Australia: Landlords beware - Incentive claw-back provisions deemed to be penalty clauses


The recent Supreme Court of Queensland decision of GWC Property Group Pty Ltd v Higginson & Ors affirms the long-held but (until now) untested fear that the ubiquitous claw-back provisions which accompany most incentive provisions may very well constitute a penalty clause.

What is a penalty provision?

The modern law of penalty provisions was enunciated in the UK House of Lords' decision of Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd, where Lord Dunedin stated that the following tests would determine whether a clause is a penalty:

  1. If a sum [recoverable] is extravagant or unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach;
  2. If a breach is a failure to pay a sum of money and the impugned clause stipulates an amount greater than that which ought to have been paid (other than interest); and
  3. Where a clause stipulates a sum payable on the occurrence of one or more events, some of which may occasion serious damage, but others merely trifling damage, there is a presumption (but no more) that the clause is a penalty.

This test was affirmed in Australia in the High Court decision of Ringrow Pty Ltd v BP Aust Pty Ltd where it was held by the Court that the law of penalties is attracted where "a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach" (at 663).

GWC Property Group Pty Ltd (Landlord) owned a property in Bowen Hills, Queensland which was leased by its predecessor in title to Hynes Lawyers Pty Ltd (Tenant) for a term of 7 years with three option periods. The Lease was entered into on 11 November 2010 and was accompanied by an Incentive Deed which was recited as being "intended to supplement the Lease". It was noted that other than confidentiality provisions, the Incentive Deed contained no substantial primary obligations of the Tenant but rather obligations by which the Landlord must allow the Tenant the agreed incentives.

The Tenant abandoned the premises on 20 May 2013 in breach of the Lease. The Landlord accepted the repudiation of the Lease and terminated the Lease on 12 June 2013. The Tenant is now in liquidation.

The Tenant's obligations under the Lease and Incentive Deed where guaranteed by the First, Second and Third defendants (Guarantors). It appears however, that the Guarantors were released from their obligations with respect to the Lease by the Landlord who agreed to accept a bank bond in satisfaction of securing the Guarantors' obligations under the Lease. The Guarantor's obligations with respect to the Incentive Deed were not released and that is the basis on which the Landlord sued the defendants, seeking $1.2 million as the amount of incentives which the Tenant received under the Incentive Deed.

Incentive Deed
The Incentive Deed provided for the following:

  • fit-out contribution;
  • rental abatement; and
  • signage fee abatement.

The Incentive Deed also contained standard claw-back provisions with respect to the fit-out contribution and rental abatement which, in summary provided:

  1. [with respect to the fit-out contribution] if the Lease was terminated prior to the expiration of the initial term, the Tenant will pay the Landlord a sum calculated by multiplying the number of days between the date the Lease is terminated and the expiry date by the amount of the contribution, and divided by the number of days of the initial term; and
  2. [with respect to the rental abatement] if the Landlord terminates the Lease due to the Tenant's default, the Landlord has against the Tenant a liquidated debt and the Tenant must pay the Rent Abatement Amount [as defined in the Incentive Deed] that has been abated by the Tenant.

The matter was brought before Her Honour Justice Dalton by application of the First, Second and Third Defendants for summary judgement.

Her Honour considered point 1 of Lord Dunedin's test above, noting:

  • Before the Lease and Incentive Deed were signed, the Landlord was in the position that the Tenant would only enter into the Lease and Incentive Deed on the basis it received the abatement and fit-out payment.
  • By the bargain contained in the Lease and Incentive Deed, the Landlord obtained abated rent and fees in consideration for its lease of the premises, together with the fit-out payment.
  • Had the Lease been performed according to its terms, the above is all the Landlord was entitled to.
  • The claw-back provisions of the Incentive Deed sought to give the Landlord an advantage that it would not have had if the Lease was performed according to its terms and thus, would not restore the Landlord to the pre-contractual position by, in effect making the Landlord entitled to recover as though the Tenant had agreed to the rent and signage fees without any abatement.

In a somewhat stern rebuke, Her Honour noted that the situation in which the Landlord found itself was a result of its own commercial decisions and stated that the claw back provisions where wholly penal in their operation, providing for significant sums to be paid over and above damages which would be payable to the Landlord at Common Law.

The application was allowed for the First, Second and Third Defendants and the matter dismissed.

Does this affect you?
Until now, the application of claw-back provisions with respect to incentives had not been properly tested. This decision may pave the way for further challenges to claw-back provisions should a landlord seek to rely on them over and above the common law damages available in respect of a breach of a lease.

Going forward, careful consideration should be made when lease deals are incentivised, particularly with front-end rent free periods and a fit-out contribution, so that any claw-back provisions are not penal in nature.

For further information please contact:

Mary Digiglio, Managing Partner
Phone: +61 2 9233 5544

Daniel Kentwell, Graduate Solicitor

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.