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Recent tribunal decisions in retail leasing

Partner Matthew Rafferty reviews three recent tribunal decisions relating to retail leases.  Issues raised in these matters were:

  • Whether water usage charges are a part of outgoings or can be charged separately from any gross rent?
  • Whether a tenant can escape lease obligations if they have signed the lease incorrectly?
  • What is the relevant time when considering the financial resources of potential assignors and assignees when those resources change?

Water Usage Charges at the Box Hill Tram Terminus

NZH Pty Lts v Mintvale Pty Ltd [2017] VCAT 197 (10 February 2017)

In this case, the Landlord claimed $21,000 from the tenant in water usage charges. The tenant operated a restaurant business at the Box Hill Tram Terminus Precinct under a five year licence agreement with a ‘Yarra Trams’ entity.

The licensee fee was a gross fee which was expressed to include “all outgoings relating to the premises, including but not limited to council rates, levies, assessment, taxes, …”.

The landlord argued that water usage charges were not a rate, levy, assessment or tax, and so were not included in the gross license fee. This would mean the tenant would have to pay the water usage charge on top of the license fee. The tenant argued that water usage was an outgoing, and so was included in the gross license fee – not an extra charge.

The Tribunal agreed with the landlord and the tenant had to pay for water usage.

The Tribunal found that a ‘water usage’ charge was distinct from a ‘water rate’. The list of outgoings in the licence included water rates but not water usage. There is a legal principle that means that something omitted from a list is deliberately omitted. This can apply even if the words “including but not limited to” are included. The principle is expressed in latin: expression unius est exclusion alterius.

The tribunal also considered it would not be commercially realistic for the landlord to be liable for the tenant’s water usage charges.

The Tribunal took ‘outgoings’ mean financial responsibilities that relate to the use of the premises, rather than financial responsibilities that relate to the operation of the tenant’s business.

We suggest that the parties should make it clear from the start, and include a clause: “The tenant must pay water usage charges levied on the premises.” That way, no one needs to end up in court.

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Tenant not entitled to benefit from their own failure to sign correctly

R & K developments Pty Ltd v French Villa Pty Ltd [2017] NSWCATCA 3 (5 January 2017)

In this case, the landlord and tenant agreed on the major terms. The landlord completed landlord’s works. The tenant moved in and commenced trading. About 2 months later the lease was finalised and signed by the tenant.

However, the tenant didn’t provide the bank guarantee and pay the rent. About 3 months into the lease the landlord issued a Breach Notice. Some rent was paid, but not all. Shortly after, the landlord re-entered and changed the locks. The next day, the tenant re-entered and changed the locks. The next day, the landlord re-entered again and changed the locks again.

The landlord commenced proceedings and claimed damages.

Amongst the tenant’s arguments of misrepresentation, misleading conduct and false advertisement, (which all failed), the tenant claimed that the lease was not binding because there were two directors of the tenant company, and only one had signed the lease.

Section 127 of the Corporations Act 2001 requires two directors or a director and the company secretary to sign a document (unless there is only one sole director/secretary).

The director that signed the lease noted where she signed that she was the sole director. She held herself out as a sole director. The Tribunal would not let her now escape liability on the basis that her representations were false.

The lease was binding and the landlord won damages.

Assignment: how to apply the financial resources and retailing skills tests

McEvoy Food Company Pty Limited v Miziner and Finch [2016] NSWCATCD 99 (29 December 2016)

In this case, the Tribunal had to decide whether a proposed assignee satisfied the tests under the Retail Leases Act (NSW) – and whether the landlord could refuse consent to the assignment.

The relevant tests are:

  • Does the proposed assignee have financial resources that are inferior to the tenant?
  • Does the proposed assignee have retailing skills that are inferior to the tenant?

If the proposed assignee passes both these tests, the landlord cannot refuse consent to the assignment.

The complications in this case are that, at the date of entry into the lease, the lessee comprised 3 directors/shareholders, with high aggregate financial resources and retailing skills – both more than the proposed assignee.

But at the time of the proposed assignment, two of the lessee’s directors/shareholders had left the business, and the lessee’s financial resources and retailing skills were lower that the proposed assignee’s. In fact the lessee had ceased trading from the premises – so no retailing skills were on show at all at that time.

What time is relevant for the tests? It is the financial resources and retailing skills of the lessee at the time the lease was entered into? Or at the time of the assignment?

The landlord would like the relevant time to be the when the lease was entered into – that is the time that the landlord made its assessment of the lessee. If at that time, the lessee was as they are now, they wouldn’t have granted them the lease.

However, the Tribunal took the view that the test should be applied to the retailing skills and financial resources at the time of assignment. The Tribunal noted that the Retail Leases Act is primarily for the benefit of tenants, and should be interpreted in that way.

In this case, applying the test at the time of assignment, the landlord was not entitled to refuse consent to the assignment.

Matthew Rafferty, Partner

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