Australia: Retail Lease Decisions Review

Last Updated: 5 October 2007

While the landmark Administrative Decisions Tribunal (Tribunal) decision in Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Limited (2006) (Armstrong Jones) continues to dominate the landscape of retail lease litigation, there have been a number of other decisions in the first half of 2007 of interest to retail landlords and managers. A summary of four recent decisions follows.

Can Consistently Late Payment Of Rent Constitute Repudiation?

Parallel Lines International Pty Limited v Video Drama Pty Limited (2007)

The decision illustrates that termination of a retail lease is not something to be done lightly. There is no substitute to getting it correct the first time and little that can be done to repair defective action.

The principal issue in this matter was whether the tenant's consistently late payment of rent was a sufficient basis for the landlord to terminate the lease and lock the tenant out of the premises.

The landlord assented that the tenant's consistently late payment of rent and other money due under the lease amounted to a repudiation of the lease at common law which it was entitled to accept. The tenant argued that it was not in breach of the obligation to pay rent and other money under the lease and therefore the landlord was not entitled to terminate.

The landlord's argument was unsuccessful. The Tribunal found that:

  • the notice of termination stated that the ground for termination was "failure to pay rent", not "consistently late payment of rent"
  • at no stage prior to the hearing was there any correspondence in relation to repudiation and acceptance
  • there is no legal principle that consistently late payment of rent of itself is sufficient to establish repudiation.

Damages For Failing To Register An 'Extended' Lease

De Luca & Anor v Scuccimarra & Anor (2007)

Section 81(3)(a) of the Retail Leases Act (Act) provides that when the term of a retail lease is extended by operation of a provision of the Act, the landlord, if requested to do so by the tenant, must execute a lease (with term extended) in the approved form so as to enable registration of the lease under the Real Property Act.

This decision dealt with a question never previously raised before in the Tribunal: What remedies are available to a tenant when a landlord breaches section 81(3)(a)?

The parties had executed successive leases of retail premises which were expressed to last for three years with no option for renewal. The leases were not in registrable form and were not registered. The tenants asserted that:

  • section 16(1) of the Act operated to extend the three year leases to five year leases
  • the landlords had, by failing to provide them with a registrable lease which gave effect to the extension under section 16(1), breached section 81(3)(a) of the Act.

The tenants complained that the landlords' breach meant the lease could not be registered and that this had cost them an opportunity to sell their business to a particular buyer (who happened to be prepared to pay well in excess of the estimated value of the business) who required a registered lease.

The Tribunal held that a tenant can claim damages for loss sustained as a result of the breach of section 81(3)(a) and, in this case, ordered the landlords to compensate the tenant for that loss, which was assessed to be $52,146.50, being the difference between the purchase price of the prospective buyer and the estimated value of the business plus the lost costs of preparing a draft contract for the sale.

Failing To Consider A Potential Purchaser Of A Tenant's Business And Unconscionable Conduct

International Enterprises Company Pty Limited v Kingsmede Pty Limited & Anor NSWADT15

The tenant complained that the landlord's conduct towards a prospective purchaser of the tenant's business amounted to unconscionable conduct. It claimed compensation for the lost opportunity to sell the business.

The Tribunal commented that the landlord's conduct "might well be held unconscionable" if

  • a tenant indicated a wish to surrender a lease and the landlord "paid no significant attention at all" to an offer for a replacement lease made by a candidate preferred by the tenant; and
  • it was shown that the landlord's attitude was motivated by a "desire to inflict harm" upon the tenant or stemmed from "reckless disregard" of the tenant's interests.

The Tribunal found that the evidence showed the landlord had given "genuine consideration" the prospective tenant's approaches.

Costs Orders In The Tribunal – Still No Certainty

Armstrong Jones Management Pty Ltd v Saies Bond & Associates Pty Limited (No 2) (2007)

The Tribunal's primary position is that it is a "no costs" jurisdiction. That is, an unsuccessful party will not be required to pay the successful party's legal costs. The exception to the general "no costs" rule is when there are "special circumstances" which "warrant" the Tribunal making a costs order.

The successful tenant in Armstrong Jones applied for a costs order in its favour, asserting that its circumstances fell within the exception to the general 'no costs rule'. The Tribunal found that the circumstances in this case did not warrant a costs order, but made the following points:

  1. 'Special circumstances' are 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'.

  2. The circumstances must be both 'special' and 'warrant' an order for costs.

  3. A finding of 'serious unfairness' or 'grossly unreasonable conduct' is not a pre-requisite to determining that there are special circumstances but it is highly relevant.

  4. 'Special circumstances' may be found:

  1. where an application or the grounds of defence are found to have lacked any real prospect of success, and therefore to have been unmeritorious;

  2. where the successful party in the proceedings has made an offer of compromise of the dispute before the conclusion of the proceedings; the unsuccessful party has unreasonably rejected that offer and the terms of the offer were more favourable to the unsuccessful party than the orders made by the Tribunal; or

  3. when a party has been responsible for unreasonably prolonging the time taken to complete the proceedings.

The decision is a reminder that there are circumstances in which the Tribunal will depart from its primary "no costs" position and that Calderbank letters of offer can play an important role in retail lease litigation strategy. The Tribunal does however remain reluctant to settle the categories of circumstances in which it will move from the default "no costs" position. Given its years of operation, the context of its jurisdiction (ie commercial disputes) and the number of opportunities presented to do so, it is disappointing that this remains a grey area.


Robert Riddell

t (02) 9931 4940


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