Richard Gardiner, Associate
Brook Carruthers, Trainee Solicitor
The implications of the New South Wales Supreme Court's
decision in Symbion Medical Centre Operations Pty Ltd v Lawton Pty
Ltd are likely to be significant in commercial leasing disputes as
the impact of the global financial crisis increases.
The decision confirms that unless a lease contains a positive
obligation for the tenant to carry on business from the premises,
tenants of shopping centres will not be in breach if they cease
trading and move out during the term of the lease.
This decision is a reminder for all landlords and their lawyers
to not only include a positive obligation in the lease on the
tenant to carry on business in the premises, but also to seek legal
advice before taking steps to terminate a lease on that basis.
Lawton Pty Ltd leased to Symbion Medical Centre Operations Pty
Ltd a suite that was used as a medical centre on the ground floor
of a building known as the Barwell Centre. The lease was for a term
of five years.
Around March 2008, the shares in Symbion were acquired by
Primary Health Centre Care Limited through a hostile takeover. As
Primary owned a medical centre in Castle Hill, it closed the
Barwell Centre medical practice prior to 25 April 2008. At that
time, with the exception of a dentist, no medical practice was
conducted at the Barwell Centre, even the furniture and medical
files were removed.
On 5 August 2008, Lawton served a notice of breach of covenant
under section 129 of the Conveyancing Act (NSW) on Symbion. The
notice contained particular reference to a covenant in the lease
which required Symbion as lessee not to:
Use or permit or suffer to be used, the Leased Premises in any
noisy, noxious, immoral or offensive manner or do on the Lease
Premises or the Centre anything which in the Lessor's
reasonable opinion may be or become a nuisance hazard disturbance
or cause damage to the Lessor, its tenants or other persons in or
using the Centre or neighbouring properties.
The notice then alleged that on 25 April 2008, without notice or
explanation to Lawton, Symbion breached that covenant by abandoning
the leased premises or otherwise vacating, ceasing to occupy or use
them as a general practitioner centre, and had since ceased to
operate any business on the leased premises but had left them
vacant. The notice required Symbion to remedy the breach within 14
Symbion denied that it was in breach of the Lease. Lawton
subsequently served a notice of termination of the lease and retook
possession of the premises.
Justice Brereton stated that clear words are required where it
is sought to impose on a tenant a positive obligation to maintain a
business or actively use premises.
His Honour determined that while clause referred to in the lease
was a prohibition on certain uses of premises, or on doing positive
acts on the premises, it did not impose a positive obligation to
maintain the business.
Furthermore, His Honour found that a prohibition on "doing
anything which in the lessor's reasonable opinion may cause
damage to the lessor" does not cover ceasing to conduct any
business at all.
Accordingly, as ceasing to carry on business was not a breach of
the lease, there was no basis for Lawton to terminate the lease.
Symbion was granted an injunction by the Court, restraining Lawton
from interfering with Symbion's use and occupation of the
premises. Lawton was also ordered to pay Symbion's legal
Practical effect for landlords
The decision of Symbion Medical Centre Operations Pty Ltd v
Lawton Pty Ltd highlights the importance of putting in place
sophisticated lease documents that cover this issue in the
appropriate circumstance, and also to seek expert legal advice
before terminating a lease. Failure to validly terminate a lease
can have serious consequences for a landlord, including exposure to
significant damages claims and legal costs orders.
As tenants are increasingly leaving premises due to financial
difficulties, often without having paid rent, this issue is likely
to arise on a regular basis.
Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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”
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).