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Retail Leasing - Honesty in pre-lease claims vital |
Claims made in an effort to promote the uptake of commercial leases have to be weighed up by both tenants and landlords to avoid business troubles and potentially complex drawnout legal disputes. A recent case over retail lease in a new shopping centre illustrates the point. |
The tenant, a small furniture retailer specialising in Balinesestyle furniture, took up a lease on premises in a big homewares centre after the centre's leasing agent falsely stated that one of the country's major furniture retailers, Harvey Norman, would also be setting up in the new facility. |
Representations about an 'anchor' tenant such as Harvey Norman are significant and weigh heavily on the minds of tenants in deciding whether or not to enter into a lease. |
However, Harvey Norman did not set up in the centre, and from the start the tenant's business did not go well. The tenant made no formal protest about the anchor tenant misrepresentation, but neither did she pay any rent or outgoings throughout a yearlong occupation of the premises. |
The landlord eventually started proceedings against the tenant, but the first tribunal to hear the case decided in favour of the tenant's crossclaim of misrepresentation and unconscionable conduct, ordering that the landlord return the tenant's bond of over $40,000. |
The tribunal concluded that the leasing agent made the claim about Harvey Norman knowing that it was false, and that the tenant relied upon it in deciding to enter into the lease. |
This was a significant victory for the tenant, but she was to become involved in further legal proceedings. |
The landlord appealed, and on this second decision the tables turned against the tenant, the landlord winning on the basis that the tenant had sat on her hands and took no action on the misrepresentation until the landlord commenced proceedings. The landlord now did not have to return the bond, and the tenant was ordered to pay damages of $225,000 to the landlord. |
The dispute then entered a third and final stage, with the tenant taking the case to the Court of Appeal. Over four years had now passed since start of the original lease. |
The outcome saw things turn back in the tenant's favour, and she was re-awarded the return of the bond. |
It would not be hard to imagine that both tenant and landlord would have preferred to avoid such a long and draining experience. |
For landlords it is clear that promotional activities undertaken on their behalf need to be carefully controlled. |
Contact Chi Chau for professional legal advice before signing a retail lease. |
