Leases May Require Substantial Fitouts for the Purpose of the Intended Use

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Leases often require tenants to undertake substantial fit outs and it is common for landlords to contribute to the fit-out. A turn key arrangement for example,

In a recent case in New South Wales the landlord covenanted that "immediately upon receipt of the lease duly executed by the Lessee and the Bank Guarantee it will pay to the Lessee the sum of $45,000 being the Lessor's contribution to the Lessee's fitout of the premises". 

The option clause made no reference to the covenant being excluded in a new lease following the exercise of the option. The tenant claimed that following the exercise of the option it was entitled to be paid $45,000.

The primary judge held that because the lessor's payment was for a fixed sum it was clearly an "absurdity" to give the lease a literal meaning and he declined to do. 

See: Miwa Pty Ltd v Siantan  Properties Pty Ltd [2010] NSWSC 1203 at [17]. At [16] the primary judge said 'it is difficult to imagine the parties intended that $45,000 would be paid irrespective of whether there was a fit out or paid in full in a case where the cost of fit out was less than $45,000 but that is the claim of the plaintiff'.  

The Court of Appeal allowed the tenant's appeal. See: Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297. The Court of Appeal examined the caselaw dealing with "absurdity".  Basten JA at [17] held that the test of absurdity "is not easily satisfied" and said that "the courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense". e following the exercise of an option.



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