The assistance of Claire Latham, Solicitor in writing
this article is appreciated.
Two recent decisions of the Administrative Decisions
Tribunal Retail Leases Division have far reaching implications
in declaring when a statutory lease or sub-lease exists. These
cases establish that, even if a contract for a formal lease has
not been entered into and only verbal or implied agreements
exist, the combined effect of sections 3 and 8 of the Retail
Leases Act 1994 (the Act) may mean that a statutory lease is
nonetheless created. Section 16 of the Act then provides that
this lease is for a minimum term of five years.
Accordingly it is critical that, in negotiating potential
leases, lessors conduct themselves very carefully to avoid
creating a statutory lease which would bind them for the next
five years when this is not their true intention.
Section 8(1) of the Act states that a retail shop lease is
created when a person enters into possession of the retail shop
as lessee under the lease or begins to pay rent as lessee under
the lease (whichever happens first).
In Helou & Ors v Bong Bong Pty Limited & Anor
trading as Regional Retail Properties  NSWADT 2006 (1 May
2006) the Tribunal stated that the requirements of section 8(1)
may be met even though no formal deed or agreement to lease is
ever executed, so long as the parties have reached a
'consensus' as to the terms of the lease when the
lessee enters into possession.
The Tribunal further held that in order to reach a
'consensus' it was not necessary for agreement to be
reached on all of the terms of the right of occupation. This
was because section 3 of the Act gives a broad definition of
the term 'lease' to be 'any agreement', express
or implied, and whether oral, in writing, or partly oral or
partly in writing, 'under which a person grants or agrees
to grant to another person for value a right of occupation of
premises for the purposes of the use of the premises as a
In Helou the Tribunal found that the combined effect of
sections 3 and 8 of the Act meant that a statutory lease for a
minimum period of 5 years had been created. This was despite
the fact that the 'consensus' reached came in the form
of a letter setting out the proposed terms of a lease, but
expressly stating that no binding lease would come into
existence until a formal document of lease had been prepared
The lessee in Helou had taken possession of the premises
after purchasing the business at a time when the previous
owners of the business had been in possession only on a monthly
tenancy following the expiry of their lease. The lessee took
over this monthly tenancy which fell outside the Act. The
Tribunal held that this was sufficient to 'enter into
possession' under s8(1) and it was not necessary for the
lessee to vacate and re-enter the premises for a new lease
under the Act to be concluded.
In Thai Star Video Pty Limited v Walpole  NSWADT 193
(27 August 2007), the Tribunal found that a statutory sub-lease
for a potential period of ten years was created by way of an
oral agreement between the lessee and the sub-lessee.
In that case there was a verbal agreement that a sub-lease
for the same term as the head lease was created when the lessee
said to the sub-lessee (who was in possession at the time)
"You stay as long as I stay". The only agreed terms
of this occupation were the space to be occupied within the
lessee's shop (a counter running down the side of the
lessee's shop), the rent to be paid and that the sub-lessee
would pay its own electricity.
The Tribunal stated that "This is, obviously, from a
commercial view point, a most unsatisfactory situation but
follows inevitably from the width of the definition of retail
shop lease". The Tribunal found that the combined
operation of sections 3 and 8 of the Act compelled it to
declare that a statutory sub-lease existed for the same term as
the lessee's lease.
As noted in Helou, the general purpose of the Act is the
protection of lessees and the Act operates to create a
statutory contract, despite the fact that under traditional
contract law a binding contract may not yet have been
concluded. Accordingly, the negotiation of potential leases can
be very dangerous territory for lessors. Lessors must be
careful not to reach any 'consensus' on lease terms or
make any statements which could be construed as expressing an
agreement until they are certain that those terms are as they
should be. Even more critically, a lessor should not allow a
lessee into possession or accept rental payments until they are
confident that satisfactory terms for the lease have been
agreed to. A failure to be absolutely meticulous in this regard
may saddle a lessor with a five year obligation on most
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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