The Court of Appeal has overturned an earlier ruling that a change in occupier was not a change in possession requiring the landlord’s consent.

Australia Post (AP) leased the premises in West End but during the term, allowed D – its wholly owned subsidiary – into occupation. AP continued to pay the rent and to manage maintenance etc issues. There was no documented arrangement between AP and D.

The lease contained a fairly standard provision that AP was only entitled to part with possession of the premises with the consent of the lessor.

The landlord issued a Notice to Remedy Breach of Covenant to AP because of D’s occupation and also because it said AP was conducting operations outside the “permitted use”. (The landlord wanted put itself in a position to demand much higher rent).

The Supreme Court – in the decision that was overruled – concluded AP had remained in control of the premises and there had been no assignment or subletting and therefore no breach of the lease (see Carter Capner Law December 2009 eNews)

The Court of Appeal re-examined the evidence. AP had, it said, breached the lease by parting with possession to D. Relief against forfeiture was refused and AP was forced into a position of having to leave or pay the higher rent demanded.

The factors which clinched the decision in favour of the landlord were:

  • the only business activity on the premises was conducted by D who were its employees and not employed by AP;
  • the business activity was a performance of contracts between D and its customers;
  • D had entered into contracts for renovations to the premises;
  • D carried on the business in its own right and exercised control over the premises.

Interestingly, the court said that if the premises had been shared between AP & D, its decision may have been different because “sharing of possession” is not the same as “parting with possession”.

As a minor consolation, Australia Post won on the “permitted use” point. Although it had intensified its use of the premises to include tender and courier services as well as more intricate and contemporary methods of processing mail items, the use was still held to fall within the definition of “mailroom solutions operations”.

The court ruled that the interpretation of the permitted use was not limited by what the parties may have contemplated at the time the documents were signed.

*Ace Property Holdings Pty Ltd v Australian Postal Corporation [2010] QCA 55

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