The Appeal Panel of the Administrative Decisions Tribunal (ADT) has recently1 upheld an appeal against important aspects of the landmark decision in Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Ltd 2.
The Appeal Panel's decision significantly alters the retail lease litigation landscape, in many cases introducing a six month limitation period on claims for compensation in respect of pre-lease misrepresentations.
The Armstrong Jones Litigation
In early September 2005 Armstrong Jones Management Pty Ltd (Landlord) terminated, for breach thereof, a retail lease of a shop in a newly established specialist 'bulk goods' furniture centre it had entered into with Saies-Bond & Associates Pty Ltd (Tenant) in October 2004. The Landlord filed a claim with the ADT seeking arrears of rent and damages for lost future rent. The Tenant filed a defence asserting that the Landlord had failed to mitigate its loss and a counter-claim seeking compensation for pre-lease misrepresentations, unconscionable and/or misleading and deceptive conduct under sections 10 and 62B of the Retail Leases Act 1994 (NSW) (Act).
The ADT's First Decision – Victory For The Tenant
The ADT, at first instance3, found that a leasing agent acting with the authority of the Landlord had knowingly falsely represented that Harvey Norman would be the centre's anchor tenant during pre-lease negotiations in August 2004. The ADT determined that this false representation (which the Tenant relied on when entering into the lease), in addition to entitling the Tenant to compensation under section 10 of the Act, also constituted 'unfair tactics', amounting to unconscionable conduct under section 62B of the Act.
Appeal Panel's Decision – The Landlord Prevails
The Landlord appealed to the ADT's Appeal Panel asserting, amongst other things, that the Tenant had not relied upon the agent's false representation, or, alternatively, if the Tenant had relied on the agent's false representation, its conduct barred it from being able to rely on the representation.
The Appeal Panel found on the facts that the Tenant had relied on the agent's representation in entering into the lease. However, the Landlord's appeal was successful on the basis that the Tenant was 'estopped' (ie barred) from claiming compensation by its conduct. The Appeal Panel held:
- The ADT was incorrect in finding that the lessee's pre-lease disclosure statement obligations were confined under the disclosure statement to "promises, representations, warranties or undertakings" made by the Landlord "in respect of the premises or the business to be carried out on the premises". The Appeal Panel decided that a retail tenant's obligation to disclose the representations on which it relies in its disclosure statement was not limited to representations "in respect of the premises" and extended to include representations about a shopping centre's major anchor tenant.
- Section 11 of the Act (which provides that a retail tenant must move to terminate a lease within six months of an alleged pre-lease misrepresentation) places a bar on a tenant's ability to "take actions of a fundamental kind" (ie seek, as the Tenant in effect did, to rescind a lease) in relation to pre-lease misrepresentations six months after the lease commences.
- The Tenant had not sought to terminate the lease for non-disclosure of the fact that Harvey Norman was not a tenant at the Centre within the six months after the date of commencement of the lease. It was therefore barred, or 'estopped' from seeking compensation for its losses attributable to its entry into the lease.
- In respect of the unconscionable conduct claim, the adversely affected party (retail tenant or landlord) should bring its concern that it has been a victim of unconscionable conduct promptly to the attention of the wrongdoer, so as to give it an early opportunity to rectify the situation. The six month estoppel period was also applicable to the unconscionable conduct claim as it arose out of the pre-lease misrepresentation.
A Good Outcome For Retail Landlords, But Great Care Still Needed With Pre-Lease Disclosure!
The Appeal Panel's decision is another significant development in the law concerning pre-lease misrepresentations and unconscionable conduct. It is certainly a win for retail landlords, but the following cautionary notes should be observed:
- The tenant is not necessarily required to set out alleged representations in its disclosure statement. It may be able to keep certain species of claim alive simply by 'raising' the alleged misrepresentation within the six month period from the date of entry into the lease.
- A pre-lease misrepresentation can, if sufficiently serious, also constitute unconscionable conduct. The 'six month' estoppel may apply, but the door has been left open for the ADT to extend the time to raise the issue beyond six months in the right circumstances.
- The Appeal Panel stressed the importance of the discipline imposed by the Act in respect of exchanges of information prior to entering into the Lease. It even went so far as to suggest that it was not fair for a landlord to leave it entirely up to the tenant to identify the representations that have been made and that landlords should actively set out, in their disclosure statements, all the material representations in the course of negotiations, not simply those favouring them.
1 Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Ltd (RLD) NSWADTAP 47 and Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Ltd (No 2)(RLD) NSWADTAP 52
2 NSWADT 323
3 See our December 2006 e-update at http://www.gadens.com.au/Publications.asp?CategoryID=16&navid=4&cid=23 for a full review of the Tribunal's decision.
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