The recent case of GWC Property Group Pty Ltd v Higginson & Ors [2014] QSC has highlighted the possible danger of lease incentives and the assumption that such incentives are able to be clawed back. The case involved the tenant, a law firm, who was granted a fit-out incentive. A lease and incentive deed were entered into by the landlord and tenant, with the tenant being required to pay a proportion of the landlord’s fit-out contribution upon the occurrence of particular events. The tenant subsequently left the premises, with the landlord terminating the lease due to repudiation. The landlords then sought to claim the incentive amounts from the guarantors of the tenants. The Queensland Supreme Court held that the clawback provisions in the lease and deed were penalties, as they failed to be a genuine pre-estimate of damage and were “wholly penal in their operation”.  Consequently, the landlord was left to claim common law damages under the lease. Although the enforceability of clawback provisions have been previously unclear, this case and the affirmation by VCAT, clearly sends a message to landlords that incentive clawbacks are unlikely to be enforced.

 

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