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Broadly speaking, the definition of the lettable area in a lease
must be appropriately drafted and scrutinised to ensure that it
encapsulates the intention of the landlord and the tenant.
This is paramount in regard to a landlord's ability to
apportion costs to and recover costs from tenants and weighs
heavily on the proportion of costs attributable to a building
payable by a tenant.
The case
In the decision Ray Mullins & Sons Pty Ltd v Skycorp
Investments Pty Ltd [2011] WASCA (Ray Mullins
Case), the landlord and the tenant were in dispute in
regard to, amongst other things, the precise area of the building
occupied by the tenant and other occupants in the building.
This point was significant because the area occupied by other
occupants was a crucial factor in determining the lettable area of
the building and, therefore, the proportion of outgoings payable by
the tenants.
Lease definitions
In essence, in the disputed lease, the Floor Area of the
Building was defined as the aggregate floor area of the
Lettable Parts of the Building as certified by the landlord from
time to time using the latest method of measurement published by
the Property Council of Australia Limited for commercial retail
premises (citations omitted). This definition is what one would
expect to see in a lease.
The expression Lettable Parts was defined as those
parts of the building designated by the landlord from time to time
as being intended for letting.
Letting
In the Ray Mullins Case, the term 'letting' was not
defined in the disputed lease and it was held by Buss JA, Newnes
and Murphy JJA that the precise meaning of 'letting' in a
particular case will depend upon the context in which the word is
used.
Significantly, it was held that the term 'letting'
within the definition of Lettable Parts was confined to
the granting of leases or tenancies in the strict sense. The term
'letting' in the disputed lease did not extend to licences,
including licences for exclusive possession, unless the licence
was, as a matter of law, a lease or tenancy.
Test
Their Honours held that, on its proper construction, whether a
part of the building is within the definition of Lettable
Parts is a question of fact and an objective test is to be
applied.
In circumstances where there is no certainty behind the
definition of 'letting' one must look at the particular
part of the building that is designated by the landlord as
available for leasing or as set aside with the object or purpose of
being leased.
The constitution of a tenancy
Various arrangements including "licences" of
storerooms and outdoor areas were considered in determining whether
those areas formed part of the Lettable Parts of the
building.
In deciding whether parts of the building constituted a lease or
tenancy or a licence or other informal arrangement, their Honours
considered whether the relevant occupiers were granted by the
landlord exclusive possession for a fixed or periodic term certain
in consideration of a premium or periodic payments.
Result
When drafting a lease, the lettable area of the building must be
defined in detail to include what the landlord will, in practice,
use to determine the lettable area of the space in the
building.
If it is intended that the lettable area of the building is to
include areas the subject of a licence, the definition of lettable
area should explicitly provide for licences.
From a tenant's perspective, understanding the areas that
the landlord will classify as forming part of the lettable area of
the building will impact on the proportion of the outgoings that a
tenant is liable to pay. The more area attributable to the lettable
area of the building will result in a lower proportion of outgoings
payable by a tenant.
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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