Silence and a handwritten amendment to a retail lease disclosure statement

It is imperative for both landlords and tenants that whenever a retail lease is being negotiated, any required amendments to terms of the lease that remain to be negotiated are brought to the other party’s attention so that they can be negotiated, and the documents amended to reflect the negotiated agreement. 

Li v Heriot Pty Ltd [2021] NSWCATAP 177 (22 June 2021) 

In August 2018, the tenant, Sydney Korean BBQ Pty Ltd, entered into a 10 year lease for premises on Campbell Parade, Bondi Beach.  Samuel Li provided a personal guarantee for the tenant’s obligations under that lease. 

Because the use of the premises fell within the list of “retail shop businesses” contained within Schedule 1 of the Retail Leases Act 1994 (NSW), a Disclosure Statement was provided to the tenant prior to entry into the lease (as required by section 11 of that Act). 

In January 2019, the tenant vacated the premises and the landlord sought recovery of unpaid rent, the costs to “make good” the premises, interest and other amounts.  The total claimed was in excess of $1.5 million.  Proceedings were commenced against the guarantor to recover the maximum amount in the Tribunal of $750,000. 

The guarantor’s arguments

The guarantor raised a number of arguments in defence of the claim: 

• The guarantor did not sign the lease in the presence of an attesting witness; 
• The lease was obtained by undue influence; 
• The landlord engaged in misleading and deceptive conduct; 
• The lease was invalid because it did not contain a deposited plan of subdivision, a subdivision certificate or a survey; 
• The Disclosure Statement was allegedly returned to the landlord’s managing agent with a note made by the guarantor that the tenant required the shop to include a separate electricity meter. 

In relation to the misleading and deceptive conduct claim, the Tribunal noted: 

[The guarantor suggests] that because he amended the Lessor’s Disclosure Statement the guarantor was operating in the belief that the premises would have a separate electricity supply meter and was misled about that when he signed the guarantee.  The fact that the guarantor did amend the Lessor’s Disclosure Statement and the fact that he was not told that the changes he made were not acceptable, may be a representation by silence that the premises would have a separate electricity supply meter.”

However, there was no evidence provided by the guarantor that he signed the guarantee in reliance on the Disclosure Statement. 

The guarantor also referred to section 11(2) of the Act which provides that if the Disclosure Statement is materially false or misleading, the tenant may terminate the lease by notice in writing to the landlord at any time within 6 months after the lease is entered into.  In reply, the landlord noted that the guarantor never requested a separate electricity meter until a letter was sent in October 2018. 

The decision

At first instance, the Tribunal rejected the guarantor’s arguments.  The guarantor appealed to the Tribunal’s Appeal Panel, arguing that the Tribunal had erred in failing to find that the landlord had engaged in misleading and deceptive conduct by failing to correct the understanding held by the guarantor that the premises were to be separately metered for electricity, when there was no separate electricity meter provided for the shop.  That is, the landlord’s silence constituted misleading and deceptive conduct under section 18 of the Australian Consumer Law (“ACL”). 

The Panel noted that: 

• There was no correspondence from the tenant or the guarantor to the landlord concerning the Disclosure Statement; 
• There was no evidence that any issue was raised by the guarantor with the managing agent concerning the alleged request regarding the electricity meter; and
• There were multiple versions of the Disclosure Statement on the landlord’s solicitor’s file, but there was no evidence that any alleged amendment to the Disclosure Statement made by the guarantor, regarding the electricity meter, was ever received by the landlord’s solicitor. 

The Panel summarised the principles of misleading and deceptive conduct by silence as follows: 

• Silence may amount to misleading or deceptive conduct in a variety of circumstances; 
• The essential question is whether, in all of the circumstances constitute by acts, omissions, statements or silence, there has been conduct likely to mislead or deceive; 
• Mere silence is unlikely to constitute misleading or deceptive conduct.  However, remaining silent will constitute misleading or deceptive conduct if the circumstances give rise to a reasonable expectation that, if some relevant fact does exist, it will be disclosed. 

In the absence of any evidence that the alleged amendment to the Disclosure Statement was brought to the landlord’s attention, prior to the execution of the lease, the Panel held that the guarantor could have “no reasonable expectation that the [landlord] would act to correct the alleged understanding of the [tenant]”. 

Further, the Panel noted that the guarantor could not prove actual reliance on the conduct alleged to constitute the breach (being a requirement under section 18 of the ACL for recovery of compensation or other relief). 

The appeal was dismissed accordingly. 

Lessons learned 

For tenants – any particular requirements (such as a separate electricity meter) must be clearly requested and confirmed with the landlord before the lease is entered into, and the documentation must reflect whatever negotiated agreement is reached. 

For landlords – despite the above decision, it would be prudent to check the Disclosure Statement once signed and returned by the tenant and guarantor to confirm that no amendments have been made.  If so, then those matters should be further negotiated with the other parties and an amended Disclosure Statement executed by the parties.

The full text of the above judgment is available here.