Retail Leasing

11 Oct Retail Leasing

Purchaser of Shopping Centre may be liable for vendor’s pre-lease misrepresentations

In a preliminary hearing in the Administrative Decisions Tribunal in the matter of Red Roll Pty Limited v Multiplex Latitude Retail Landowner Pty Limited, Multiplex WS Retail Landowner Pty Limited and AWPF Management Pty Limited [2008] NSW ADT 200, Judicial Member Molloy has held that the second and third respondents (Multiplex WS and AWPF) must remain as parties to the claim by the applicant for various types of relief arising from alleged false and/or misleading pre-Lease representations made by the first respondent (who was the original developer) in breach of section 10 of the Retail Leases Act 1994 ( 1Cthe Act 1D) and unconscionable conduct by all of the first and/or second and third respondents pursuant to section 62B of the Act . The second and third respondents who purchased from the first respondent the shopping centre in which the premises concerned were located, had sought to be dismissed from the proceedings on the basis that whatever representations may have been made (if proven) were representations made only by the first respondent and not the second and third respondents. Whether the applicant will be successful in its claim is yet to be seen.

It is most important therefore that a purchaser of retail premises carry out comprehensive due diligence which must include obtaining copies of all Lessor and Lessee Disclosure Statements and considering whether any Lessor representations contained in the Lessor disclosure statement were accurate at the time the statement was made. Disclosures alleged by the Lessee in the Lessee 19s disclosure statement should also be investigated. Inspection of marketing brochures, agents 19 notes, advertising and other similar material would also be desirable.

The Purchaser should also obtain comprehensive indemnities from the Vendor in relation to claims for pre-lease misrepresentation which may be brought by a disgruntled tenant after the sale to the purchaser has been completed.

Claims for pre-lease misrepresentation to be made within 6 months of the date of entering into the lease.

In the case of Armstrong Jones Management Pty Limited v Saies-Bond & Associates Pty Ltd (RLD) [2007] NSWADTAP 47, the Appeal Panel of the Administrative Decisions Tribunal upheld an appeal by the Lessor, Armstrong Jones Management Pty Ltd (Armstrong Jones) against an award of damages in favour of the Lessee for pre-lease representations pursuant to section 10 of the Retail Leases Act 1994 ( 1Cthe Act 1D). In upholding the appeal, the Appeal Panel were of the view that the Lessee was estopped from bringing a claim under section 10 of the Act unless it was brought within 6 months of the date that the lease was entered into.

Section 11(2) of the Act states that:

If a lessee was not given a disclosure statement as required by subsection (1) or if the disclosure statement that was given to the lessee was incomplete or contained information that at the time it was given was materially false or misleading, the lessee may terminate the lease by notice in writing to the lessor at any time within 6 months after the lease was entered into, unless subsection (3) prevents termination.

At paragraph 123 the Appeal Panel stated:

In our view, the provisions of part 2 of the [“the Act] are intended to operate as a type of code. They aim to minimise the scope for confusion or future controversy. Section 11 is designed to place a bar on the taking of actions of a fundamental kind in relation to pre-lease representations. If the lessee does not move to terminate within the time allowed, the right to terminate is lost. In effect, the lease is affirmed. Consequently we are inclined to the view that an estoppel (as far as remedies such as restitution or rescission are concerned) must arise once the 6 month period has passed. If no objection is taken by a lessee to the making of a pre-lease representation or in respect of an omission or other incompleteness in the disclosure statement within the 6 month period, the lessor is entitled to regard the lease as secure from attack over matters of that kind.

and at paragraph 125:

Ms Bond had taken no steps within the six month period to seek to terminate the lease for non-disclosure. She could have kept alive a claim for reasonable compensation for misrepresentation in respect of the Harvey Norman representation had she raised the matter. But she did not raise that matter either within the six months.

This extends the 6 month period set out in section 11 concerning termination for non or incomplete disclosure to claims relating to pre-lease representations.

The Appeal Panel also stressed the importance of both Lessors and Lessees providing accurate and complete disclosure statements in accordance with the Act to minimise the possibility of misunderstanding between the parties.

For any further information regarding retail leasing and tenancy disputes whether as a lessor or lessee please contact Alexandra Tzavellas Email: atzavellas@harrisco.com.au