With all things retail under a spotlight in the leadup to Christmas, a few issues have been brought to the attention of tenants and landlords: in Victoria, landlords are being reminded of the need to provide prospective tenants with correct information or face hefty fines of up to $8000. In NSW, a recent court case over a lease has highlighted the need for tenants everywhere to look for the devil in the detail before signing to avoid costly misunderstandings.
“It never ceases to amaze me how often a client will reach out for my assistance on a leasing matter well after they have signed the document,” notes Andrew Grima, principal lawyer and head of property and finance at leading Greater Western Sydney law firm Coleman Greig Lawyers.
In Victoria, a concerningly high number of disputes over retail leases has led to a simplified version of the information becoming available to landlords and tenants. Landlords can now avail themselves of a new fact sheet on retail leases recently released by The Victorian Small Business Commissioner (VSBC). Whereas this brochure formerly explained the Act and each parties’ obligations, it is now a far simpler checklist informing tenants of their rights and landlords of their obligations – including providing a prospective tenant with the information brochure in the first place.
More than half the issues being dealt with by the Small Business Commission in the past year have involved retail leases, a factor which saw the brochure revised during the Victorian government’s Small Business Regulation Review.
Education is key
In a recent statement Small Business Commissioner Judy O’Connell highlighted the lack of understanding around leasing retail premises. “We have found that a high number of retail businesses do not understand their rights and responsibilities before signing the lease and then they end up at the VSBC in a dispute,” Ms O’Connell said.
“Our approach is first and foremost to educate landlords, commercial agents and small businesses on their rights and responsibilities to save them time, money and emotional expense.”
The fact sheet is a simple checklist guiding tenants through precisely what they need to be aware of when negotiating a lease, especially what may cause them problems and what they must understand before signing, the main points being:
- Landlords must furnish a tenant with both a draft lease and a copy of the Small Business Commission’s information brochure as soon as the landlord enters negotiations with a prospective tenant. Failure to do so can result in fines as high as $8000.
- At least 7 days prior to entering a retail lease a landlord must give a tenant an official disclosure statement plus copy of the proposed lease in writing
- Further information and requirements can be found here: https://www.vsbc.vic.gov.au/fact-sheets-and-resources/fact-sheets-and-brochures/
Meanwhile in NSW, the case of Scudooda Pty Ltd v K and E Property Pty Ltd has displayed just how critical it is for a lease to clearly spell out who is to pay for which outgoings.
In this instance, a misunderstanding over a rather tricky detail regarding payment of electricity bills ended up with a tenant running a restaurant and bar in breach of their lease. “The chain of events eventually gave the landlord, K and E Property Pty Ltd (K and E), the right to terminate the lease,” Mr Grima explained.
In November 2016, Scudooda wrote to their landlord K and E asserting seeking reimbursement of over $24,000 in electricity bills paid up until that date. In December 2016, Scudooda stopped paying rent claiming it had the right offset the electricity bills against the rent.
By 2018 Scudooda claimed that more than $266,000 was owed to them for all electricity bills paid since early 2010, and in January that same year K and E served Scudooda a notice of intended termination by default, stating it would terminate the lease if the rent owing in the sum of $145,622.78 was not paid within seven days.
Scudooda failed to do so. The following month K and E formally terminated the lease.
The court’s findings revealed that in this particular case, the devil was very much within the detail – as the lease specifically excluded electricity charges from the services Scudooda was required to pay for. However, the electricity charges payable by Scudooda under the contract for the supply of electricity with its energy provider did not fall within the scope of the relevant clauses in the lease, and so K and E was not required to reimburse it.
Simply put, the payment of electricity charges was not governed by the lease. “It was also found that since the electricity charges for the use of the premises were not governed by the lease, a reasonable businessperson would consider the matter of arranging and paying for electricity was to be left for Scudooda to deal with,” Mr Grima said. The tenant was not entitled to stop paying rent, and therefore breached an essential term of the lease, justifying its termination by the landlord.
The case showed how essential it is that every lease has a well-drafted clause covering the the tenant's liability for provision of services such as electricity to a premises, and that prospective tenants understand their rights and obligations before they sign on a dotted line, Mr Grima said.
“More particularly, I often tell my tenant clients to not withhold payment of rent as a response to an alleged breach by their landlord,” Mr Grima warned. “If they do, they run the risk of the landlord being able to terminate.
“One dispute or issue is not cured by creating another one, or by breaching the lease.”