A Cairns landlord who gave a six month demolition notice to two of its tenants has defeated their lawsuit that sought compensation for loss of goodwill and trading revenue over the unexpired portion of their leases.
In May 2016 Laldy Pty Ltd offered compensation for the value of the tenants’ fit outs for which it was unmistakably liable by virtue of Retail Shop Leases Act section 46K.
But to tenants Michael and Stephanie Archer, much more was at stake given their lease had nearly 2 more years to run.
They contended that the demolition had the effect of requiring them to vacate the leased premises “before the end of the lease” thereby activating a section 43 claim for all loss and damage the closedown of their business would bring.
When the matter came to the Supreme Court before His Honour Justice Jim Henry, he noted that all retail shop leases are taken to include – as terms in the lease – all the matters contained in section 43.
While there was no question about what implied terms applied, a closer look was needed as to how they operated.
The Archers’ – and neighbouring tenant Affordable Aged Care Pty Ltd – naturally enough asserted that because the landlord’s proposal came during the period of their leases, the demolition required them to vacate “before the end of the lease”.
Laldy – a company associated with Vivino Bar & Kitchen in Spence St – contended for a different interpretation.
It argued the effect of the demolition notice – rather than terminating the tenants’ occupancy during the currency of their leases – was to bring the particular leases to an early end, thereby preventing the relevant section 43 coming into operation.
Justice Henry had no difficulty in concluding that the demolition notice brought the leases to an early end given the flexible nature in which the leases described the period of the tenancy.
“It is quite plain from the content of the leases that their end date is variable depending upon the circumstances,” he noted. For example, the lease definition of “date of termination” included the “any earlier date on which this lease is determined.”
Going further, he agreed with the landlord’s submission that in such circumstances, no wide ranging compensation entitlement applied.
“The circumstances listed in the section are acts of disrupting or otherwise adversely affecting the lessee’s physical enjoyment of the premises during the currency of the lease” he ruled. “Not after they are terminated”.
The tenants were left with compensation only for the value of their fixtures and fittings, subject to one important qualification.
The court further ruled that “any premature commencement of demolition work” that causes the tenants to vacate could well be a legitimate ground for them seeking the wider compensation that they had sought.