Archive for August, 2011

Whoops! Error in start date for Part 2D

Yesterday I posted a blog stating that the new Part 2D of the Fair Trading Act 1999 (Vic) would commence on 1 September 2011.  Part 2D is contained in s3 of the Consumer Affairs Legislation Amendment (Reform) Act 2010 (Vic). Section 2(4) of that Act refers to the detault start date of 1 September 2011. However, s 22 of the Consumer Acts Amendment Act 2011 (Vic) amends the default start date of the Consumer Affairs Legislation Amendment (Reform) Act 2010 (Vic) to 30 June 2012. Thanks to Karen Cheng for alerting me to this.

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Goods left on premises after the expiry or termination of a lease

On 1 September 2011 the law governing goods left on leased premises following the termination of a lease will be governed by Part 2D of the Fair Trading Act 1999. Part 2D replaces the repealed ss.42A to 42F of the Landlord and Tenant Act 1958. Part 2D applies to “goods under bailment” (s.32ZS(1)). A landlord is not usually the voluntary recipient of goods left on leased premises. The drafters of the legislation have assumed that a bailment exists in the absence of a conscious and willing assumption of the possession of the goods; they do not appear to have been concerned about Palmer’s statement that the approach of the English courts has been to deny that the involuntary recipient of goods is a bailee (Palmer, N.P, Palmer on Bailment, 2009, Sweet & Maxwell, page 703).   Part 2D also fails to include a satisfactory definition of “bailment”. Section 32ZP of the proposed Part 2D of the Fair Trading Act defines  “bailment” as including:

“bailment for reward, bailment in the course of business, gratuitous bailment, involuntary bailment and any sub-bailment”. (underlining added)

 Unfortunately the expression “involuntary bailment” is not defined. Part 2D would have no application at all if VCATor a court were to determine that a bailment relationship did not arise between a landlord and a tenant with respect to uncollected goods in premises following the expiry or determination of the lease. A landlord could face the risk of being liable in conversion if it disposed of the goods. The legislation appears to be mainly concerned with ensuring that the bailee is paid moneys owing in respect of goods; however, a landlord is not usually owed money with respect to goods: the landlord is usually owed rent or outgoings. Part 2D establishes different regimes for the disposal of goods with each regime dependent on the value of the goods. The relevant values are: less than $200; less than $5000 and more than $5000. Part 2D does not affect the right of parties to a lease to make an agreement about the disposal of uncollected goods (Section 32ZS(6)).

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Further elaborations on s.52 of the Retail Leases Act

Section 52 of the Retail Leases Act 2003 implies into a retail premises lease a term that:

“The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into –

(a)     the structures of, and fixtures in, the retal premises lease; and

(b)     plant and equipment at the retail premises; and

…..” (s.52(2))

In Savers INC (ARB 075 452 185) v Herosy Nominees [2011] VCAT 1160 the  tenant claimed that the landlords of two premises that the tenant operated as a single shop had failed to maintain the premises in good repair: in particular it was alleged that the roof, drainage and floors had fallen into poor repair and caused consequential damage within the premises. Breaches of the leases and s.52 of the Retail Leases Act 2003 were alleged. The tenant sought orders that the landlords undertake repairs.   The leases (and earlier leases to which the landlords and tenant were parties) contained terms that obliged the landlords to undertake certain repairs to the premises; these terms were more onerous than those imposed by s.52 (“the good repair and condition terms”). The landlords contended that s.52 limited their obligations – that is because of  s.94 of the Act it was not possible to “contract out” of s.52 and the good repair and condition terms were either contrary to or inconsistent with s.52 and therefore void. The Tribunal rejected this argument. It was also argued that s.52 did not extend to that that part of a building “including common areas (such as the roof or perhaps the sub-floor) that is not part of the premises demised to the lessee”. The Tribunal rejected this submission on the basis that a “canny landlord”  could attempt to get around s.52 by expressly excluding areas such as the external structure from the definition of demised premises but at the same time impose a separate obligation upon the tenant to maintain those exterior parts of the building which did not form part of the demise. Because the good repair and condition terms had appeared in earlier leases the Tribunal was able to determine what state the premises should have been in and it was this standard that was applied in determining what the condition of the premises were when the lease was entered into for the purpose of s.52; the landlords could not take advantage of their failure to comply with the good repair and conditions terms by seeking to rely on the condition the premises were in fact in when the lease was entered into. The Tribunal also held that an agreement to settle a dispute between a landlord and a tenant was not “contemplated by section 94”; it appears that the Tribunal was saying that s.94 cannot be relied upon to void a provision in terms of settlement.

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Setting off damages claims against the rent

At common law a tenant may not set-off a damages claim against a landlord’s claim for rent (Meagher, Gummow & Lenane’s Equity Doctrines and Remedies, 4th ed, para [37,045], p1056). However, a tenant may claim an equitable set-off provided that the tenant’s equity “impeaches” the landlord’s title to the demand for rent. See: British Anzani (Felixstowe) Ltd v International Management (UK) Ltd [1980] QB 137; Walker v Department of Social Security (1995) 56 FCR 356; Forsyth v Gibbs [2009] 1 Qd R 403. The case of MEK Nominees Pty Ltd v Billboard Entertainment Pty Ltd (1993) V ConvR 54-468 is a classic example of the application of the principle. In MEK the tenant was in arrears of rent. The tenant alleged that the landlord had breached the covenant of quiet enjoyment with the consequence that its business had fallen away to the extent that it had a damages claim that  exceeded the arrears of rent. The tenant successfully resisted an application for summary judgment for possession on the ground that it had an equitable set-off; that is its damages claim had such a nexus to landlord’s claim as to impeach the landlord’s claim.

A tenant’s right of equitable set-off against rent may be excluded by clear words. See: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689. Victorian courts have generally held that a lease that requires the payment of rent “without deduction” precludes a tenant from claiming an equitable set-off. See: Beach J’s decision in Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168 (‘without any deduction whatsoever’); see also MEK Nominees v Secure Parking [2000] VSC 406; Novawest Constructions Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 205. There are decisions to the contrary in other jurisdictions: See: Connaught Restaurants Limited v Indoor Leisure Limited [1994] 1 WLR 501; Re Partnership Pacific Securities Limited [1994] 1 Qd R 410.  This week the Full Court of the Federal Court held obiter that a rent covenant requiring the payment of rent “without any deductions whatsoever” precluded the availability of equitable set-off. See: Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 at [180] – [202]. Norman contains a comprehensive discussion concerning the principles governing equitable set-off.

In VCAT, Beach J’s decision in Simon Fredericks has been followed. See: Wytell Pty Ltd v Glowinski [2006] VCAT 454.

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Quirk in s.64 nothing to get excited about

A quirk in s.64 of the Retail Leases Act 2003 has caused some excitement. recently. Section 64 applies where a retail premises lease does not have an option to renew the lease for a further term. At least 6 months and no more than 12 months before the lease term ends the landlord must give written notice to the tenant either offering the tenant a renewal of the lease or informing the tenant that the landlord does not propose to offer the tenant a renewal (“initial notice”)(s.64(2)) . If the landlord fails to give the initial notice the landlord must give the tenant a notice containing the same information as the initial notice (“the second notice”) and the lease continues until the day specified in the second notice which must be at least 6 months after the second notice is given or the tenant gives the landlord a notice under s.64(5) (“the tenant’s notice”) (s.64(4)). If the landlord fails to give the inital notice the tenant may, irrespective of whether the landlord has given the later notice, give the tenant’s notice terminating the lease “from a day that is not earlier than the day on which the term of the lease expires” (s.64(5)). The section does not specify the latest date by which the tenant can terminate the lease. The question arises whether the tenant’s notice can nominate a day many years in the future for the termination of the lease. In my view, the answer is no: if the tenant gives a tenant’s notice after the landlord has given the second notice the tenant’s notice  can terminate the lease from a date earlier than that specified in the second notice, but cannot extend the date referred to in the second notice; in my view the purpose of the tenant’s notice is to enable the tenant to terminate the lease from a day earlier that that specified by the landlord. If the landlord does not serve the second notice and the tenat serves a tenant’s notice the date specified in the tenant’s notice will be the date the lease expires; however, if the landlord then serves the second notice the date specified for termination of the lease will be the relevant date provided it is at least 6 months after the second notice is given.

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Deposits in sales of land

In general a contractual provision that requires a party in breach of contract to pay or foreit a sum of money is unlawful as a penalty unless such provison can be justified as being a payment of liquidated damages being a genuine pre-estimate of the loss which the innnocent party will incur by reson of the breach. One exception to this general rule is the provision of the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract. The special treatment given such deposits derives from the ancient custom of providing an earnest for the perform of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money. The special treatment given to deposits could be open to abuse if parties could avoid the rule that renders penalties unenforceable by attaching the label “deposit”  to any penalty.  The courts have held that parties cannot label an extravagant sum as a “deposit” and thereby avoid the sum being a penalty. See: Stockloser v Johnson [1954] 1 QB 476 per Denning LJ at 491; see also Workers Trust Bank v Dojap Ltd [1993] 1 AC 573.  The Workers Trust case contains an interesting discussion about deposits in land sales.

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