Commercial leases often contain a covenant prohibiting a tenant from parting with possession of the leased premises. Whether or not a tenant has parted with possession of the Premises (as opposed to merely sharing the occupation of the Premises) becomes yet another enquiry dependant on the weight of the facts and circumstances of the particular case.
The Queensland Court of Appeal recently heard the case of Ace Property Holdings Pty Limited v Australian Postal Corporation [2010] and determined that, after weighing up of the facts and circumstances of the case, that the Tenant (Australia Post ) had parted with possession of the leased Premises and was therefore in breach of its obligations under the particular lease.
The circumstances of this particular case that lead to this decision included:
- a wholly owned subsidiary of the tenant Australia Post was allowed by it to exercise control over the whole of the Premises;
- that subsidiary (Decipha Pty Limited) paid rent and outgoings to Australia Post for the Premises ( even though Australia Post continued to make its own rent payments to the Landlord );
- Australia Post did not conduct any physical activities for its own business at the Premises;
- The business activities at the Premises were conducted by employees of Decipha who were not employees of Australia Post;
- Decipha carried out renovations at the Premises through its own contractors;
- The business records of Decipha showed that it carried on business in its own right, and that it exercised control over the Premises.
It was not sufficient for Australia Post to argue that it had the power (as holding company for Decipha) to alter the situation and resume possession of the Premises. The breach of lease was in Australia Post having parted with possession of the Premises in the first place.
The Court was not prepared, on the facts of that case, to treat the subsidiary as the alter ego nor as the agent of the holding company. The Court was cognisant of the deliberate establishment by Australia Post and Decipha of a particular corporate structure- which served certain industrial relations based ends, but also brought the attendant consequences of separate corporate personality and responsibility and limited personal liability. The corporate veil remained intact.
For advice on commercial leasing, either as a tenant or landlord, contact the experienced property team at Coleman Greig. We can work with you to ensure that your actions, or those of your tenant, are compliant with the conditions of your lease, saving you both money and time that could be spent in dispute.
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.