The recent decision in the NSW Court of Appeal (World Best
Holdings v Sarker (2010)) highlighted some of the issues that
landlords need to be aware of when negotiating and fulfilling
Permitted Use Provisions
The case concerned a retail lease in a shopping mall which
provided that the tenant could use the premises as an 'Asian
grocery shop'. The landlord thought that this did not entitle
the tenant to sell Indian groceries and halal meats, and
subsequently sought to terminate the lease when he realised this
was happening by issuing notices for breach of the permitted use
The Court of Appeal held that the term 'Asian' included
all nations within that continent, and that since India was such a
nation, there was no breach by the tenant in selling Indian
groceries. This resulted in the notice of termination being
ineffective, and the landlord being held liable for damages to the
This ruling by the NSW Court of Appeal highlights the need for
landlords, and their lawyers, to be very specific when drafting
permitted use provisions. If these provisions remain broad, like in
this case, the landlord is left open to potential litigation and
issues with the tenant.
The Court of Appeal also held that the landlord's behaviour
towards the tenant in causing undue delay and using unfair tactics
constituted unconscionable conduct under s 62 of the Retail Leases
Act. Prior to the hearing, the landlord committed the following
Detained the tenant's stock for five days without
justification or excuse;
Refused to consent to the tenant's council application and
forced him to go to a tribunal to gain such approval;
Refused to give access to the tenant's plumber in order for
repairs to be undertaken.
The Court held that "these acts had impeded the
tenant's ability to operate his business" and found that
the landlord had been guilty of unconscionable conduct towards the
This decision illustrates the need for landlords to act
reasonably in regards to tenants, and to withhold serving
termination notices until such time as it is plainly clear that you
are entitled to do so.
For assistance with drafting a lease, and its subsequent
provisions, or for advice regarding your rights and obligations in
a retail leasing situation contact one of our experienced property
lawyers on tel 02 9635 6422. We can minimise the risk of a dispute
and help you to avoid costly and time consuming litigation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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