Carroll & O'Dea Facebook Gallery Bar & Grill Pty Ltd v Freilich Napean Pty Ltd [2017] VCAT 720 - Carroll & O'Dea Lawyers

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Gallery Bar & Grill Pty Ltd v Freilich Napean Pty Ltd [2017] VCAT 720

This is a section 54 Retail Leases Act (Vic) case – compensation for interference. In this case, a landlord installed hoarding that obstructed access through a courtyard to a restaurant. The restaurant claimed compensation for disturbance – which we normally would expect to be payable. Because of the unusual circumstances of the building, this was disturbance that the landlord was entitled to cause.

In this Victorian case, the tenant operated a restaurant in the Manyung Gallery in Mt Eliza. When the lease was entered into, the Gallery was open for business and operated by a tenant. The Gallery courtyard was accessible from the restaurant (and visa versa) and the tenant had permission from the gallery operator and landlord to use the courtyard as part of its restaurant.

In May 2016, four years into the restaurant lease, the gallery closed. The restaurant continued to operate. On 21 June 2016 the landlord notified the restaurant operator that its permission to use the courtyard was withdrawn, however, the tenant continued to use the courtyard.

The landlord attempted to find another tenant to use the vacated space as a gallery but was unable to do so. The landlord proposed to lease that space for use as a childcare centre instead, but such use would require significant works – including asbestos removal.

On 15 February 2017, the landlord and the tenant met and discussed the works that would be undertaken, which would include installing a hoarding separating the courtyard from the restaurant. This would mean that the resturant could no longer use the courtyard and would also cut customer access through the courtyard to the restaurant.  Although there were discussions, no timing was specified and no formal notice was given by the landlord.

Section 53 of the Retail Leases Act requires the landlord to give the tenant 60 days’ notice if the landlord proposes to carry out any refurbishment or alteration to its building which is likely to adversely affect the business of the tenant.

Section 54 of the Retail Leases Act (Vic) requires a landlord to provide compensation to a tenant if it unreasonably takes action that substantially inhibits or alters the flow of customers to the retail premises or causes significant disruption to the tenant’s trade. (Section 54 contains other provisions relating to disturbance as well, but which are unrelated to this case.)

Retail legislation in other States and Territories contain similar provisions.

On 2 March 2017, the landlord commenced works, including the installation of the hoarding. On 8 March 2017 the landlord gave the tenant notice under section 53 of the Retail Leases Act (Vic) of its intention to undertake works – this notice was given too late.

The tenant obtained an injunction preventing the landlord from undertaking any works until  6 May 2017 – 60 days after the landlord’s notice. While this inconveniences the landlord and probably results in increased costs, no damages were payable to the tenant as a result of the breach of the notice requirement.

The tenant sought compensation for the interference that would be caused by the hoarding separating the restaurant from the courtyard and altering (and inhibiting) the flow of customers to the restaurant. The landlord argued that the Courtyard was space leased to the Gallery operator who gave permission to the restaurant to use it, so that when the Gallery lease ended, all rights to the space reverted back to the landlord. The restaurant lease did not include any rights to use the Courtyard.

The Tribunal agreed that the restaurant lease did not grant the tenant any rights to use the courtyard, and that, as the landlord had withdrawn its consent to use the courtyard, the tenant’s continued use of the courtyard was a breach of the lease. The restaurant was not entitled to damages because it could no longer use the courtyard because it never had the right to use the courtyard.

The Tribunal also found that no damages were payable as a result of the lessee’s customers’ access through the courtyard being cut-off. The access through the courtyard was an arrangement between the restaurant and the Gallery operator. When the Gallery closed, that arrangement also ended.

This decision is applicable only in circumstances where the access is through another leased premises. If the courtyard was common area in a shopping centre, a landlord could not unreasonably cut customer access to a retail premises without becoming liable to pay compensation.

It is worth noting that that the restaurant represented themselves and did not present evidence of the interference caused to its business. Possibly, the largest interference was the Gallery closing – but this was not caused by the landlord. The case seems to suggest there is a distinction between a landlord cutting off access through a common area and cutting off access through another premises. Presumably a landlord is entitled to lease premises as it sees fit, and if that involves closing an access between premises, then that is a reasonable consequence. Whether that would hold in all cases will depend on the circumstances of the case and the arguments presented to the Tribunal.

Matthew Rafferty, Partner

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