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What happens when landlords and tenants disagree on the meaning of a term in a Lease?

Posted by Dean Claughton on 18 May 2017

There are occasionally instances where a landlord and their tenant may disagree on the meaning of a term after the lease has commenced. If the term is an important one with financial implications (such as the payment of outgoings), this could lead to litigious action through the courts. The recent High Court decision in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 demonstrates the process of deciding on the meaning of an ambiguous term in a lease.

What is an ambiguous term and how do courts determine its meaning?

An ambiguous term is a term in a contract that can have two or more meanings. If this occurs and the matter goes to court, the court will attempt to understand what the contract or lease originally intended. 

The recent High Court decision: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017]

Facts

The lease in dispute involved a 99-year lease arrangement entered into in 1988 for a rural property in Victoria. The tenant made a payment of $70,000 when the lease commenced. The one-off payment meant that the tenant wasn’t required to make any rental payments during the lease. In 1993, the property was sold to a new landlord and in 2004, a new tenant was assigned to the lease. 

Issues

The issue in dispute was whether or not the tenant had to pay for both the landlord and tenant outgoings (any additional costs which may be paid to the landlord in order to lease the property such as rates, taxes or levies) or just the respective tenant outgoings. The lease document had a number of handwritten and typed amendments, including in regards to the clause concerning outgoings which appeared as follows:

‘…the said term shall be payable by Landlord or the tenant in respect of the said premises…’

The Landlord sought a recovery of the typical landlord outgoings such as land taxes. However, the tenant asserted that they weren’t required to make such payments due to the crossing out of the word ‘Landlord’. 

High Court Decision

There were three separate hearings for the above case. The Supreme Court of Victoria firstly decided that the meaning of the clause was that the tenant had to pay for the landlord’s outgoings, along with their own payments. The second appeal found that the striking out of the word ‘Landlord’ meant that the tenant did not have to pay for the landlord’s outgoings. However, the High Court decided that the original construction of the clause intended that the tenant would pay for the landlord’s ‘rates, taxes, assessments and outgoings’, along with their own payments. 

What you need to know

The above case demonstrates the need to ensure that all terms in a lease are clear and negotiated and understood before the dotted line is signed by each party. It is therefore important to seek legal advice when entering into any lease arrangement in order to avoid ambiguous terms. 

If you'd like to discuss ambiguous terms in your contract, or how to avoid them when drafting a contract, please contact: