Before aretail lease is entered into, theRetail Leases Act1994(NSW) (theRLAct) requires alandlord to give asigned Lessor's Disclosure Statement (Disclosure Statement) to the tenant. The Disclosure Statement contains important information about the premises and the commercial terms of the lease-such as the permitted use, the rent and the tenant's contributions to outgoings (ifapplicable).
When alandlord wants to rent out their property, it is important that they firstly consider if the premises are commercial or retail premises as this will determine the type of lease to be entered into. Section4and Schedule1of theRetail Leases Regulations2022(theRLRegulations) define what type of businesses are determined to be aretail shop business and are thus covered by theRLAct.If the premises are determined to be aretail shop, theRLAct requires the landlord to provide to the tenant aDisclosure Statement at least7days before the lease is entered into. If the landlord fails to provide aDisclosure Statement to the tenant or the Disclosure Statement that was given was incomplete or contained information that was false or misleading, the tenant may terminate the lease within6months of the lease being enteredinto.
However, what happens when alandlord allows atenant to prepare the Disclosure Statement, or issues an incorrect or incomplete Disclosure Statement to thetenant?
The Hum Group Pty Ltd vDeep Blue No.11Enterprises Pty Ltd [2023]NSWCATCDis an example of arecent Tribunal decision that contemplates thisquestion.
At first instance, the landlord in this case received incorrect advice that the property to be rented was commercial premises. Acommercial lease was prepared and issued to the prospective tenant. The tenant disputed that the premises were commercial, as the permitted use was acafe, being aretail shop under theRLAct. The landlord refused to provide the tenant with aDisclosure Statement. The tenant then prepared the Disclosure Statement and submitted it to the landlord for its approval and signing. The landlord signed the Disclosure Statement and the lease was entered into by the parties. When signing the Disclosure Statement the landlord failed to notice that the tenant had not prepared it in accordance with the terms of the lease, as the rent was inclusive of outgoings rather than exclusive of outgoings asagreed.
The landlord issued the tenant with invoices for the outgoings, which the tenant initially paid. After some time the tenant stopped paying the outgoings and the landlord issued atermination notice to the tenant. As the tenant was in breach of the lease for non-payment of the outgoings, the landlord re-entered the premises and changed thelocks.
The tenant brought aclaim against the landlord in theNSWCivil and Administrative Tribunal (NCAT) and amongst other things claimed that the tenant was not liable to pay outgoings under the lease pursuant to section12Aof theRLAct. As such, the tenant argued that the termination of the lease by the landlord wasinvalid.
NCATSenior Tribunal Member, GBlakeAMSCheld that"the disclosure statement on its proper construction records that the amount payable for outgoings was included in the rent to be paid under the lease and does not disclose any amount for outgoings payable in addition to the rent. It follows that the [tenant] has not been liable to pay any amount to [the landlord] for outgoings pursuant to section12A(1) of theRLAct and is entitled to recover the amount paid to the landlord [for outgoings] and that the termination notice wasinvalid".
This decision highlights the importance of making sure that the Disclosure Statement has been prepared in accordance with the agreed commercial terms of the lease, and accurately sets out the tenant's obligations on whether they are required to payoutgoings.
Therefore, if you are contemplating entering into alease either as alandlord or atenant, it is recommended that you obtain proper advice from areputable solicitor who has experience in all aspects of leasing. The solicitor can firstly assist you to correctly identify the type of lease that needs to be prepared for the relevant premises. Secondly, they can prepare or check the Disclosure Statement to ensure that the correct information is provided to the prospective tenant and avoid any pitfalls and potential claims toNCAT, which may becostly.
For further information please contact:
Vikki Kopp, Associate
Phone: +61 2 9233 5544
Email: vmk@swaab.com.au
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.
