Caution to be exercised when attempting to imply terms to a contract

A recent case involved a failed joint venture relating to the development of a shopping centre in Campbelltown. The plaintiffs were directors of a company involved in the joint venture. In 2008 the joint venture executed an Exclusive Agency Agreement (ELAA) with Savills, which stipulated that Savills was required to locate and introduce potential future tenants to the plaintiffs for its approval. As a result of the unstable economic climate during the time, Savills had trouble finding tenants to fill the centre and on two separate occasions Savills informed the plaintiffs of the difficulties and advised them to defer the opening of the centre. On both occasions the suggestion was rejected. The centre opened with 55% tenant capacity, with the minimal rental income contributing to the failure of the JV to make interest payments.  The Plaintiffs brought a claim against Savills claiming that they were liable in Contract and Tort for failing to secure tenants. The Court ruled that the Plaintiffs failed to establish that a special duty of care was owed by Savills, and also that the terms of the ELAA did not stipulate a requirement for a specific tenancy rate. In finding in favour of Savills the court also held that their conduct did not depart from the reasonable standard of care that a leasing agent owes to their clients. This case illustrates that caution should be taken when attempting to imply terms to a contract.

NSW Landmark Strata Renewal Decision

Part 10 of the Strata Development Act 2015 (‘the Act’) allows owners of Strata Schemes in NSW to instigate a sale or redevelopment of their strata renewal plan, providing 75% or more of the owners, and the NSW Land and Environment Court ensure that the plan is just and equitable. Although, the provision has been in existence for almost 3 years, on 8 August 2019, the first ever application under part 10 of the Act was brought before the Court. The case of Application by the Owners – Strata Plan No 61299 [2019] NSWLEC 111 involved a scheme comprising 159 lots, where all lot owners were investors (except for one apartment and car space) and were leased to a serviced apartment business. The applicant sought an order from the Court to give effect to the strata renewal plan, and the collective sale of the scheme. In giving effect to the plan, the Court was satisfied that for the purpose of the Act, the distribution of proceeds of sale to each lot, was just and equitable in the circumstances. The Court also ordered the owners to sell their lots in accordance with a deed of agreement between the developer and strata renewal committee. The decision of this case is a great outcome for not only the owner group, but also strata owners in NSW, as it provides direction as to the Act’s effect, and acts a guide for Owners Corporations interested in strata renewal.

Off-the-plan reform submissions by REINSW

In 2018, the NSW government introduced the Conveyancing Legislation (Amendment) Act 2018, giving stronger protections to residential purchasers under off the plan contracts. In response, the Real Estate Institute of NSW (REINSW) has called for protective and financial risk provisions to be extended to all parties involved in off-the-plan contracts. In the Government’s Discussion Paper released in July, one of the proposed regulatory changes is that s19A of the Act would allow a purchaser to, rather than rescind an off-the plan contract, claim from the vendor 2% of the property’s purchase price in compensation in the event that a “material particular” changes.

In response to the discussion paper, the REINSW submitted that in some circumstances a purchaser may take issue with changes made to property, particularly where they impact the size of the development, however, such changes are not always necessarily made at the request of the developer. REINSW has recommended that the government considers “how its consumers and developers deal with the circumstance where the built property is not the same as the off the plan contract through no fault of the developer”. They also asked the government to consider the circumstances in which the land of a property increases in size due to changes requested by a council, as it increases the value of the property. In this instance the REINSW is urging the government to include a provision whereby a developer may charge the purchaser for an amount that reflects “any increase in land size.” To read more about REINSW submissions please click here.

NSW Short-term rental accommodation reforms

The Department of Planning, Industry, and Environment and Department of Customer Service are seeking feedback on the draft instruments and regulations that will introduce the state-wide planning framework and mandatory Code of Conduct for short-term rental accommodation (STRA). Proposed changes are outlined here.

The department welcomes feedback from the community and other stakeholders during consultation – which will help them better understand opinions and concerns of those involved or effected, which inform the Government’s decisions. You can submit feedback here.

Be aware of ‘subject to’ conditions in commercial leases

The recent case of Realm Resources Ltd v Aurora Place Investments Pty Ltd in the NSW Supreme Court illustrates the importance of satisfying ‘subject to’ clauses, in order for a lease to become legally binding. The case involved Aurora (sub-lessor) and Realm (sub-lessee) who signed a lease proposal for 300 sq/m in the Aurora Building. The lease proposal prepared by Aurora’s agent included a ‘subject to’ condition stating “the terms and conditions of this proposal are subject to: (i) availability of premises (ii) lessor’s board approval (iii) satisfactory legal documentation being entered into by the parties.” In August 2017 a sublease for the premises was executed on agreed terms by Realm, with Realm’s solicitors sending a certificate of insurance (the final requirement). The next day, Realm had second—thoughts about the sublease, with their solicitors emailing Aurora requesting that they do not arrange the execution of the lease, and that they hold the signed lease in escrow pending further communication. Realm decided to not proceed with the sub-lease and applied for a declaration that no binding sublease existed, relying on the fact that the ‘subject to’ condition wasn’t satisfied. Aurora claimed that the sublease was binding, and that they were entitled to $735,000 for unpaid rent. In making their decision, the Court had regard to the fact that all 3 parts of the ‘subject to’ condition had been satisfied. It also had regard to the fact that the sublease was ‘entered’ into by the parties as it was intended to take effect as a deed, the formal requirements of a deed had been satisfied under s127(1) of the Corporations Act and that the deed was delivered by Realm evincing an intention to be bound. Ultimately, the Court ruled in favour of Aurora, who was awarded damages for loss of rent. This decision demonstrates the importance for commercial leasing agents, landlords and tenants to review their ‘subject to’ conditions to reduce uncertainty and ensuing legal disputes.

Risk of directors giving unlimited personal guarantees when entering retail leases

The NSW Court of Appeal has upheld orders made against a tenant to pay damages amounting to $3,537,040.50 as compensation for a landlord’s loss of rent due to a failed retail tenancy. The case of NE2 Pty Ltd v P.T. Ltd [2018] NSWCA 10 involved a tenant (Panetta Fruits) whose Directors had personally guaranteed their obligations under a Fruit & Vegetable Shop Lease in Miranda Westfield Shopping Centre. The landlord brought a claim against the tenant for recovery of rent and damages, after the lease had been terminated by the landlord due to the failure of the tenant to pay rent. The tenant argued in defence that the landlord had breached the representation and term of the lease that Panetta Fruits would be the only fresh fruit and vegetable retailer in the Fresh Food  section of the shopping centre¸ due to the fact that Franklin’s Supermarket, another tenant, had begun to offer fresh fruit and vegetables.

The court found that the landlord’s promise to the tenant that it would be the only “independent fruit and vegetable retailer” did not apply to supermarkets like Franklin’s, as they did not constitute specialty fruit and vegetable stores. The Court held that the landlord was entitled to the arrears of rent up until the termination of the lease and the rent owed until the conclusion of the lease, against the Directors who has signed personal guarantees. This case demonstrates the risks involved with those giving unlimited director’s guarantees in exchange for a smaller rental bond or bank guarantee, as it increases exposure to disastrous losses.

Enforcement of ‘no damages for delay’ clause in construction contracts

Typically, when a party breaches a construction contract to the extent that it causes delay, the non-breaching party is able to claim damages for loss, this was affirmed in the recent case of Lucas Earthmovers Pty Limited v Anglogold Ashanti Australia Limited [2019] FCA 1049. The Court considered how a ‘no damages for delay’ clause must be constructed in order to be valid in the circumstances where a contractor claims damages for delay or disruption where an employer is culpable. The case involved Lucas Earthmovers (‘the Contractor’) and AGA (‘the Owners’) who were involved in a construction project that was delayed, with the Contractor incurring additional costs for completion. In bringing an action against the Owner, the Contractor claimed damages for: time related costs for additional work, variations under the contract and consequences of the additional time and additional work completed. The Federal court held that the ‘no damages for delay’ clause (clause 18.8) that stipulated that the Contractor will not be entitled to claim any Liabilities resulting from any delay or disruption (even if caused by an act, default or omission of the Company or the Company’s Personnel (not being employed by the Contractor)” prevented the Contractor from claiming costs for prolongation. This indicates that although there is uncertainty as to whether the Courts would enforce such clauses due to their exclusionary nature, it is also equally possible that the Court will accept their enforceability.

How can false or misleading conduct affect a deed of surrender?

In the case of Kids Club Rozelle Pty Ltd v European Hire Cars Pty Ltd [2018] NSWSC 1115 the Supreme Court had to determine the validity of a Deed of Surrender and Release where the tenant had made deceptive and misleading statements in the lead up to its creation. In this case, the parties entered into a lease with the intention of the tenant building a childcare centre on the land. When the funding for the childcare centre fell through, the tenant made false and misleading statements to the land owners, saying that they had impending offers to assign the lease, while in fact no such offers existed. The land owner’s did not want the lease to be assigned, and claimed that the misleading conduct induced them into entering the deed of surrender to terminate the lease early.

The court accepted that the conduct of the tenant in claiming there were offers to take an assignment of the lease was misleading and in breach of the Australian Consumer Law, but ultimately they found that it was not the only factor that induced the defendants to sign the deed of surrender. The court found that there were other factors in the defendant’s decision, as they believed the rent being paid was below market value, they didn’t want the lease to be assigned, and wanted to end their association with the plaintiff. Therefore while the conduct was misleading, the deed of surrender was still valid.

Option for landlords where tenant fails to pay rent

The case of Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCACTD 1 demonstrates the options of a landlord in circumstances where a tenant fails to pay rent. The case involved a tenant and landlord who had entered into a commercial lease. The tenant failed to pay rent per the terms of the lease, with the landlord subsequently emailing the tenant informing them that they had breached the contract. Four days after the occurrence of the breach, the landlord took re-possession of the premises. The tenant made an application to the court, claiming wrongful termination based on the failure of the landlord to provide 14 days’ notice before taking re-possession of the premises per clause 12.2.4 of the lease. In its consideration, the Court determined whether clause 12.2.4 was able to circumvent s129 of the Conveyancing Act (‘the Act’). S129 (1) of the Act stipulates “a landlord can re-take possession only if it services notice of the breach, allowing reasonable time to remedy that breach”, however s129 (8) provides “the section has no effect relating to re-entry in the case of non-payment of rent.” In relying on the above clauses, since the situation involved non-payment of rent, the Court held that the landlord was entitled to take re-possession of the premises, despite not providing 14 days’ notice.

Sale of property without a signed contract?

The recent case of Phung v Phung [2019] NSWSC illustrates the Courts’ position with regards to the doctrine of part performance in relation to the sale of property through oral contracts. The plaintiff sought to enforce an oral contract for the sale of an $180,000 unit that was made with his brother (the defendant).  In determining whether the oral contract was valid, the Court had regard to the test from Maddison v Alderson that necessitates that part-performance must be ‘unequivocally referable’ to the oral contract. The Court formed the view that the plaintiff’s payment of $180,000 was not in itself sufficient enough to constitute part performance. However, the court held that due to the fact that the plaintiff had taken possession of the unit, had carried out the renovations on the unit and had paid all outgoing expenses for the property, that the property had been valid transferred to the plaintiff. Although this case demonstrates that an oral contract for the sale of property can be enforced due to part-performance, which was established on the unique facts of the case, it is always recommended that written contacts be prepared and signed by both parties.