Commercial tenancy disputes can arise in many different ways, regarding conduct that occurs prior to entry into a lease, during a lease, and after it has ended.
Often disputes will arise concerning the payment of rent and outgoings, and in making good the premises after the lease has ended.
Here are some other situations where disputes can arise in relation to commercial tenancies, including retail shop leases in Western Australia:
Misleading or deceptive conduct
Sometimes a tenant will allege that in the course of negotiating the purchase of a business and the assignment of a lease, the owner/ landlord made misleading representations regarding some aspect of the business, which the tenant relied on to purchase the business and enter the lease, and which has caused loss to the tenant.
For example, a tenant might allege that the owner/ landlord represented during negotiations that a business sold with the lease was making a particular revenue and profit, which did not turn out to be the case.
Section 18 of the Australian Consumer Law (ACL) provides that:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.
Under section 236 of the ACL, a person who suffers loss or damage because of the conduct of another person in breach of section 18, may recover the amount of the loss or damage from that other person, or against any person involved in the breach.
Misleading or deceptive conduct may also occur during the lease.
Breach of the covenants of quiet enjoyment/ not to derogate from the grant of the lease
Sometimes a landlord will substantially interfere with a tenant’s possession and/ or enjoyment of the premises, by doing or failing to do something, either in respect of the premises, or on adjoining premises owned by the landlord.
For example substantial interference with the enjoyment of the premises might arise where a landlord fails to provide adequate exhaust fans for a restaurant’s kitchen, or fails to provide a reliable power supply for a business to be operated on the premises, or allows a business to operate on adjoining premises which substantially affects passing trade.
Every lease contains:
- a covenant of quiet enjoyment, either set out in writing in the lease, or implied by law
- an implied covenant which requires that the landlord not derogate from the grant of the lease. In other words the landlord cannot do, or omit to do, anything that would detract from the grant of the lease.
These covenants secure the tenant in the possession and enjoyment of the premises, for its intended purposes.
They are also independent of the covenant to pay rent. In other words, the non-payment of rent does not relieve the landlord from its obligation to give quiet enjoyment/ not to derogate from the grant.
The covenant of quiet enjoyment will be breached where the ordinary and lawful enjoyment of the premises is substantially interfered with by the acts or omissions of the landlord.
A breach will occur where the acts or omissions of the landlord render the premises unfit for the purpose for which the leased premises are intended to be used.
A breach may also occur where the landlord interferes with the tenant’s physical occupation of the premises.
If a breach of the covenant of quiet enjoyment (or not to derogate from the grant) is established, the tenant may be entitled to compensation.
In the usual case the tenant will be entitled to recover the profit the tenant could have expected to make if the lease had been performed (ie if the covenant(s) were not broken).
In a case where the tenant is forced to abandon the premises and sell, damages may be assessed by reference to the difference between the selling price and the price which would have been obtained had the covenant(s) been observed by the landlord.
In some cases it may not be possible to prove loss of profits – in which case the tenant may be entitled to recover expenditure thrown away eg loss of capital investment, and loss of revenue.
Retail Shop Leases in Western Australia
In Western Australia, in addition to section 18 of the Australian Consumer Law, and the covenants of quiet enjoyment/ not to derogate from grant, retail shop leases are governed by the Commercial Tenancy (Retail Shops) Agreements Act 1985 (the Commercial Tenancy Act).
Misleading and deceptive conduct
Section 16C of the Commercial Tenancy Act provides as follows:
“A party to a retail shop lease must not, in connection with the lease, engage in conduct that is misleading or deceptive to another party to the lease or that is likely to mislead or deceive another party to the lease.”
Under section 16D(1) of the Commercial Tenancy Act, a party (or a former party) to a retail shop lease who suffers, or is likely to suffer, loss or damage because of misleading or deceptive conduct of another party (or former party) to the lease, may apply to the State Administrative Tribunal for an order for compensation or other relief.
Section 16C of the Commercial Tenancy Act applies in addition to section 18 of the Australian Consumer Law set out above.
Sections 15C and 15D of the Commercial Tenancy Act provide that landlords and tenants shall not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
Essentially, unconscionable conduct involves unacceptable conduct which is well outside what might be expected of parties to an arm’s length commercial relationship.
In assessing whether particular conduct by a landlord towards a tenant is unconscionable, the State Administrative Tribunal may have regard to, amongst other things:
(a) the relative strengths of the bargaining positions of the landlord and tenant;
(b) whether, as a result of conduct engaged in by the landlord, the tenant was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the landlord;
(c) whether the tenant was able to understand any documents relating to the lease;
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the tenant (or a person acting on behalf of the tenant) by the landlord or a person acting on behalf of the landlord in relation to the lease;
(e) the amount for which, and the circumstances under which, the tenant could have acquired an identical or equivalent lease from a person other than the landlord;
(f) the extent to which the landlord’s conduct towards the tenant was consistent with the landlord’s conduct in similar transactions between the landlord and other similar tenants;
(g) the requirements of any applicable industry code;
(h) the requirements of any other industry code, if the tenant acted on the reasonable belief that the landlord would comply with that code;
(i) the extent to which the landlord unreasonably failed to disclose to the tenant:
(A) any intended conduct of the landlord that might affect the interests of the tenant;
(B) any risks to the tenant arising from the landlord’s intended conduct that are risks that the landlord should have foreseen would not be apparent to the tenant;
(j) the extent to which the landlord was willing to negotiate the terms and conditions of any lease with the tenant;
(k) the extent to which the landlord acted in good faith;
(l) the extent to which the landlord was not reasonably willing to negotiate the rent under the lease;
(m) the extent to which the landlord unreasonably used information about the turnover of the tenant’s or a previous tenant’s business to negotiate the rent; and
(n) the extent to which the landlord required the tenant to incur unreasonable refurbishment or fit out costs.
Identical provisions apply in respect of alleged conduct by a tenant towards a landlord.
Please don’t hesitate to contact me if you require assistance concerning a commercial tenancy dispute.
Greg Carter is a freelance litigation lawyer based in Perth, specialising in fixed-fee commercial dispute resolution.
Greg offers a FREE consultation and a ‘no obligation’ quotation.
For more information please call Greg on 0422 406 929 or email firstname.lastname@example.org.
Or see his website www.gregcarter.com.au.