Australia: Lessor found liable for the conversion of a lessee's goods upon repossession

Last Updated: 4 November 2013
Article by Gary Newton

In brief - Lessor to pay significant damages to lessee after terminating lease

The Supreme Court of NSW has determined that a lessor which terminated a lease and repossessed the premises without giving the lessee a reasonable opportunity to remove its fixtures and other property was in breach of the terms of the lease and liable to compensate the former tenant.

Conversion and disposal of lessee's fittings, cash and trading stock

On 15 July 2013, the Supreme Court of NSW handed down judgment in NSL Pty Ltd v 2 Roslyn Street Pty Ltd [2013] NSWSC 930, which considered the liability of the defendant lessor for the conversion and disposal of the lessee's fittings, cash and trading stock upon exercising its right to re-entry.

The Supreme Court held the lessor accountable for the conversion of a number of the lessee's goods upon the termination of the lease and repossession of the leased premises.

This case demonstrates the need for lessors to comply sufficiently with re-entry clauses of any lease to ensure they are not exposed to claims of conversion and detinue by lessees upon termination.

Lessor's repossession of premises used to run a nightclub business

The plaintiff lessee, NSL Pty Limited, operated a nightclub business between October 2001 and June 2004 from the premises known as 2 Roslyn Street, Kings Cross. NSL continued to trade until re-entry by the defendant lessor, 2 Roslyn Street Pty Limited on 15 June 2004 pursuant to clause 39 of the lease arrangement.

2 Roslyn Street effected its re-entry by replacing the locks on the premises and terminating the lease.

Lessor obliged to give lessee a reasonable opportunity to remove its goods from premises

Clause 39 of the lease agreement stated:

If the lessor shall enter into possession of the demised premises and the lessee shall not have removed his goods or any of them after the lessor has given the lessee a reasonable opportunity to do so, the lessor shall be at liberty to sell or otherwise dispose of such goods or any of them as if the lessee were at all times the beneficial owner thereof and had assigned all his right, title and interest in and to such goods to the lessor and the lessor shall not be liable to account to the lessee in respect of the net amount (if any) actually received by the lessor following the sale or disposal of such goods after deduction of all moneys outstanding by the lessee including expenses incurred by the lessor in detaining or maintaining possession of the goods or selling or disposing of the same.

Cash, trading stock and fittings not returned to lessee

In compliance with the above clause, 2 Roslyn Street sold or otherwise disposed of the lessee's goods, including certain fittings, trading stock and cash which has not been accounted for. By 12 October 2004, 2 Roslyn Street had re-let the premises to the second defendant, Pink Star Entertainment Pty Limited, whilst NSL had not been permitted to enter the premises before that occurred. Upon inspection of the premises on 13 October 2004, NSL contended that:

  • $20,800 was stored in cash at the time of re-entry and was never accounted for
  • Trading stock, namely bottled liquor and similar goods amounting to $29,800 that was present at the time of re-entry have not been returned
  • Certain fitout and fittings have been converted by 2 Roslyn Street, under the subsequent lease arrangement between 2 Roslyn Street and Pink Star

It is important to note, however, that NSL accepts that 2 Roslyn Street had validly exercised its right of re-entry, but alleges that it had failed to comply with the terms of clause 39 which required it to permit the removal of fixtures and other chattels within a reasonable time by giving NSL a reasonable opportunity to do so.

Court finds that lessee was entitled to immediate possession of its own goods

In considering the extensive affidavit sworn by the applicant and the balance of probabilities, the court was satisfied that 2 Roslyn Street had breached the terms of clause 39 and thus, awarded judgement in favour of NSL for $110,600. The court found that the fixtures and fittings, cash and stock in trade allegedly converted by 2 Roslyn Street were all items in respect of which NSL was either the owner or entitled to immediate possession.

Although the lease had been terminated, clause 39 continued to apply to restrict the conversion of the lessee's items by 2 Roslyn Street until it had given the lessee a reasonable opportunity for removal of such items.

Terms of lease are still significant after termination of lease

This decision by Harrison J indicates that parties to a lease should be sufficiently aware of any potential rights and obligations that may continue to arise after the repossession and termination of the lease by the lessor. The terms of the lease remain significant and therefore, a breach of any term of the lease may render either party liable for damages.

Gary Newton
Leasing - commercial and retail
Colin Biggers & Paisley

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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Gary Newton
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