Unconscionable Conduct and Permitted Use Provisions
The recent decision in the NSW Court of Appeal (World Best Holdings v Sarker (2010)) highlighted some of the issues that landlords need to be aware of when negotiating and fulfilling retail leases.
Permitted Use Provisions
The case concerned a retail lease in a shopping mall which provided that the tenant could use the premises as an ‘Asian grocery shop’. The landlord thought that this did not entitle the tenant to sell Indian groceries and halal meats, and subsequently sought to terminate the lease when he realised this was happening by issuing notices for breach of the permitted use provision.
The Court of Appeal held that the term ‘Asian’ included all nations within that continent, and that since India was such a nation, there was no breach by the tenant in selling Indian groceries. This resulted in the notice of termination being ineffective, and the landlord being held liable for damages to the tenant.
This ruling by the NSW Court of Appeal highlights the need for landlords, and their lawyers, to be very specific when drafting permitted use provisions. If these provisions remain broad, like in this case, the landlord is left open to potential litigation and issues with the tenant.
Unconscionable Conduct
The Court of Appeal also held that the landlord’s behaviour towards the tenant in causing undue delay and using unfair tactics constituted unconscionable conduct under s 62 of the Retail Leases Act. Prior to the hearing, the landlord committed the following acts:
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Detained the tenant’s stock for five days without justification or excuse;
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Refused to consent to the tenant’s council application and forced him to go to a tribunal to gain such approval; and
- Refused to give access to the tenant’s plumber in order for repairs to be undertaken.
The Court held that "these acts had impeded the tenant’s ability to operate his business" and found that the landlord had been guilty of unconscionable conduct towards the tenant.
This decision illustrates the need for landlords to act reasonably in regards to tenants, and to withhold serving termination notices until such time as it is plainly clear that you are entitled to do so.
For assistance with drafting a lease, and its subsequent provisions, or for advice regarding your rights and obligations in a retail leasing situation contact one of our experienced property lawyers on tel 02 9635 6422. We can minimise the risk of a dispute and help you to avoid costly and time consuming litigation.