Posts Tagged Guarantee can be set aside
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Landlords need to be very careful about what they say when negotiating leases because s.243 of the Australian Consumer Law provides a wronged tenant with a powerful weapon.
That section permits the court to make an order declaring the whole or any part of a contract void or to vary a contract.
The most famous case concerning the sections’s predecessor (s.87 of the Trade Practices Act 1974) was Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 where the High Court varied a lease.
The Supreme Court of Queensland recently used s.243 of the ACL to set aside a lease and a guarantee. In that case the tenant and guarantors of the tenant’s obligations alleged that they were induced to enter into a 30 year lease by representations that if the tenant paid rent at a rate of $180,000 per annum for three years and had not purchased the freehold after three years the landlord would cancel the lease and enter into a new lease at a rental of about $120,000 per annum.
The court found that the representation had been made and relied upon and that the tenant and the guarantor had suffered detriment as a result of the conduct of the defendants. The Court declared the lease and the guarantee void ab initio under s 243. The case is Morgo’s Leisure Pty Ltd and others v Morgan v Toula Holdings Pty Ltd and others  QSC 325.
Postcript: the decision referred to above was reversed by the Court of Appeal in Toula Holdings Pty Ltd v Morgo’s v Dante (NQ) Pty Ltd  QCA 201. Thanks to George Tsogas for alerting me to the result of the appeal.
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