Landlord & Section 60 Retail Leases Act 2003 consideration of proposed assignment the Landlord must Act "Reasonably"

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

Section 60 of the Retail Leases Act 2003 prescribes when a landlord can withhold consent to a proposed assignment of a retail premises lease. The most significant provision is sub-section 60(1)(b) which provides that:

"(1)           A landlord is only entitled to withhold consent to the assignment of a retail premises lease if one or                  more of the following applies –

(b)             the landlord considers that the proposed assignee does not have sufficient financial resources or                     business experience to meet the obligations under the lease;”

On its face s.60(1)(b) appears to give the landlord unfettered power to withhold consent - that is the landlord's subjective view is all that matters. Despite the wording of the section VCAT has implied a requirement that the landlord must act "reasonably" in undertaking its consideration. In AAMR Hospitality Group Pty Ltd v Goodpar Pty Ltd [2009] VCAT 2782 Deputy President Macnamara held at [45] that:

“With the utmost hesitation however I consider that the words ‘reasonably’ or ‘acting reasonably’ should be read into section 60(1)(b)……. The overriding policy evident in the Retail Leases Act is to provide special protection to a limited class of commercial tenants, namely those who are tenants of small retail tenancies and do not have the clout that say a listed corporation would have. The provisions of the statute are aimed at providing protection to this class of tenant and constraining and restricting a largely unrestricted power which landlords of these premises at common law and before the enactment of special retail tenancies legislation had available. To construe a provision such as section 60(1)(b) such that one of the protected class of tenants was to be at the mercy of the purely subjective determination of a lessor would not be conducive to the statute’s overall policy, per contra it would tend to subvert the wider policy of the statute, …”

In a recent decision Member Farrelly said  that he agreed with Deputy President Macnamara’s reasoning and construed s.60(1)(b) as if it the word “reasonably” appeared before “considers”. See: Villa v Emaan Pty Ltd [2014] VCAT 274 at [47]- [48].

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience

Tenant cannot question the landlord's title

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

In Create Invest Develop Pty Ltd v Cooma Clothing Pty Ltd [2012] VCAT 1907  VCAT had to decide the effect of a contract entered into by a tenant with a party that was not the registered proprietor of the leased land but who subsequently became the registered proprietor. The case is a good illustration of the principle that if two parties contract with each other as landlord and tenant, neither of them is entitled to deny the title of the other unless some other person by way of title paramount intervenes and disturbs the possession of landlord and tenant. In Create there was a lease in place the term of which was expiring on 31 January 2011 (“Original Lease”). 

In 2010 the land was offered for sale and the Applicant purchaser entered into a contract of sale with the landlord ("Landlord"). Before settlement, the Applicant purchaser offered the existing tenants a lease for a term of three years commencing 1 February 2011 which offer included a clause that permitted the landlord to terminate the lease to demolish or redevelop the premises and contemplated the execution of further documents including a lease that contained a demolition clause and guarantees. The tenants signed the offer (“the Lease Renewal”). Later, in 2010, the Landlord, the tenants and the Respondent signed a document styled “Transfer of Lease” which assigned the term of the Original Lease to the Respondent and contained a special condition in which the Respondents acknowledged being given a copy of the Lease Renewal and consent its terms and conditions. 

In late 2010 the transfer of the freehold reversion was registered. In March 2011 the Respondent vacated the property and was sued by the Applicant for damages that comprised mainly rent for the period from 1 February 2011 pursuant to the Lease Renewal. The basis of the damages claim was that the Respondent was obliged to perform the Renewed Lease. 

The Respondent contended that all that had occurred was that it had an option to renew or extend the Original Lease which option it had not taken up.  The Respondent argued that at the time the Lease Renewal was made the Applicant was not the legal owner of the reversion and not entitled to the rents and profits as a purchaser and therefore there was no privity of estate or contract between the Applicant and the Respondent. 

The Respondent also argued that what had taken place did not amount to a “renewal” of a lease within the meaning of s 9 of the Retail Leases Act 2003, the 2003 Act did not contemplate leases that were entirely prospective, and the Lease Renewal was not a concluded agreement. All the Respondent’s contentions were rejected by the Tribunal. The Tribunal held that the Respondent as tenant was estopped from questioning the Applicant landlord’s title and therefore it was irrelevant that the Applicant was not the registered proprietor of the land when the Lease Renewal was entered into. The Tribunal also held that while the Lease Renewal contemplated the execution of further documents there was a binding contract, the Lease Renewal was not a renewal but the entry by the parties into a new lease.       

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Author: Robert Hays Barrister subject to copyright under DMCA.