26 October 2016

In July, we updated you on a case that was awaiting the High Court of Australia’s decision. The case concerned a promise by a landlord that a tenant would be “looked after at renewal time”. The High Court has handed down its decision and confirmed that the “promise” was too uncertain to be legally enforceable by the tenant.

Recap on the 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. The High Court said that the terms of the promise made by Crown Melbourne were too uncertain to be legally enforceable by the tenant. There was some suggestion in the lower Court that if there was any “grey area” in a promise then the law would hold the promise-maker to the lower limit of that “grey area”. But the High Court was critical of that approach, suggesting that if there is any “grey area” in the promise, then no part of the promise will be enforceable.

Take home messages:

The High Court’s decision has confirmed the position that no one in a commercial relationship should seek to rely on verbal statements or promises made outside of written agreements. The safest course remains for all promises/commitments to be recorded in the written agreement itself and expressed with enough certainty that there can be no reasonably arguable alternative meaning. Not to do so is high risk.

Businesses should also be mindful that it is possible for the other party to genuinely intend to do something at the time the promise is made, but then have a change of heart later if their circumstances change, which motivates them to exploit any loose ends or uncertainty in the original promise. In the case of leasing arrangements, another risk is if the landlord sells the property to a new owner who would generally not be bound to honour promises not recorded in a registered lease.

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

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Contact Partner: Francesca Petroccitto
Direct Telephone : 07 3210 5771
Mobile Telephone : 0402 293 644

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