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When reviewing the case of T&L Alexandria v Sharvain Facades (2023) the court ruled on a vague “make good” clause, where unclear wording led to a costly dispute over redecorating obligations. The key takeaway? Ambiguity in leases — especially around make-good clauses — can cause headaches. Be clear and specific in your contracts to avoid messy surprises.

Not all guarantees are created equal: understanding the risks associated with guarantees in property transactions and whether you might be forced to ‘pay the price’ for a purchaser’s non-completion.

https://pinpoint.cch.com.au/document/legauUio3697901sl1503950976/ryan-v-upg-322-pty-ltd-2023-aplc-23-053

Be careful when asking for a “non-refundable” deposit in a heads of agreement that has all the hallmarks of a binding contract, it might just lock you in to the deal. In this case Mr. Patel paid a non-refundable $50,000 deposit under an HoA, and when the vendor withdrew claiming the HoA was non-binding, Mr Patel sought (and was granted) specific performance. A good reminder that it’s important for your HoA to be explicitly non-binding if that is your intention.

https://pinpoint.cch.com.au/document/legauUio3697613sl1502889120/patel-v-sengun-investment-holdings-pty-ltd-2023-aplc-23-046

Two recent opposing decisions of the NSW Supreme Court and the Victorian Supreme Court (Court of Appeal) have highlighted the importance of ensuring that lease provisions regarding the ownership of tenant’s chattels are drafted as accurately as possible. Whilst these decisions are set in the context of wind farms, the take-away message is that lease documents generally should be clear about the parties agreed intention as to ownership of any chattels brought onto the premises.

The two judgments revisit the law of fixtures, of which the key legal principle is that in determining whether particular assets are chattels or fixtures the objective intention of the parties must be ascertained, having regard to the degree of annexation of those particular assets and the purpose or object of the annexation. The main implication being that if a chattel has become a fixture the item becomes part of the land / the landlord’s property and the landlord has legal title to it.
In the AWF Case, the wind turbines and certain associated wind farm infrastructure (‘assets’) were held by the Court to be chattels (and not fixtures/improvements to the land) based primarily on the following factors:

• the lease and planning permit required the tenant to remove the assets
• the tenant was entitled under the lease to renew, replace or remove the assets during the lease term
• the assets were designed and installed in a way that allowed them to be removed without damaging either the assets or the land
• the design working life of the turbines corresponded with the lease term
• the second-hand value of the assets was greater than or equal to the cost of removing them
• in any event, there is specific legislation in Victoria which overrides the common law position and deems the assets as being items owned by the tenant

The decision in the AWF Case contrasts the earlier decision in the SPIC Case where it was held that similar wind farm assets became fixtures (albeit tenant’s fixtures which entitle the tenant to remove the assets from the land). Although the respective Courts’ viewed certain facts differently, one minor but legally significant point of difference was the divergence on whether the removal of the turbines / turbine foundations would cause any substantial damage to the surrounding land.

In addition, a further legally important difference was in relation to the weight that each Court gave to the respective lease provisions. The Victorian judges found it acceptable to place more emphasis on the lease provisions when determining the parties’ objective intentions. However, the NSW judges considered that less reliance should have been placed on the lease provisions.

The above decisions demonstrate the importance of clear drafting in lease documents, to minimise the risk of costly and protracted disputes and the uncertainty in leaving such matters to be decided in Court. If anything, careful and accurate drafting would provide some valuable supporting evidence towards assessing the parties’ objection intentions, particularly within the above context of high value renewable energy development infrastructure.

There are a number of significant changes to the FIRB approval framework taking effect from 1 January 2021.

One of the most significant changes is that the temporary $0 monetary screening thresholds on most foreign property investment revert to the usual thresholds which applied pre-29 March 2020 (ie the ‘pre-Covid’ thresholds already in place).

The $0 threshold will remain for sensitive national security land or businesses, meaning foreign investors will continue to require FIRB approval for these types of acquisitions regardless of value.

There have also been significant changes to the fees payable for FIRB applications – now by way of a ‘tiered’ structure tied to the value of the property which is likely to result in higher fees for most commercial property transactions, in particular higher value transactions.

The Retail and Other Commercial Leases COVID-19 Regulation (No 3) 2020 (NSW) takes effect from 1 January 2021 and, in many ways, operates as an extension of the existing Covid-19 tenancy regulations but with some critical changes.

Importantly, the scope of the Regulations are now substantially narrowed and only apply to retail tenants who:

• are eligible for Jobkeeper based on the new eligibility criteria from 4 January 2021 (ie regardless of previous eligibility)
• had a turnover in the 2018-19 financial year of less than $5 million (previously the cap was $50 million)

Despite the title of the legislation suggesting otherwise, the new Regulations do not apply to commercial leases – however commercial tenants will still have certain rights preserved under the existing framework depending on the circumstances (eg the right to apply for mediation in the event of a dispute).

The new Regulations will expire on 28 March 2021 unless they are further extended or replaced.

 

The Retail And Other Commercial Leases COVID-19 Regulation 2020 (NSW) (NSW Regulations) were amended on 3 July 2020 to clarify that:

• a tenant is required to give a landlord evidence to prove its status as an “impacted lessee”; and
• certain parts of the legislation are only meant to govern leases with “impacted lessees” (and not other leases).

These amendments remove some of the ambiguities that we referred to in our April update but unfortunately the government has still chosen to not be prescriptive on the exact nature of the “evidence” or timing requirements. Many landlords and tenants are acting cooperatively and collaboratively and have already finalised and documented rent relief deals despite the lack of guidance within the NSW Regulations, but we expect that the lack of prescriptive requirements on documents and timing will continue to cause landlords and tenants some difficulties as they try to deal with the economic fallout from the COVID-19 pandemic.

The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (QLD) (QLD Regulations) came into effect on 28 May 2020.

The QLD Regulations largely mirror similar laws introduced by other States and Territories to implement the National Cabinet’s Code of Conduct for commercial tenancies, however there are a number of important differences that QLD landlords and tenants will need to be aware of.

Who is an affected lessee?

The QLD Regulations apply to “affected lessees”, being a tenant under a commercial or retail lease where the tenant has a turnover of less than $50M and is eligible for JobKeeper.  For the purposes of the turnover test, if the tenant is an entity connected with (or an affiliate of) another entity it will be the aggregate annual turnover of those entities.

If an affected lessee breaches the lease by ceasing trade or not paying rent/outgoings (wholly or partly) during the period 29 March 2020 to 30 September 2020, a landlord is prevented from (amongst other things) doing or continuing the following actions:

• evicting / re-entering / terminating
• seeking damages
• charging interest
• drawing on lease security
• enforcing a personal guarantee or indemnity in a lease

unless the landlord has made a genuine attempt to negotiate and the tenant has substantially failed to comply with the negotiation process.  Rent also cannot be increased during this period (except turnover rent).

Negotiation process

The QLD Regulations impose obligations on landlords and tenants to cooperate and act in good faith in all discussions and actions associated with mitigating the effect of the COVID-19 pandemic on each other.

Either party can trigger the renegotiation process and, once triggered, the parties must both give each other information relating to the request that is true, accurate and sufficient to enable the parties to negotiate in a fair and transparent way.

The QLD Regulations helpfully give examples of the information required, namely turnover information, evidence of JobKeeper eligibility and details of steps the tenant has taken to mitigate the effects of the pandemic.  A tenant may also apply for further rent reduction if circumstances materially worsen after an initial agreement is reached – but notably, they do not deal with the alternate scenario of circumstances improving for the particular tenant.  Landlords should consider this issue in reaching and documenting any agreement with tenants.

Differences in the QLD Regulations

One of the most critical changes the QLD Regulations impose is that landlords must offer tenants an extension to the term of the lease on the same conditions as those contained in the lease equivalent to the period for which rent is waived or deferred.  The only exception to this absolute obligation is where the landlord would be in breach of another legal obligation in doing so, or if the landlord demonstrates that the lease cannot be extended because it intends to use the premises for a ‘commercial purpose of the landlord’.

Some other interesting differences about the QLD Regulations when compared to other jurisdictions:

• they expressly apply to agreements for lease where the lease has not yet commenced or come into effect
• whilst the other jurisdictions have regard to the turnover of a franchise operation at the franchisee level, for the purposes of determining whether turnover is under $50M, the QLD Regulation go further and state that if premises are leased to a franchisor and then subleased to a franchisee who is an affected lessee, the franchisor is also treated as being an ‘affected lessee’
• deferrals must be offered over a minimum period of 2 years (but no more than 3 years)
• the landlord’s rights in respect of a security deposit are preserved until such time as the deferred rent has been repaid – albeit the position is silent on bank guarantees which may have expiry dates
• there is a strict 30 day timeframe for the landlord to formally offer the tenant a reduction once the negotiation process has been triggered and a party has provided “sufficient information” about the rent relief request
• there is a much more prescriptive mediation and dispute resolution process for any disputes

By way of update, South Australia has repealed the sections relating to commercial leases in the COVID Act and Regulations that we advised on earlier and have replaced them.

Please see the new COVID Emergency Response Act 2020 (the Act) and COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (the Regulations).

The Act and Regulations have retrospective application and apply from 30 March 2020 and end on 30 September 2020.

The Act now provides for the Governor to make regulations regarding commercial leases and all the operative provisions regarding commercial leases are in the Regulations.

The main difference seems to be a limitation on which leases the regulations apply to and the imposition of a turnover threshold in relation to who is an ‘affected tenant’, which wasn’t included previously. There are also some additional dispute resolution clauses.

For ease of reference, we have set out below the updated position in South Australia.

Application

The Regulations do not apply to a lease entered into after the commencement of the prescribed period (ie after 30 March 2020), unless that lease was entered into as a result of an option or an extension / renewal on similar terms.

The provisions of every commercial lease is taken to be modified to the extent necessary to give effect to the operation of the Act.

Obligation to negotiate in good faith

The parties to a commercial lease must make a genuine attempt to negotiate in good faith the rent payable and any other terms of the lease. This seems to apply to all leases (whether or not the tenant is an affected tenant – see below).

Affected tenant

An ‘affected tenant’ is defined to be a tenant that is suffering financial hardship as a result of COVID-19 (ie is eligible for JobKeeper) and has a turnover of less and $50 million (there are some additional provisions regarding how to calculate turnover).

Prescribed action

If a tenant is an affected tenant, the landlord cannot take any ‘prescribed action’ against the tenant if the breach consists of:

• a failure to pay rent
• a failure to pay outgoings
• the business not being open for business during the hours specified in the lease

If the tenant is required to do something under the laws of the State as a result of COVID-19 (eg is required to close as a result of a public health order), then this is not a breach of the lease and the landlord cannot do any of the following:

• terminate, evict, re-enter etc
• claim damages
• charge interest on unpaid rent
• use the security bond
• enforce a personal guarantee
• any other remedy otherwise available to a landlord against a tenant at common law or under the law of this State

Continuing prescribed action

If the landlord had started any of the above actions during the period 30 March 2020 and 9 April 2020 but they had not been finalised, then that action is suspended until the Act no longer applies.

Interestingly, this seems to apply even if the tenant is not an affected lessee, so long as the ‘lessee is suffering financial hardship as a result of the COVID-19 pandemic’ (ie eligible for JobKeeper).

Rent freeze

If a tenant is an affected tenant, the rent must not be increased during the prescribed period (excluding turnover rent) unless agreed between the parties.

Land tax

If a tenant is an affected tenant, a tenant is not required to pay land tax or reimburse the landlord for the payment of land tax (where the lease requires a tenant to pay) during the prescribed period.

Dispute resolution

The parties can apply for mediation and the Court (if mediation is unsuccessful) in relation to any disputes that have arisen as a result of COVID-19. However a tenant cannot apply for mediation unless it is an affected tenant.