Carroll & O'Dea Facebook Le v Gallego [2017] NSWCATAP 58 - Decision 15 March 2017 - Carroll & O'Dea Lawyers

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Le v Gallego [2017] NSWCATAP 58 – Decision 15 March 2017

This is an unusual case involving the sale and lease of a property that was a combined residence and shop. The landlord bought the property after the tenant had commenced occupation, but there was never a signed lease. The landlord wanted the Tribunal to declare that a retail lease had been entered into pursuant to section 8 of the Retail Leases Act. The tenant claimed that the terms were never finalised and that they never commenced using the retail part of the property. What is interesting is that the landlord claimed the lease deposit was a payment of rent under the lease – a key part of section 8.

Section 8 of the Retail Leases Act states: “For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

In this case, the lessee had moved in to the residence, but had not commenced using the shop (other than for storage). The parties had been negotiating the Heads of Agreement, but the negotiations did not seem concluded. The amount of the rent was a key term that the parties had not yet agreed.

The Tribunal noted that section 8 can only operate when the parties intention was to enter into a binding lease. That means that the evidence must show on an objective basis that the parties had committed to entering into a binding lease. In this case, the lack of agreement about the rent showed that there was no such commitment, and as such, entry into possession did not have the required intention. Section 8 did not apply.

However, the lessor also argued that the lessee had paid rent under the lease by payment of the lease deposit.

The Tribunal found two problems with this argument. The first was that the agent’s receipt for the deposit stated “ … being deposit for commercial lease of property … subject to final agreement it’s a refundable deposit”. That probably ended the argument that the deposit was rent paid under the lease – it was clearly not rent under an agreed lease.

Second, the Tribunal found that the deposit was paid before the lessee was given access to the premises and before the lease was drawn up and signed. Section 8 requires the rent to be paid by a person as a lessee under a lease. The Tribunal found that where there is no occupation and no lease, a deposit is not payment of rent under a lease and does not satisfy section 8.

Section 8 of the Retail Leases Act appears to only require one of two actions: possession or payment of rent. Courts and Tribunals have generally also inferred an overarching requirement that the parties intended by their actions to enter into a binding lease. This waters down section 8 so that it does not provide landlords with anything more than they have at common law (and equity) though estoppel arguments.

This particular case does not finally determine the question of whether a deposit can be rent paid under a lease and bind a tenant before they sign the lease. It may be possible for landlords to structure the negotiations such that payment of the deposit does satisfy the tests in section 8. However this case shows the difficulty in mounting such an argument and the general difficulty that landlords have in enforcing a lease using section 8.

Matthew Rafferty, Partner

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