Retail landlords - know your obligations under the Retail Leases Act

There are special rules that apply to commercial leases that fall within the definition of being a “retail lease”.  Under the Retail Leases Act 1994 (NSW), landlords must, amongst other things, comply with strict deadlines for providing various notices to their tenants.  It is therefore imperative that landlords know what those obligations are, and comply with them accordingly.

Cameli Pty Ltd v Place Management NSW [2020] NSWSC 1132 (25 August 2020)

Background facts

In mid 2016, a café operator entered into a retail lease for premises at The Rocks Centre in Sydney.  As the use of the premises fell within the retail uses listed in Schedule 1 of the Retail Leases Act 1994 (NSW), the lease was subject to the requirements under the Act.

The lease was for a term of 3 years (March 2016 to March 2019).  After the initial term expired, the café operator remained in possession of the shop with the consent of the landlord – on a “holding over” basis, meaning that the tenancy was able to be terminated by either party on 1 month’s prior written notice.

In September 2019, the parties entered into what was described as a “Retail Licence” commencing March 2019 and expiring March 2020.  The Licence contained an express provision that the Retail Leases Act would not apply to the Deed.  Despite this, it was acknowledged by the parties in the court proceedings that the Act did apply to the Deed, noting that section 7 of the Act prevents parties to leases that fall within the purview of the Act from making agreements that are inconsistent with the Act.

In late 2019, the landlord conducted a tender or expression of interest process in relation to the granting of a new 5 year lease for the premises.  The café operator participated in the process, submitting a Letter of Offer to apply for a 5 year term from April 2020 to March 2025, however the landlord decided to grant a new lease to another entity, and therefore maintained that the café operator was not entitled to a further term.

The tenant responded by noting that pursuant to section 44(3) of the Retail Leases Act, the lease would be extended by 6 months to June 2020.  Section 44(3) provides that if the landlord fails to give notification to the tenant at least 6 months prior to the expiry of a retail lease that it would be offering a renewal or extension of the lease, or alternatively, it does not propose to offer the tenant a renewal or extension, then the term of the lease is extended until the end of 6 months after the landlord gives such notification.

The tenant argued that this was in addition to its alleged existence of a statutory lease which it argued was on foot under the original Letter of Offer.  The tenant’s lawyer stated in its correspondence:

“[The landlord] simply cannot renege unilaterally from the New Lease, a legally binding agreement which is currently on foot, and should they maintain that position, [the tenant] reserves its rights to commence against [the landlord] for losses it may suffer arising therefrom.”

In response, the landlord argued that:

• The tenant was operating under a licence, and not a lease, for the period of March 2019 to March 2020, as the provisions of the Retail Leases Act were specifically excluded from application to the licence;
• The correspondence from the landlord in December 2019 was an invitation to the tenant to submit an offer and a business proposal for consideration by the landlord. It was not a Letter of Offer, as argued by the tenant, as it was clear that other proposals were also being considered;
• The submission of the proposal could not create any legally binding agreement or any form of “new lease”.

The tenant commenced the court proceeding in March 2020.  The Court immediately ordered that the landlord was restrained from leasing the shop to any entity other than the tenant, or re-taking possession of the shop, to enable the tenant to remain in occupation of the premises pending the outcome of the court proceedings.

The Court’s decision

The Court noted that the parties entered into a retail lease for the term March 2019 to March 2020 – despite the fact that the parties described it as a retail licence, it was correctly a retail lease and therefore was subject to the provisions of the Retail Leases Act.  The landlord was therefore required to give written notification to the tenant of its intention not to renew or extend the term, by notice in writing between March 2019 and October 2019, in compliance with its obligations under section 44(3) (as noted above).

The landlord argued that the retail licence itself constituted the required notification, noting that it contained a statement “this licence will not extend past [March 2020]”.  The Court disagreed, noting that the intent of section 44(1)(b) is to give certain information about the landlord’s intention or state of mind, whereas the statement in the licence/lease about its duration concerned the “presently existing rights of the parties, and do not clearly relate to the intentions of the [landlord].”

The question then became whether the tenant gave the required notification of its desire for an extension, prior to the expiry of the licence/lease term.  The tenant suggested that this notification was in the form of correspondence sent to the landlord in February 2020.  The Court agreed, noting that the correspondence expressly referred to the landlord’s failure to comply with the requirements under section 44, although it did not state that such a reference was not in fact necessary.

“It is sufficient in my view that such a notice convey to a reasonable recipient in the position of the [landlord] that the [tenant] wants to have the extension that is afforded by the operation of s44(3).”

The landlord argued that it did comply with section 44 in various pieces of correspondence.  The Court did not accept this, “given that the [landlord] was apparently proceeding on the basis that the Act did not apply to the Deed of Retail Licence”.

Whilst the Court believed that it should have been clear to the tenant that it might not be successful in the tender process, it nevertheless found that none of the correspondence from the landlord constituted the required notification to the tenant that the landlord would not be offering a renewal or extension of the lease.  Rather, the correspondence did not clearly spell out to the tenant the method in which the landlord proposed to proceed.

“The [landlord] could have more clearly stated what its intentions were, and plainly informed the [tenant] that it did not propose to offer the [tenant] a new lease or an extension of the lease, and would only offer a new lease to the [tenant] if, at the conclusion of the process, the [tenant] was successful.”

It therefore found that the correspondence from the landlord in February 2020 that the tenant had been unsuccessful did constitute the required written notification, a position that was made clearer in its subsequent March 2020 correspondence.  The Court therefore found that the lease was extended from February 2020 by 6 months to August 2020.

Lessons learned

A retail landlord must ensure that it is aware of its obligations overall under the Retail Leases Act – in particular the requirement under section 44 to give clear unequivocal notification to the tenant of its intentions upon the expiry of the term of the lease.