Does the disclosure statement override the lease?
Piazza Trevi v Cromwell BT Pty Ltd [2017] NSWSC 794
(19 June 2017)
In this case, the disclosure statement (given before the beginning of the lease) provided that an option to renew should have been exercised by 30 September 2016. The lease provided that the option needed to be exercised by 31 August 2016. The lessee claimed to have exercised the option during September. The landlord wanted vacant possession. The Court considered what prevailed – the Disclosure Statement or the Lease.
The case is very long. Much of it centred on whether or not the option was actually exercised. Whether it was exercised within the required timeframe was a secondary issue. There were many discussions between the lessee and the lessor’s agent about the option, but ultimately the lessee only exercised the option in writing on 24 February 2017 – well after both possible sunset dates. The lessee argued that the time had been extended by the lessor’s agent, and that they had exercised the option in September 2016.
The Court quoted Justice Windeyer: when it comes to options “it is a cold hard world” (Burrell v Cameron (1997) 8 BPR 15,443, at 15,446). A purported exercise of an option to renew must clearly and unequivocally express the fact it is intended to exercise the option. Here – the Court found there was no exercise of the option. The September 2016 correspondence only amounted to a proposal to enter into a new lease – not the exercise of the option.
After 340 paragraphs, the Court considered the issue about the option exercise sunset date and the discrepancy between the date in the Disclosure Statement and the date in the Lease.
Could the Disclosure Statement be some kind of contractual variation of the Lease?
The Court found that section 11 of the Retail Leases Act made clear that the “Statement’s purpose is not to supplant any contractual terms, but to ensure fully informed consent and arm’s length independent decision making on the part of both parties, with the Lessor required to provide the Statement at least 7 days prior to execution of the lease”.
The Lease included an ‘entire agreement’ clause (“the provisions contained in this Lease and those applicable expressly or by statutory implication cover and comprise the whole of the agreement between the Lessor and the Lessee in relation to the Premises… “). The Court interpreted this to mean that the Lease is the only and entire agreement between the parties.
The Disclosure Statement contains no contractual force – ie – it is only given by the lessor, it is not a contract executed by both parties. The lessee is only required to acknowledge that the statement was given.
The Court decided that the Lease prevailed over the Disclosure Statement.
What about sections 10 and 11 of the Retail Leases Act?
If the Lessor does not provide a Disclosure Statement, or if the Disclosure Statement is materially false or misleading, section 11 gives the Lessee a right to terminate the Lease within the first 6 months of the Lease and claim damages (conditions apply). After that first 6 months, the Lessee has no further rights under section 11.
However, a Disclosure Statement is also considered a pre-lease representation. Section 10 of the Retail Leases Act gives the Lessee a right to claim compensation for pre-lease misrepresentations that the Lessee relied on and that were known by the Lessor to be false or misleading. This right prevails throughout the term of the Lease.
This case did not consider section 10. The Lessee knew all along that the option exercise sunset date was 31 August 2017, and could not maintain that it entered into the lease on the basis of the representation in the Disclosure Statement that the option exercise sunset date was 30 September 2017.
It is important that Disclosure Statement is complete and accurate. However, the consequences of errors or omissions can, in some cases, be minimal. This is particularly so for matters that are repeated in the Lease (like the option exercise period). This would be different for disclosure (or failure to disclose) in relation to matters not included in the lease; upcoming lessor works, for example.
Matthew Rafferty, Partner