A hotel owner in tropical North Queensland duped its tenant into signing a 30 year lease with a promise it would wipe $60k/year off the official rent from the end of the third year and would grant a right of first refusal to buy the freehold.

So claimed Grant Morgan, who took the lease of the Newmarket Hotel on the corner of Flinders and Blackwood Streets from the family company of Toula Cassimatis.

Cassimatis had looked up Morgan – a former employee of 10 years standing – for operational advice as her hotel trade began to decline.

One thing led to another and in February 2013, Morgan entered into a contract to acquire the hotel business for $1.00 and a lease at $180k p.a. commencing from the settlement date of the business contract on 19 March 2013.

Before signing, Morgan secured three further undocumented concessions from Cassimatis: that the rent be inclusive of GST, there be no security bond and that she be responsible for all outgoings.

Just three months later – after Morgan was allegedly behind in rent and had failed to pay for insurance – Cassimatis notified Morgan of her intention to sell and denied the unwritten side agreements.

By then the tenant had spent $300k on renovations. He sought immediate relief in the Supreme Court.

Evidence was led that Cassimatis was in a desperate financial situation and had been required by her bank to sell assets to liquidate debt. “Any continued financial accommodation by the bank was dependent upon an updated valuation” with rent of at least $160,000 p.a. for a term of at least 25 years.

The court also found that by December 2012, Mrs Cassimatis “knew that her financial position was deteriorating rapidly, that unless she secured a reliable tenant the hotel and operate the business and pay a commercial rent a forced sale might occur”.

Her desperation was such that, according to the court, she “was prepared to afford any assurance, accommodation or incentive to Morgan providing he and those associated with him would commit to a lease on terms satisfactory to the bank”.

In such circumstances, the court accepted the grant of all the significant concessions that Morgan asserted, was likely to have occurred and he had therefore – so ruled the court – been induced to enter into the lease by the false and misleading or deceptive representations of the lessor.

Cassimatis’s intention in making representations was, at least by January 2013, “not to honour them but to ensure that Mr Morgan and his wife enter into a long-term registrable lease of the hotel with a personal guarantee. She was motivated to satisfy the demands of the bank and to enhance marketability of the freehold. It was her intention to sell the hotel on the best terms possible after securing the lease” without waiting 3 years to implement the rent reduction and not to allow Morgan any right of first refusal.

The court ruled the lease could be determined ab initio, even though the property was under contract of sale to a third party who didn’t agitate either way in the proceedings, in the expectation it would be able to terminate its buy if the lease as disclosed to it, was voided.

Toula Cassimatis filed an appeal against the judgment which was upheld in August 2014. The appeal court ruled that the trial judge’s rulings against her were unreasonable and that the lease was never a sham.

Morgo’s Leisure Pty Ltd & Ors v Toula Holdings Pty Ltd & Ors [2013] QSC 325 Townsville North J 21/11/2013


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