A guarantor’s futile appeal last week has resulted in some useful pointers for landlords in often-raised commercial leasing issues: mitigation of loss and tenants’ fixtures. That, as well at the same time clearly demonstrating, that you get what you pay for from DIY legal representation
McGlone – who was self represented at trial and on the appeal – had been unaware that the lease was in arrears until after it was terminated. His frustration with that revelation was surely magnified by a series of mis-steps in the presentation of his challenges to the landlord’s right to collect under the guarantee.
As the tenant company had been deregistered by the time of the hearing, the landlord Kalgold Pty Ltd pursued the guarantors in the District Court and obtained judgment “by the luncheon adjournment on the first day” against them for arrears under the lease and damages for loss of future rent.
McGlone sought leave to appeal the matter to the Court of Appeal.
One of his more attractive contentions was that the forfeiture to the landlord of tenants’ fixtures and fittings on lease termination was – in circumstances where parties had previously been negotiating for the landlord to purchase them – an “unjust enrichment”.
On construction of the provisions in the lease however, the court held that the fixtures etc were “treated as abandoned” and property passed in them to the landlord regardless of the absence of any payment.
Although the concept of “unjust enrichment” is known to the law, the court also remarked that such restitutionary remedy apples in limited circumstances of which in this case “the evidence falls short”.
The second contention of some interest was that the landlord had failed to adequately mitigate its loss. The landlord had merely placed the premises on the market with a real estate agent for about four weeks before deciding to allow an associate company in to operate the coffee shop without payment of rent.
Remarking that such conduct was far from ideal for a landlord to establish that all reasonable steps were being taken, the appeal judges ruled that the appellant had failed to actually plead any mitigation failure and did not adduce any evidence to show that “a different course of action taken by the landlord would have resulted in its reletting the premises”.
Finally – and the nearest the appellant came to win any of the battle fronts he raised – the landlord was prevented from enforcing the guarantee because it could not prove that a demand had been made as required under its terms. Problematic as this was, the guarantee also contained an indemnity under which it was not a pre-requisite for collection, that a prior demand had been made.
Thus none of the appellants’ points found favour with the court who – in the end – refused to grant leave to appeal and affirmed the February 20011 judgment below.
Did Mr McGlone paint himself into a corner by not having an experienced legal team prepare his case? Probably.