26 July 2016

It is all too common for landlords (or managing agents) to make promises to prospective tenants in the hope of encouraging them to enter into a lease, without those promises ever making it into the signed lease. Last week, the High Court of Australia handed down a decision on one such case. The promise which the High Court was asked to consider was essentially this: where the tenant had no right of renewal under its lease, the landlord told the tenant if it agreed to carry out substantial refurbishments to its premises it would ensure the tenant is “looked after at renewal time”.

But legally, what does that actually mean? If you answered, “It means they will renew the lease”, that’s what the tenant thought. But the High Court did not agree.

Facts:

Cosmopolitan Hotel rented premises from Crown Melbourne at the Melbourne Casino and Entertainment Complex in Southbank, Melbourne. The lease was for five years during which time Cosmopolitan Hotel undertook substantial renovations to two of the premises. The five year term with no right of renewal was not long enough for Cosmopolitan Hotel to recover the cost of renovating the premises, however they renovated because Crown Melbourne told them that they would be “looked after at renewal time”.

As it turned out, Crown Melbourne did not renew the lease despite the substantial renovations carried out by Cosmopolitan Hotel.

High Court Decision:

The High Court rejected the tenant’s case concluding that the tenant was not entitled to a renewal of the lease or any other remedy/compensation for that matter. The High Court in effect said that the terms of the so-called promise made by the landlord were too uncertain to be legally enforceable by the tenant.

Take home messages:

In light of the High Court’s decision, the take home messages are this:

1. It is prudent for tenants to be wary of relying on casual promises made by landlords. If any promises are made, make sure they make their way into the lease and the terms of the promise including your legal entitlements are sufficiently clear.

2. Tenants should be cautious about accepting an obligation to do something (e.g. substantial renovations) that will only be viable if a further term is granted. Tenants should ensure there are clear rights of renewal which are not forfeited if there has been an advertent breach which has since been corrected.

We would be pleased to advise you in relation to your legal rights under commercial leases, including where promises may have been made which are not recorded in the lease.

Contact Partner: Francesca Petroccitto
Direct Telephone : 07 3210 5771
Mobile Telephone : 0402 293 644
francesca.petroccitto@kinneallymiley.com.au

Contact: Jessica Duncan
Direct Telephone : 07 3210 5789
jessica.duncan@kinneallymiley.com.au

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