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Property Law Update (Retail Leasing) - September 2009

Property Law Update (Retail Leasing) – September 2009

Published on September 2, 2009 by Paul Carroll and Matthew RaffertyPaul Carroll and Matthew Rafferty

Retail Leasing Negotiations – Misleading and Deceptive Conduct – Property Law Sept 2009 Update 

Introduction – Lessor guilty of Misleading and Deceptive Conduct in Leasing Negotiation
In the near 100 page judgement of ACCC v Duke Master Pty Ltd [2009] FCA 682(24 June 2009), the Federal Court has delivered a rare win for the ACCC, finding a lessor (and its employee) guilty of unconscionable conduct and misleading and deceptive conduct during the negotiation of a series of lease renewals.

The ACCC brought the case against the lessor for what it claimed were breaches ofSections 52 (Misleading and Deceptive Conduct) and 51AC (Unconscionable Conduct in Business Transactions) of the Trade Practices Act 1974 (Cth). (Equivalent provisions to these are contained in Part 7A of the Retail leases Act 1994 (NSW).)

The Lessor’s Misleading and Deceptive Conduct
The lessor, in letters accepting offers to renew the leases and proposing the new rent, stated: “We believe the new rent is very reasonable and below market value.” The evidence showed that the lessor had no reason to believe that the rent was reasonable or below market value.

The lessor stated that the proposed rent was lower than what a specialist retail valuer had determined, when in fact the rent had not been determined by any valuer.

The lessor stated that time to exercise an option had expired, when in fact it had not expired.

The Lessor’s Unconscionable Conduct

The lessor sought rent that it had no basis to believe was reasonable.

The lessor demanded responses to correspondence within short deadlines without sufficient reason.

The lessor stated that any independent valuation sought to determine the rent would be higher than the proposed rent and the lessee would have to pay the higher rent.

The lessor refused to grant a new lease when the rent determined by a specialist retail valuer was less than the proposed rent.

The lessor conducted the negotiations in English when it knew that the lessee had little ability to speak English.

Lessons from the Case

Although the facts of this case seem to accumulate against the lessor whose conduct was far from “best practice”, the case serves to show how the court views lessor’s obligations during lease negotiation.

The lessor’s conduct was, in all the circumstances, unconscionable, mainly because the lessor was aware of the lack of bargaining power of the lessee.

The lessor knew that the lessee had only been operating the (very small) business at the premises for a short period of time, had limited English, had no knowledge of its rights under the Tenant Protection Act for that State, and was under pressure to renew the Lease so as to be able to sell the business.

The lessor intended to secure a renewal at a rental for which there was no basis, and its conduct was unconscionable because it took advantage of the lack of bargaining power of the lessee in order to achieve this. In particular, the lessor knew that the lessee was not aware of its legal rights under statute or the lease and, in order to achieve a higher rent, deliberately acted to ensure that the lessee did not exercise any of its rights.

The Court did not accept the lessor’s defence that it acted in line with standard industry practice by informing the lessee in writing of its rights, eg the lessee’s right to have the rent determined independently. The lessor knew the lessee had limited English and so the lessor needed to take extra steps to ensure that the lessee understood.

Outcome for the Defendants

The lessor and the lessor’s employee (the centre manager) were ordered to pay substantial compensation to the lessee and attend training programs about compliance with the Trade Practices Act.

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