option to renew whether such a result was absurd.

In brief:

Court finds that a clause found in the initial lease which required the lessor to contribute

to the fitout, is still valid in the renewed lease!

In a decision handed down on 16 June 2011 the New South Wales Supreme Court of

Appeal held that a clause stipulating the payment of $45,000 at the commencement of a

lease should be included in the new lease which resulted from exercising an option.

Facts of the case

Miwa Pty Ltd (Miwa) leased a premises from Siantan Properties Pty Ltd (Siantan) for a

period of five years commencing in April 1996 with an option to renew for a further period

of three years.

On commencement of the lease Miwa was entitled by a clause in the initial lease to a

sum of $45,000 from Siantan as contribution to the fitout of the premises. When the

option to renew the term of the lease was exercised, the new lease also contained this

identical clause. However Siantan refused to pay the $45,000 arguing that it should not

form part of the new lease.

The initial decision

The primary judge held that according to the ordinary meaning the renewed lease would

include the clause. However he held that such a reading would lead to an absurd result

and as such it should not be included and so struck out the clause.


The appeal

The Court of Appeal overturned this decision and held that on proper reading of the

contract the clause should be included in the renewed contract.

The Court of Appeal reasoned that the Miwa was obligated to keep the premises in good

repair, order and condition at intervals of not less than 5 years and that because the

lease was for a period of 5 years this stipulation formed an express obligation on Miwa to

incur expenditure at the end of the lease or by the time the option was taken up.

Furthermore the Court held that as Siantan was prepared to make a contribution to the

initial fit out it is not absurd to envisage a further repayment being made where Miwa has

an obligation to repair the fitout.

2.41. An ambiguous clause was removed from the lease

In brief:

The Appeal Panel was silent on the issue of rectification in accordance with ‘fidelity of the

bargain’, leaving express terms in a lease vulnerable to challenge by this implied ‘fidelity’.

Background

On 15 January 2013, the Administrative Decisions Tribunal Appeal Panel handed down

the decision of Toga Pty Ltd v Perpetual Nominees Ltd (RLD) [2013], where the

Tribunal's decision was affirmed with a different path of reasoning.

In the original decision in 2012 the Tribunal member found that the tenant was breaching

an implied duty to uphold the fidelity of the bargain. The case concerned a 10 year retail

lease of premises near Sydney Central Railway Station. The lease contains an option to

renew for a further term of 10 years, and a covenant that provided for a rent (and

outgoings) free period of one year (Item 14).

Upon exercising the option, the tenant asserted that Item 14 was to be included and

repeated in the new option lease, and thus refused to pay the first year's rent and

outgoings for the option term.

The Tribunal's decision

No ambiguity, Item 14 included in option lease

In the first instance, the Tribunal applied Lewis v Stephenson (1898) which held the

option lease is to be ‘on the same terms’. Accordingly, as Item 14 was not excluded in

clause 16.2, the clause stating the terms of the renewed lease, it was incorporated into

the option lease


The Tribunal considered the High Court decision of Codelfa Constructions Pty Limited

(1982) and held there is no ambiguity and the evidence of the surrounding circumstances

cannot be called upon to construe the plain language in Item 14.

Implied ‘fidelity of the bargain’ trumps unambiguous express provision

The Tribunal was clear that Item 14, was to be repeated in the option lease. However this

unambiguous term was circumvented by the implied term of ‘fidelity of the bargain’.

It was found that the ‘common intention’, the ‘bargain’ was to exclude Item 14 from the

option lease. Although the Tribunal did not have the power to rectify the lease without

consent of both parties, the Tribunal determined that by not consenting to the

rectification, the tenant has breached this implied term.

The Appeal

Provision not unambiguous

Item 14 provides a rent free period ‘up to the first anniversary of the Commencing Date’.

Despite neither party, nor the Tribunal has in the first instance questioned whether the

provision was ambiguous, the Appeal Panel found that Item 14 was in fact ambiguous.

This is due to the use of the different terms; ‘Commencing Date' in Item 14, and

'Commencement Date of the renewed Term' in Item 16.

Applying Project Blue Sky, ignoring the difference amounts to a failure to ‘give meaning

to every word’.

The Appeal Panel shows support to the argument that as the words ‘and

Commencement Date of the renewed Term’ was not included in Item 14, Item 14 was a

‘spent’ provision that ended prior to the renewal of the option, and thus did not need to be

expressly excluded in clause 16.2 and will be automatically excluded from the option

lease.

This creates ambiguity as Item 14 can be interpreted as either being incorporated in the

option lease, or being excluded for reason that it is ‘spent’.

Surrounding circumstances admitted

The Appeal Panel held there was sufficient ambiguity within the contentious provisions to

render evidence of 'surrounding circumstances' admissible as an aid to interpreting those

provisions.


The next question became what kinds of ‘surrounding circumstances’ can be admitted.

In construing the contentious provisions, the court held the preferable view is as

stipulated in Phoenix, that permissible surrounding circumstances are not particular,

private knowledge of the people who entered the lease, but rather background

circumstances ascertainable by anyone.

However the Appeal Panel at [116] went on to say ‘but in determining...what was the

'common intention' of the parties...the Tribunal did admit a significant quantity of evidence

about their negotiation’, which was the personal knowledge of the people who entered

the lease.

The implication is that although private knowledge cannot be used to construe the

meaning of an express term, it can be used to determine the ‘common intention’ of the

parties, which can lean significant weight to the court's decision regarding the parties'

rights and obligations under a lease.

Rectification not required

The question of rectification was not considered by the Appeal Panel, as it was held that

the courts have the power to interpret the provision, and upon the court's interpretation,

there is no conflict between the terms of the contentious provisions, on their proper

construction, and the Tribunal's finding as to the common intention of the parties. Item 14

is excluded from the option lease on both counts.

It remains to be confirmed how rectification will be applied in future cases, where

common intention differs to proper construction.

Conclusion

The appeal decision cautiously avoided deciding on the issue of rectification in

accordance with the implied ‘fidelity of the bargain’ principle. However this silence

indicates that the principle still stands, and remains an important consideration for

tenants and landlords when determining their rights and obligations under a lease.

Landlord and tenants should also be consciously aware of what they say or do in the

negotiation process, as evidence regarding these negotiations can become the court's

consideration when disputes arise.

In the case of Toga Pty Ltd v Perpetual Nominees Limited (2012) NSW ADT, a decision

of the Administrative Decisions Tribunal, Retail Leases Division, which was handed down

on 30 April 2012 concerned a retail lease of retail premises near Central Railway Station

for a term of 10 years which commenced on 30 November 2000 and terminated on 12

November 2010 an option to renew for a further term of 10 years.


There is a covenant in the original sublease which provided for the tenant not having to

pay the first year's annual rent or the tenant's contribution to outgoings for the period ‘up

to the first anniversary of the commencing date’, this was contained in a special covenant

to the sublease.

The tenant asserted that on exercise of option that special covenant was included in the

new term and so the tenant refused to pay the first year's annual rent and refused to pay

the first year's contribution to outgoings.

The Tribunal found that there was no ambiguity in the original lease and that this clause

must be included in the renewal lease.

The Tribunal also found that under section 72(1)(e) of the Retail Leases Act that the

Tribunal cannot order rectification without the consent of the parties.

The Tribunal could not order rectification but the Tribunal found that under the Retail

Leases Act the Tribunal has a mandate to resolve disputes before it.

Accordingly the Tribunal found that under section 72(1)(f)(iii) that the Tribunal can

declare the rights and liabilities of the parties to the retail shop lease under law and as a

consequence of this, the tenant by not consenting to the rectification of the sublease

denied the landlord the benefit of the bargain that was intended. The Tribunal found that

the tenant was obliged to pay to the landlord the annual rent and the outgoings for the

first year under the option to renew.

The Tribunal went on to say that ‘there is an implied term in leases for each party to

uphold the fidelity of the bargain for the benefit of the other party’. ‘(the lessee) is in

breach of this implied term by not consenting to the rectification of the sublease’.

The lesson from this decision of the Tribunal is that if solicitors and licensed

conveyancers when reviewing a lease find that there is a clause which appears to be

entitled to be brought through to the new lease because of an option to renew and there

is clear and unequivocal evidence that such was the case then practitioners and licensed

conveyancers may be able to argue there is an implied term in leases for each party to

uphold the fidelity of the bargain for the benefit of the other party.

If that is case then whenever practitioners find that an important agreed provision has

been inadvertently left out of the lease or inadvertently expressed to be part of the lease,

they should be able to argue this implied term or argue the clause is ambiguous.

2.42. Occupation by purchaser pursuant to a call option agreement to buy part of the freehold

was held not to be a retail lease


In the recent case of 73 Union Street Retail Pty Limited v J&S Group Pty Ltd & Ors

(No.2) (2012) NSW ADT 278, a decision was handed down in the Retail Leases Division

of the Administrative Decisions Tribunal on 14 November 2012 as to whether an interest

pursuant to a call option agreement could be a retail shop lease.

This case concerned a convenience store at 73 Union Street, Pyrmont.

The property had been leased for many years as a 7 Eleven store.

The lease ended around November 2011. The owner spoke with some principles of the

City Convenience Stores about a possible loan and call option agreement to sell a 30%

interest to them of a new business to be set up at the store and 30% ownership of the

freehold.

Pursuant to the terms of the loan and the call option agreement, in November 2011, the

City Convenience business commenced operation from the premises.

Under the terms of the call option agreement this new business of the City Convenience

business belonged to Union City Convenience, which neither the manager nor the

purchaser under the call option agreement were directors or shareholders.

However, the purchaser, 73 Union Street asserted that pursuant to the terms of the call

option agreement, it was vested with an interest in the City Convenience business that

had been operating since November 2011 by reason that the purchaser had to pay for

the costs and collected part of the profit and the principal of the purchaser effectively

managed the new business and so the purchaser argued that it was given a right to

occupy the premises with this new entity and that occupation amounted to a retail shop

lease.

The argument by the purchaser was that whilst City Convenience business commenced

operation from the premises in November 2011 as a lessee, that occupation was not

exclusive of an alleged occupation by the purchaser also as a lessee. The purchaser

contended that the call option agreement gave the purchaser an interest in the ownership

of the City Convenience business and therefore it also was a lessee of a retail shop and

had all the protections of the Retail Leases Act including a 5 year term.

However given that this is a call option agreement, any interest in the ownership of the

business did not come about until the purchaser exercised its call option. That call option

period did commence on 1 December 2011 and ended on 13 November 2012, and that

as at the date of the case still the purchaser had not exercised the rights in the call

option.

Clause 12 of the agreement set out the business ownership interests between the

purchaser and the vendor and there was an acknowledgment by the parties that the


purchase price of the call option represented 30% of the combined value of the land the

business that shall be established on the land. That business was to be established by

the grantor and the grantee, each contributing to the costs in respect of shares that the

purchaser would ultimately acquire 30% interest.

In view of the Tribunal member, on its proper construction, the call option agreement

gave no more than a 30% interest in the land, ie the premises and the business which

was to be established by the purchaser and the vendor and the land. It was all subject to

the purchaser exercising the call option but even if the purchaser did exercise the call

option, the purchaser will acquire under the call option agreement is an interest in land

and premises and the business, it does not however become a lessee of the premises.

The call option agreement clearly established a transitional arrangement that after 7

Eleven vacated, a new business entity would lease the premises to a related entity of the

owner of the ‘City Convenience’ business with rental, outgoings, terms, etc all set out in

the Call Option. The purchaser was to contribute 30% to the cost of establishing and

running the business and the purchaser would be entitled 30% of income. The principal

of the purchaser was let into possession to run this new business on behalf of the parties

to the call option agreement.

In view of the Tribunal member the proper construction of the call option agreement was

an immediate right to 30% of the income but subject to contributing 30% of all costs. He

could not construe though this lease clause or the income clause or any other clause in

the call option agreement as giving a right of occupation to the purchaser.

This case can be contrasted with a the recent decision in the Tribunal by the appeal

panel where a caterer's license was held to be a retail shop lease. In that decision the

caterer was given exclusive occupation of the kitchen and servery area to operate a

restaurant.

2.43. Tenant's destruction of landlord's foyer a contumelious disregard of an owner's rights

In the High Court case of Tabcorp Holdings Limited v Bowen Investments Pty Limited

[2009] HCA 8 a decision of the High Court of Australia handed down on 12 February

2009, the High Court of Australia unanimously dismissed an appeal by a tenant against

the Full Court of the Federal Court's majority decision which awarded a landlord $1.38

million with costs against a tenant who, in ‘contumelious disregard’ of the landlord's rights

made extensive alterations to premises without the landlord's approval.

The case concerned an office building at 5 Bowen Crescent, Melbourne. Tabcorp had

rented the office premises from the landlord Bowen Investments Pty Limited. Under

clause 2.13 of the lease the tenant had promised ‘not without the written approval of the

landlord first obtained (which approval shall not be unreasonably withheld or delayed) to


make or permit to be made any substantial alteration or addition to the Demised

Premises’.

Before leasing to Tabcorp the landlord had constructed a high quality foyer made of

special materials — San Francisco green granite, Canberra York gray granite and

sequence matched crown cut American cherry panelling. Tabcorp signed a long term

lease of the building on 23 December 1996 for a term of 10 years, commencing 1

February 1997. An option to renew for five years until 2012 was exercised and the new

lease began on 1 February 2007 and should have eventually expired on 31 January 2012

where there was a further option to renew for five years.

On 14 July 1997, a director of the landlord company arrived at the building, and found the

foyer of the building badly damaged. A glass and stone partition, timber panelling and

stone floor tiles had all been removed. The director was shocked to see what remained of

the floor stone work being jack hammered. A large bin was filled with debris from the

foyer and this destruction had been carried out without any approval whatsoever.

The destruction and rebuilding of the foyer was completed despite many protests from

the landlord.

Initially in the Federal Court of Australia, the only claim which the trial judge (Tracey J)

upheld was a claim for common law damages in relation to two specific breaches of the

lease by the tenant of that clause 2.13, being the destruction of the old foyer up to 14

July 1997 and the construction of a new foyer up to 31 August 1997. There was judgment

in favour of the landlord for $34,820. This was calculated as the basis of the difference in

the value of the property with the old foyer and the value of the property with the new

upmarket and modern foyer built by Tabcorp. The assessment of damages was really a

comparison of the lettable area of the foyer before and after the rebuilding of the foyer.

The majority of the Full Court of the Federal Court of Australia (Finkelstein and Gordon

JJ) treated the breach by the tenant of clause 2.13 as analogous to the breach of a

covenant to keep premises in good repair. The case of Joyner v Weeks was applied to

give the landlord damages representing the amount it would cost to restore the premises

to the original condition. The judgment sum was accordingly increased to $1.38 million

which was comprised of $580,000, being the cost of restoring the foyer to its original

condition and $800,000 for loss of rent while restoration was taking place.

The tenant then appealed to the High Court of Australia to seek restoration of the trial

judge's sum.

The High Court dismissed the appeal. It took a different approach to the Full Federal

Court, choosing to apply general principles of common law damages rather than Joyner v

Weeks and the repair cases.


The general rule for assessing common law damages is that wherever a party suffers

loss arising from breach of contract that party is, so far as money can do it, to be placed

in the same situation as if the contract had been performed.

The landlord's measure of damages for the breach of clause 2.13 was the cost of

restoring the premises to the condition in which it would have been if the clause had not

been breached. It was also held that it was not unreasonable for the landlord to insist on

reinstatement damages. If the landlord had applied the damages to reinstate the

premises at the end of the lease it would have had to take into account fair wear and tear

over the duration of the lease in reducing the amount of damages. Unfortunately for the

tenant, it only argued that no reinstatement damages were applicable so no reduction for

fair wear and tear was made.

In New South Wales, section 133A of the Conveyancing Act 1919 (NSW) overrides

Joyner v Weeks and the repair cases. The effect of the provision is that if the tenant fails

to keep the premises in repair, the landlord is only entitled to the difference in value of the

reversion. Following the decision of the High Court, it is likely that making significant

structural alterations in breach of the lease will not be considered to be a failure to repair.

Therefore, the courts will probably award a successful landlord damages representing

the cost of restoring the premises to the original condition.

2.44. Lessor responsible for damage caused by Lessee

The case of Konstantopoulos v R & M Beechey Carriers Pty Ltd [2010] NSWSC 753,

handed down on 9 July 2010, concerned a lease of part of commercial and industrial

premises situated at 25 Fairfield Road, Fairfield. The plaintiffs, Steve and Rosa

Konstantopoulos, allege that during the course of the defendant's occupation of the

premises they, Beechey and Ratcliffe, caused damage to the premises and are therefore

liable for the cost of repairs.

The lease permitted Beechey and Ratcliffe to use the premises as a transport depot for

receiving and storing shipping containers. Due to the nature of the business, Beechey

and Ratcliffe took the precautions of having inserted into the lease certain provisions that

protected them against the consequences of any damage to the concrete surface.

Surrounding the premises was a concrete surface known as the ‘hardstand area.’

Included in the lease was an exclusive licence for the hardstand area. A significant

amount of evidence was directed to the condition of the hardstand area at the time of

commencement of the lease but the Judge did not find it necessary to resolve that

dispute. However he did note that ‘the author of the valuation report, even after 16

months' occupation by Beechey and Ratcliffe, made no adverse comment about the

condition of the concrete’ (at [23]). In September 2003 the lessee complained that the


hardstand had been badly cracked and needed repairing. These repairs were effected

by December 2004 at the cost of the lessor.

In April 2004 the lessee's replaced the forklift they had been using, with a ‘significantly

larger and heavier vehicle’ (at [26]). The lessor claimed he protested about the use of the

new vehicle, telling the lessee's that the concrete could not tolerate the increased

pressure. He also claimed that he noticed an increase in the level of activity. The lease

expired in November 2004 but Beechey remained in occupation on a monthly tenancy

until July 2005.

Clause 7.1 of the lease permitted the lessee to use ‘a large container forklift for moving

containers from outside to undercover.’ Furthermore, clause 7.2 of the lease stated that

‘the lessor accepts that any damage requiring repair arising from the Lessee's use of the

concrete hardstand area under the Licence...will fall within the 'reasonable wear and tear'

exception referred to in’ the lease. Thus the New South Wales Supreme Court held that

the lessee's use of the forklift on the hardstand area was within the permitted use under

the lease and that clauses 7.1 and 7.2 protected the lessee against the lessor's claim (at

[56]).

This case is particularly relevant for lessors as normally lessees would be liable for any

damage caused by their use of the premises. Lessors need to be careful to ensure that

the terms of their leases do not render them accountable for damage that should not be

their responsibility to repair.

2.45. Ownership of a tenant's sign in question

Eye Corp Australia Pty Limited v Goliath Investments Pty Limited Supreme Court of New

South Wales 8 March 2006 [2006] NSWSC 159 Chief Justice Young in Equity

The New Wales Supreme Court decision concerned the lease of part of a roof for the

erection of a sign by the lessee for advertising. The annual rent was approximately

$65,000. When the lease ended, as there was no further option to renew, the tenant

wanted to apply to the Local Council for development permission to remove the sign and

take it away. The landlord refused to give its consent to that application to the Local

Council.

Pursuant to the lease the lessee had a legal obligation to remove the sign and all of the

supports of the sign on the roof. The landlord argued that this would involve the tenant in

substantial financial loss and sought to waive the tenant's obligation and to retain the

structure and the sign on top of its roof, probably so that it could lease it to someone else.

It was held that this constituted a tenant's fixture which the tenant was entitled to remove

and that the landlord was not entitled lawfully to waive the obligation and entitlement so

the tenant succeeded on both of these issues.


2.46. Sublessor can sell tenant's property

Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Limited (subject to Deed of

Company Arrangement) Federal Court of Australia of Lindgren J, decision handed down

on 10 July 2009

The case concerned whether a landlord was entitled to sell the tenant's fixtures after the

termination of a lease. The head lessee granted the sublease and arrangements were

made for the sublessee to erect on the land a biodiesel manufacturing plant of a cost of

around $80M. Most of the structures then constituted tenant's fixtures. The sublessor

could terminate the sublease for an insolvency event, including appointment of an

administrator and when that occurred the sublease was terminated.

The sublessee was entitled to remove its property, including tenant's fixtures within 90

days after the termination date of the sublease but it didn't occur within that period even

with some short extensions of time. The sublessor subsequently re-entered, took the

possession of Biodiesel Manufacturing Plant. Was the sublessor entitled to sell the

tenant's fixtures? It was held the sublessor was entitled to sell all its former tenant's

fixtures as its own property.

2.47. A tenant's failure to repair the premises

Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Limited (2004)

NSW SC 487

Clause 5.1 of the lease provided as follows:

‘The lessee will during the whole of the term and otherwise so long as the lessee in name

remain in possession or occupation when where and so often as need shall be maintain

the place repair and keep the whole of the Demised Premises in good and substantial

repair, order and condition, damage by explosion, earthquake, aircraft, riot, civil

commotion, fire, flood, lightning, storm, tempest and reasonable wear and tear, act of

God and war damage only excepted save where any insurance moneys are irrecoverable

through the neglect, default or misconduct of the lessee provided that this covenant shall

not impose on the lessee any obligation in respect of any structural maintenance

replacement or repair except when the same is rendered necessary by any act or

omission or default on the part of the lessee or by the lessee's use or occupancy of the

Demised Premises.’

The first issue is whether a subletting of the premises was considered to be ‘the lessee's

use’ of the premises for this clause. The whole of the premises had been sublet and it

was the subtenant's activities that caused the damage to the premises. It was argued that

the repairs must be seen as rendered necessary by the subtenant's use as distinct from

the lessee's use. It was held that any repairs to put right matters occurring by reason of


the activities of the subtenant upon the leased premises sublet to the subtenant were not

rendered necessary by the lessee's use or occupancy of the Demised Premises.

Therefore, it is very important when drafting repair covenants to make it absolutely clear

that the lessee would include anyone taking title through the lessee or that in the

sublease itself the sublessee will observe all the terms of the head lease as though it

were the tenant in the head lease.

The second issue is whether the necessary paving work which was necessary to the

premises and which had deteriorated substantially during the term, was structural

maintenance or repair. Barrett J concluded that in relation to paving the court first held

that the Demised Premises definition did not include the paving, because of the specific

words. But the tenant was saved in that the judge held that the paving was upon the land

by a process of construction consisting of a skin or coating of asphalt placed upon a

prepared land surface to which a base course of aggregate or blue metal had first been

added, and that this rendered the situation similar to the low attractive brick fence

referred to in an earlier case; in conclusion, the paving work must amount to

maintenance replacement and repair that is structural in nature.

The third issue was whether the tenant could avail itself of this fair wear and tear

exception in the clause. The deterioration of the pavement began in the form of cracking

and that cracking had not been treated by the tenant. So the water ran in underneath and

undermined the pavement, causing even greater deterioration. There is an old principle

that a tenant having the benefit of a fair wear and tear exception is not free simply to

stand by and see the premises reduced to rack and ruin by the compounded effects of

this normal wear and tear. Barrett J held that in this case the fair wear and tear

exemption operated in relation to the condition of the pavement. The pavement, he said,

was already at the end of its usefulness and expected life, and so the process of

deterioration was in part due to the old age of the paving.

2.48. Outdoor areas not weatherproof

D & D Ventures Pty Limited v Evans Anor (2004) NSW ADT 130, 6 July 2004

This decision involved a restaurant at 17 Napier Street, North Sydney. The lease for the

restaurant had been assigned to the applicant. The assignor of the lease was the prior

owner of the property on which the restaurant was located having been granted a lease

back of the restaurant by the purchasers of the property who were the current landlords,

against whom the applicant had made claims based on alleged defects on the restaurant

premises.

The applicant had argued that a significant size of the premises was the outdoor area

that could not be used to serve restaurant customers when it was raining or windy. They

argued that when it rained there were leaks through gaps at the edges of the sheets of

fibreglass roofing covering parts of this area, and that in windy conditions dust and leaves


were blown through these gaps into the area. The applicant had asked the landlord to

repair the defects and eventually the applicant vacated the premises and purported to

terminate the lease when it still had some 14 months to run.

The landlords re-took possession and at the date of the hearing they had neither re-let

nor sold the building. The landlords unsuccessfully cross-claimed for unpaid rent and

outgoings and the cost of repairs, replacements, and restorations of the premises (which

were caused by the tenants vacating the premises), the rent during the unexpired portion

of the lease, and costs associated with attempting to re-let the premises.

There were a number of factual matters which the Tribunal which constituted by the

Deputy President Chesterman and two non-judicial members had to make findings on.

They were:

Firstly, during the negotiations leading up to the assignment of the lease no

representatives of the landlord made any representations about these problems

notwithstanding that the landlord was aware of it.

Secondly, no-one on behalf of the landlord said to any representative of the tenant that

the outdoor area was waterproof or weatherproof.

Thirdly, the applicant was free to engage builders, engineers, or architects to get advice

and did not do so.

Fourthly, there was a reasonable opportunity for the applicant before the assignment was

completed to inspect restaurant plans, which noted the central part of the outdoor area as

outdoor dining.

Careful visual inspection would have indicated these problems because they were not

hidden. Some of the damage from the leakage was already visible at the time of

assignment.

The applicant's claim was based on misleading or deceptive conduct under section 42 of

the Fair Trading Act and a false and misleading representation concerning the nature of

in interest in land under section 45 of that Act. The Tribunal followed its earlier decisions

and accepted that the Supreme Court of New South Wales decision in Taylor Farms

(Australia) Pty Limited v A Calkos Pty Limited Anors (1999) NSW Supreme Court 186,

where the Commercial Tribunal did not have jurisdiction to make an award of damages

under sections 42 or 45 of the Fair Trading Act, also applied to the Tribunal just as it had

applied to the former Commercial Tribunal.

The applicant's claim under section 10 of the Retail Leases Act was rejected because no-

one had actually represented that the outside area was waterproof or weatherproof.

There was no evidence that the matter would have been covered in the lease even if the


applicant had been made aware of those leaks. The Tribunal rejected the claim that the

landlord had committed unconscionable conduct within the meaning of section 62B(1) of

the Retail Leases Act, whereby the applicant had relied on the following subsections

(3)(i) and (k) as indicators of when a landlord may have engaged in unconscionable

conduct:

(a) The extent to which the lessor unreasonable failed to disclose to the

lessee

(i) any intended conduct of the lessor that might affect the interests

of the lessee; and

(ii) any risk to the lessee arising from the lessor's intended conduct

(being risks that the lessor should have foreseen would not be

apparent to the lessee) and…

…

(k) The extent to which the lessor and the lessee acted on good faith.

The tenant had argued that the landlord's failure during negotiations to disclose their

knowledge of the leaks and the landlord's apparent intention not to rectify these problems

breach that provision. However, the Tribunal stated that neither the landlord nor anyone

on its behalf represented to the applicant that the roofing was waterproof or

weatherproof. These problems were easily detectable by experts or just by a visual

inspection, so it is hard to say that the landlord had tried to hide these things.

Nothing had shown that the tenant was in a weak bargaining position relative to the

landlord and the applicant had the full benefit of legal advice. These are indicators that

there was probably not unconscionable conduct.

Clause 7.1 of the lease obliged the landlord to maintain the state of good condition and

serviceable repair of the roof, the ceiling, the external walls, and the floors of the

property, and fix structural defects and maintain the property in a structurally sound

condition. In dismissing all but one of the applicant's claims against the landlord for

breach of these subclauses, the Tribunal accepted the submissions of the landlord that

the features of the roofing causing it to leak were not structural defects; there was no

evidence of any damage that needed to be repaired. The Tribunal looked at the nature,

condition, and mode of installation of this roofing over the outdoor area at the time when

the applicant acquired possession. It was not a latent problem, gaps were obviously

visible, and the damage was visible as well. The Tribunal had noted as a general denial

in law any implied warranty of fitness for the premises for a lessee's intended use. The

landlords are not bound by any implied warranty for the effect that the lease premises

must be fit for the purpose for which they were leased.

The Tribunal looked at the provisions of the lease regarding the liability to pay rent and

outgoings being reduced and rejected the applicant's claim under these provisions. The

Tribunal found that the relevant provisions of the clause did not apply because firstly, the


reason why the outdoor area was not usable during wet or windy conditions was not that

the roofing had suffered damage but because it had in fact been constructed that way.

The roof was never waterproof. Consequently, the damage which they referred to is not

the subject of any request to the landlord to effect repairs. There were separate leakages

into the passageways resulting from the installation of the supports for the air

conditioning units within overhead box gutters. The Tribunal was of the view that these

were structural defects and the landlord was responsible for them. The landlord had to

make necessary repairs. Unfortunately the applicant had not shown that such leakage

had been enough in itself to prevent the outdoor area being used during wet or windy

weather so there was no damage as a result of the breach. Therefore, the Tribunal had

to reject the applicant's application. Awarding the landlord's cross-claim, the Tribunal

reduced the amount of the landlord's claim for the cost of repairs, replacement, and

restoration of the premises amounting to $116,919, since much of the claim had not been

made out to the amount admitted by the applicant. Together with GST the award in

favour of the landlord was $15,554.84.

The Tribunal also awarded the full amount of rent and outgoings due under the lease to

the day the tenant moved out. There was no evidence that the failure to fix the defects

from the positioning of the air conditioning units rendered any of the premises unusable.

The Tribunal also awarded the landlord's claim for unpaid rent during the unexpired

portion of the lease and damages in respect of the costs associated with attempting to re-

let the premises. The Tribunal noted that landlords have to take reasonable steps to

mitigate their loss but the onus lies on the tenant who is sued for unpaid rent in such

circumstances to establish the landlord has failed to take reasonable steps, and that the

standard of conduct expected of the lessor is not very high. The tenant needed to bring

forward evidence of the landlord's failure to mitigate.

2.49. Failure to make good within time

VI.SA. Australia Pty Limited v Tzaneros Investments Pty Limited [2009] NSWSC 531, a

decision of the New South Wales Supreme Court handed down on 10 June 2009.

In this case the plaintiff was a subtenant of the premises and the tenancy was assigned

to the defendant. There were two subleases, one with respect to warehouse four and

offices and the other with respect to warehouse three. The leases were terminated. The

tenant had to make good before the termination but failed to do so. Entry to continuing

making good was decided in the decision as to whether it was part of the holding over

provision or a separate clause. The holding over provision is an extension of the lease

delaying the terminating date so it becomes a tenancy from month to month and then the

tenant has to continue paying rent. A tenant though who has moved out and simply has

to go back into make good, is probably not a month to month tenancy if they shook hands

with the landlord to say it would be. The guarantee and indemnity, the contracted

guarantee whether the landlord was entitled to call on the performance of the bank

guarantee for failure to make good and failure to pay rent where the demand of rectify as


a perquisite of the call on the guarantee was effective because of the terms of the

sublease in relation to calling on the bank guarantee. There were many serious questions

to be tried. The judge ordered that the injunction be extended for a suitable period to look

at whether there was any unconscionable conduct by the landlord and whether the notice

in relation to the bank guarantee was effective or not.

3. Retail Leasing Reform 2016

3.1. The object of this Bill is to give effect to recommendations arising from the statutory

review of the Retail Leases Act 1994 as follows:

(a) to confer a right to compensation on a lessee who terminates a retail shop lease

during the first 6 months pursuant to the current right of the lessee to terminate in

certain circumstances,

(b) to require full disclosure in the lessor’s disclosure statement of any obligation of

the lessee to contribute to the lessor’s outgoings and to prevent the recovery

from a lessee of outgoings that are not disclosed,

(c) to require the registration of a retail shop lease that is for a term of more than 3

years (or that is required by the terms of the lease to be registered) and to require

lodgement for registration within 3 months after the lease is executed,

(d) to exclude premises used wholly for certain non-retail purposes from the scope of

the Act (including ATMs, vending machines, public telephones, children’s rides,

internet booths, private post boxes and certain storage uses),

(e) to make it clear that a lessor is not entitled to recover any expenses involved in

the lessor obtaining the consent of the mortgagee of the premises leased,

(f) to remove the requirement for a 5-year minimum term for retail shop leases,

(g) to require a lessor to return a bank guarantee to the lessee within 2 months after

the lessee has performed all obligations secured by the bank guarantee,

(h) to revise and clarify the definition of outgoings in the Act and to extend the

definition to include fees charged by a lessor for services provided by the lessor,

(i) to allow a retail shop lease with the approval of the Registrar of Retail Tenancy

Disputes (the Registrar) to impose requirements for police and security checks on

the persons who can be employed in or to do work at a retail shop,

(j) to make it clear that lessee protections under the Act in relation to termination on

the grounds of proposed demolition of the building of which a retail shop forms

part extend to proposed demolition of any part of the building and that termination

on the grounds of proposed demolition is only permissible when demolition

requires vacant possession of the shop,

(k) to change the restriction on when a disputed security bond can be released from

a fixed period of 14 days after a judgment to the period within which an appeal

against the judgment may be exercised,

(l) to increase the monetary limit on the jurisdiction of the Civil and Administrative

Tribunal (the Tribunal) for claims arising under the Act from $400,000 to

$750,000,


(m) to expand the grounds on which the Tribunal can order the rectification of a retail

shop lease (currently limited to when the parties consent) to include correction of

a mistake, giving effect to the intention of the parties or reflecting the actual

disclosure of information between the parties, and to extend the rectification

power to rectification of a disclosure statement,

(n) to provide for specialist retail valuers (who determine current market rent when

the parties cannot agree) to be appointed by the Registrar rather than the

Tribunal, and to make it clear that experience and training requirements for

specialist retail valuers can be prescribed by the regulations,

(o) to clarify the procedure to be followed by a lessee to obtain the consent of the

lessor to an assignment of a retail shop lease and protection from liability to the

lessor after assignment,

(p) to provide that where a retail shop lease has been awarded by public tender,

consent to assignment of the lease can be refused if the assignee fails to meet

any criteria of the tender,

(q) to provide that for the purposes of the determination of rent by reference to

turnover, turnover does not include turnover from online transactions (with limited

exceptions),

(r) to provide that a lessee cannot be required to provide information to the lessor

about turnover from online transactions (with limited exceptions),

(s) to repeal provision for the payment of interest on lease security bonds deposited

with the Secretary,

(t) to provide for the issue of penalty notices for offences under the Act or the

regulations,

(u) to provide for the establishment of an online retail bond service by the Secretary,

(v) to clarify the application of the Act to shops that are stalls in a market so that the

Act will not apply to stalls in a market except a permanent retail market and to

allow the regulations to modify the operation of the Act in relation to shops in a

permanent retail market, including by providing for a mandatory code of conduct

for lessors and lessees,

(w) to remove an unnecessary exception from the Act for premises in an office tower

that forms part of a retail shopping centre (on the basis that an office tower above

a retail shopping centre does not form part of the retail shopping centre),

(x) to enact consequential savings and transitional provisions and to make

miscellaneous minor amendments.

3.2. Major Retail Lease Reforms

The Retail Leases Amendment (Review) Bill 2016 was introduced into NSW Parliament

on 8 November 2016 and when enacted, this legislation may make substantial

amendments to many of the provisions of the current legislation, the Retail Leases Act

1994 (NSW) (RLA), governing most retail shop leases in New South Wales.


Some of the changes proposed by the Bill have been outlined below but first we must

mention that some of the Bill is intended to have retrospective application:

Retrospective operation of amendments

Clause 38 of the Bill gives retrospective operation to the provisions of the Bill and

extends the operation of the Bill to any leases and disclosure statements given, before

the commencement of the amendments except as otherwise provided by the Bill.

Major Reform - Repealing the minimum five year term

The Bill removes the current minimum five year term for retail shop leases; the original

intent of the introduction of a minimum five year term was to afford greater protection to

the goodwill built up by a tenant and to protect the investment a tenant has made in fit

out.

The result of getting rid of the five year minimum lease may be that more leases are

being structured with shorter terms. Before the RLA, many retail leases were only 3 years

but the new norm is now 5 years. The proposal gives greater flexibility to tenants to ask

for longer or shorter terms however the potential for shorter terms may result in a greater

turnover of tenancies. This may in turn have a detrimental impact on other tenants who

are left behind when a key tenant does not elect for a longer term.

However the removal of this provision may save time and costs for both parties. The

minimum five year term was not a benefit to tenants who sought a lease for less than five

years as they would need to pay legal fees to obtain a s16(3) certificate from a lawyer to

do so.

Exclusion of non-retail uses from RLA’s operation

(a) The Bill excludes premises used wholly for certain non-retail purposes from the

operation of the RLA. The excluded purposes are outlined in a new Schedule 1A

and include the following (among other things):

(i) ATMs;

(ii) Car parking;

(iii) Vending machines;

(iv) Public telephones;

(v) Children’s ride machines;

(vi) Signage displays;

(vii) Internet booths;

(viii) Private post boxes;

(ix) Certain storage uses.


The Bill also removes an exclusion from the RLA for any premises in an office tower that

forms part of a retail shopping centre. This means that the removal of the provision is not

to include office towers; the reasoning is because the original exception was

unnecessary as an office tower does not form part of a retail shopping centre simply

because it is part of the same building. However the removal of this exception

retrospectively may create practical issues where premises that have initially been

deemed to be excluded under this provision now may no longer be excluded based on

their factual circumstance. By functioning retrospectively the amendments would greatly

burden those parties.

Additionally, the Bill asserts that the provisions will not apply to a retail shop that is a stall

in a market unless the market is a permanent retail market.

Better Tenant Protection

Other changes proposed by the Bill include:

Disclosure Statements

Landlords will be liable to pay compensation to tenants who terminate a lease in the first

six months because they were not provided with a disclosure statement, or the disclosure

statement was incomplete or false or misleading.

The compensation payable is the costs reasonably incurred by the tenant in entering into

the lease, including expenditure in connection with the fit-out of the premises.

A tenant is not required to pay outgoings unless that liability was disclosed in the

landlord’s disclosure statement.

Disclosure of tenant’s financial obligation

If the landlord’s disclosure statement provides an estimate for an outgoing and the actual

amount of the outgoing is more than the estimate, then if there was no reasonable basis

for the estimate when the disclosure statement was provided, the tenant’s liability will be

limited to the estimated amount, and all subsequent increases in outgoing will be limited

by reference to the estimated amount.

Bank guarantees

The landlord is required to return a bank guarantee to the tenant within 2 months after

the tenant completes performance of obligations under the lease that are secured by the

bank guarantee.


This allows the tenant to have certainty about the return of the bank guarantee, but also

affords the landlord sufficient time to confirm compliance by a tenant with post-

termination obligations.

Online Transactions

Turnover rent must exclude revenue accrued from online transactions, except where

goods or services are delivered or provided from the retail shop or where the transaction

takes place while the customer is at the retail shop.

The tenant is not required to provide the lessor with information about online transactions

except for transactions where goods or services are delivered or provided from the retail

shop or where the transaction takes place while the customer is at the retail shop.

Mortgagee consent expenses

The tenant is no longer required to pay lease preparation expenses (including expenses

incurred in obtaining mortgage consent to a lease) in connection with the granting,

renewal or extension of a lease.

Employment Restrictions

The employment restrictions the landlord has over the lease is extended to impose on a

tenant requirements for police and security checks for tenant’s employees or contractors

carrying out works in the premises. However, this is only if the Registrar of Retail

Tenancy Disputes has approved of their inclusion in the particular case.

Amendments that may benefit Landlords

Disclosure statement

The revised definition of outgoings extends the definition to fees charged by a landlord

for services provided by the landlord ‘in connection with the management, operation,

maintenance or repair of the retail shop building or land’.

A landlord’s disclosure statement may be amended if both parties agree in writing.

Other general amendments

Demolition

The protections afforded to a tenant when the lease is terminated on the grounds of a

proposal to demolish the building are extended to termination on the grounds of

proposed demolition of any part of the building. Proposed changes also clarify that

termination on the proposed demolition is only permissible if the proposed demolition

cannot be carried out practicably without vacant possession of the shop.


Assignment of lease

There is clarification on the procedure for obtaining the landlord’s consent to the

assignment of a retail shop lease, however the provision still includes a deemed consent

by the landlord if the landlord has not responded within 28 days from when the request

for consent was made by the tenant or from when the tenant has complied with the

requirements under the RLA.

Where a retail shop lease has been awarded by public tender, the landlord can refuse

consent to assignment of the lease if the proposed assignee fails to meet any criteria of

the tender.

Jurisdiction of the Tribunal

There is an expansion of existing power of the jurisdiction of the Civil and Administrative

Tribunal and an increase to the monetary limit for claims arising under the RLA from

$400,000 to $750,000.

Lease execution and registration

The time period for which the landlord is required to provide the tenant with a signed

copy of the lease has increased from 1 month to 3 months.

Leases for a term of more than 3 years will be required to be registered, and must be

lodged for registration within 3 months after the executed lease is returned to the

landlord.

Conclusion

Currently there is no guarantee that this Bill will be passed, and the Bill will likely undergo

further discussion and amendments before it is enacted. Parties involved in retail leases

as tenants or landlords however should be aware of the potential changes to the Bill as

they will be expected to comply with the new requirements when the Bill is passed as the

legislation will not only apply to future retail leases but also leases entered into before the

enactment of the legislation.


4. Retail leasing timeline

LESSOR

LESSEE

Determine whether it is a 'Retail' Lease –

(a) Are the premises more than 1,000 square metres in area? If yes, not a retail lease

(b) Is the term less than six months or is the term a consecutive series of terms of less than six months totalling less than 12 months.

Did the initial lease commence before 1 September 1994?

If less than 1,000 square metres, then does the proposed use of the premises fall within one of the uses in Schedule 1 of the Retail Leases Act 1994? If yes, retail lease

Determine 'predominate use' of the premises, using the case notes to this Service. Cases mentioned in this paper and in the NSW LexisNexis conveyancing service.

The retail uses will soon be transferred to the Retail Leases Regulation

If no, in any of the paragraphs (a) to (d) above but it still may be a retail shop if it is part of a retail shopping centre or arcade (need 5 or more actual retail shops which are retail for purposes of (a) to (d) above) then the non-retail uses are deemed to be "retail".

Prepare draft retail lease purely for listing

Prepare draft disclosure statement purely for listing purposes. Please note that a new form of disclosure statement took effect on 1 January 2011. The new form of disclosure statement refers to attachments. The new form is to be signed by both the lessor and the lessee. It is suggested that two copies be submitted to the lessee requesting one copy be returned signed by the lessee.

Prepare any agreement for lease to cover issues such as a new development where the final location or final area or final rent or final lease commencement date or other final terms such as contribution to outgoings are unknown.


LESSOR

LESSEE

Lessor prepares the lessor's disclosure statement. At least 7 days before the lease begins, the landlord must give the tenant a copy of the landlord's disclosure statement, please note that from 1 January 2011 there is a new form of lessor's disclosure statement common to Queensland, New South Wales and Victoria that came into effect. Together with this, the lessor should provide the NSW Retail Tenant's Guide published by the Retail Tenancy Unit of the Department of State and Regional Development

Prepare draft retail lease and draft disclosure statement (when a deal is done) including the following information and many other matters where appropriate:

• The date the lease commences and ends

• A description of the shop

• The amount of rent payable

• Methods by which the rent can be changed

• Type of business or permitted use

• Any outgoings or services the lessee must pay for

• What bond, other security or guarantees are needed

• Who repairs and who maintains the property and equipment

• What happens on termination of the lease in relation to removal of fittings and fixtures and make good

• Core trading hours, when shops must be open for business and when they can be closed, and

If fitout contribution is required from the tenant any other matters required by the Retail Leases Act or any future

Review the draft lease prepared by the lessor's solicitor and raise any amendments

• Note that if the amendments are in addition to what is in the disclosure


LESSOR

LESSEE statement, the draft lease or the agreement between the parties, the lessor may be entitled to charge a reasonable sum for legal fees for preparation of those amendments

WARNING: During this period of negotiations, both the lessor and lessee should be careful regarding the words and representations that they use. If they imply that a lease is to start immediately, the courts have held that a retail lease can commence prior to exchange and execution of counterpart leases. See the retail leases cases mentioned in this paper and also as mentioned in the NSW LexisNexis Conveyancing Service. Where no binding oral agreement for lease is found the binding lease commences on the earlier of:

• The execution of counterpart contracts

• First payment of rent

• Entering into possession of the premises

The lessor's solicitor should request a section 16 certificate where the term of the lease, including options to renew, is intended to be less than 5 years.

Lessee's solicitor should inspect the development consents and any other permission or licenses that are relevant.

The lessor's solicitor should also request the following:

• Confirmation of Insurance certificates

• Bank guarantee

• Signature of any guarantor

• Any cash security deposit and a bond lodgement form

• Collect stamp duty, if for any reason it is still required

• Costs and fees of any mortgagee's solicitor

The lessee signs the lease and returns it to the lessor. A s 16 certificate may be requested by the lessor and should be provided by a solicitor or a licensed conveyancer. If the lessee does not want to be bound by a 5 year minimum term imposed by statute, then the lessee has up to 6 months after the lease commences to provide a s 16 certificate.


(NB it is strongly arguable that mortgagees costs and fees may not be recovered by a landlord from a tenant)

• And anything else which may be required such as a copy of the tenant's development consent


LESSOR

LESSEE

The lessor or the lessor's agent should send the cash security bond and the signed form to the NSW Government's Retail Bond Scheme

Assignment: The lessor has 28 days to respond to a request for consent to assignment otherwise it is arguable that the lessor is statute barred from refusing consent.

Lessor's response to exercise of option: The lessor has 14 days after receiving the lessee's exercise of option to serve the s 133E of the Conveyancing Act 1919 prescribed notice alleging a breach of any obligation under the lease that precludes the lessee from exercising the option.

Lessor's Intentions At the end of the term when there is no further option, the lessor is required to give notice to the lessor's intention at the end of the lease term.

Within 7 days of receiving the lessor's disclosure statement, the lessee must give the lessor a copy of the lessee's disclosure statement

Assignment: If there is an assignment during the term of the lease, the lessee's solicitor will need to prepare an assignor's disclosure statement and serve that on all other parties such as the lessor and assignee at least 7 days before the date of assignment.

Exercise of option: If the lessee chooses to exercise any option under the lease, the lessee must prepare the exercise of option during the period allowed under the lease.

Lessee's response to denial of option: The lessee may seek relief from the Court against the breach of lease that precludes the exercise of option under s 133F of the Conveyancing Act 1919. However the lessee has one month after service of the lessor's prescribed notice to commence the proceedings

Market Rent Review on Option: If there is a market rent review, the lessee can ask for the amount of the new market rent to be determined before the lessee has to exercise the option. However, the lessee must do so in writing and the dates to exercise the option are extended



Paper prepared by

Gary Newton

Gary Newton is a partner in the Property and Development Group of TressCox Lawyers.

Gary has been practising in the area of property law for over 30 years, providing advice on a wide

range of matters to business, government and individuals.

Gary holds a Bachelor of Laws degree from the University of Sydney and is an accredited specialist in

property law, since 1994.

He is co-author and co-editor of the LexisNexis Butterworths NSW Conveyancing Service (loose-leaf).

He is also co-author and co-editor of the 2015-2016 edition of the "Annotated Conveyancing and Real

Property Legislation in NSW" book. He has authored articles and published articles in national

journals such as the Australian Property Law Bulletin and Law Council of Australia Journal. His

commentary has been cited in judgments of the Supreme Court of NSW.

Gary is a member of the Law Society Property Law Committee and the current Chairman of the

Australia Property Law Group of the Law Council of Australia General Practice Section.

Gary is an experienced speaker at conferences, seminars and property law master classes.

He is also the Honorary Secretary of NSW Rostrum and was recently made a Freeman of Rostrum.

Gary is also a member of the organising Committee for the “Voice of Youth” Australian High School

public speaking competition.

Gary is the Vice President of the Darling Point Society.

Practice focus

• commercial leasing

• acquisition

• property joint ventures

• financing and structuring of property transactions

• environment and planning law issues

Gary Newton

Partner

TressCox Lawyers

Level 16, MLC Centre, 19 Martin Pl, Sydney NSW 2000, Australia

Phone: +61 2 9228 9211 | Mobile: +61 418 449 917 | Fax: +61 2 9228 9299

[email protected] | www.tresscox.com.au

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This paper is published by TressCox Lawyers for educational purposes. No material should be accepted as authoritative advice

and any reader wishing to act upon the material contained in this paper should first contact a representative of TressCox

Lawyers for detailed advice which will take into account each client’s particular circumstances.

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Documents

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