A rent review construction issue in the LIV standard lease that keeps coming up… part 3

Earlier posts here and here discussed a construction issue that keeps coming up in the LIV copyright lease about the interaction between: 

• the boilerplate provisions of the lease about rent review on exercise of an option;  and
• the provisions in the schedule that also regulate rent reviews.

In the recent case of Amazing Accommodations Pty Ltd v OU (Building and Property) [2023] VCAT 986 a similar issue arose under the August 2014 revision of the LIV copyright lease.

In that lease, clause 11 contains the market review provisions that are materially the same as in the previous versions (with some minor variations).

However, clause 12 stated that (relevantly, underlining added):

12.2     The lease for the further term –

…

12.2.2    has a starting rent determined in accordance with clause 11 as if the first day of the further term were specified as a market review date in item 16(a), and

…

Items 16 and 17 of the Schedule to the lease stated (underlining added):

Item 16

[2.1.1, 11, 18]

Review date(s):

Term

(a)	Market review date(s)	Not applicable
(b)	CPI review date(s)	Not applicable
(c)	Fixed review date(s) and percentage of fixed amount increases:	4% increase upon each anniversary of the commencement date

Further term:

(a)	Market review date(s)	Not applicable
(b)	CPI review date(s)	Not applicable
(c)	Fixed review dates(s) and percentage or fixed amount increases:	4% increase upon the commencement date of each further term and upon each anniversary of the commencement date of each further term (if any)

Item 17

[2.1.1, 11, 18]

Who may initiate reviews:

Market review:                                                Not applicable

CPI review:                                                      Not applicable

Fixed review:                                                   Review is automatic

Senior Member Forde made the following findings (emphasis added):

[13]     The tenant argues that on the proper construction of the lease, clause 11 in conjunction with clause 12.2.2 overrides items 16 and 17 in the schedule. It says that this construction of the rent review clauses of the lease means that a market rent review is to be implemented at the commencement of each further term.

[14]     The tenant relies upon the decisions of the Member Nash in Baroud Nominees Pty Ltd v Mereland Technology Pty Ltd^[1] (‘Baroud’) and Senior Member Riegler (as he then was) in MD & S Griggs Pty Ltd v DWH Pty Ltd^[2] (‘Griggs’) in support of its position. It says the lease clauses are the same.

[15]     The lease in this proceeding is not the same as the lease considered by the Tribunal in Baroud and Griggs. This lease has a different item 16 in the schedule to those cases. 

[16]     Item 16 of the lease specifically references “further terms” of the lease. Item 16 in the leases in Baroud and Griggs did not include a provision in relation to further terms. They only referenced “Review date”. The interpretation of the rent review mechanism in the leases in those cases does not apply to this proceeding. The cases are distinguishable.

[17]    There are two inconsistent clauses in the lease. Clause 12 specifically provides what happens when the tenant exercises an option to renew the lease for a further term. It provides that the starting rent will be determined in accordance with clause 11 which is the market review clause. However, item 16 contains a different mechanism for the starting rent of any further term. It provides that the market review is not applicable and that a fixed review mechanism applies, being a 4% increase upon the commencement date of each further term.

[18]    The lease contains two mechanisms for determining the rent for any further term: one being a market rent review and the other being a 4% increase.

[19]     The starting point for interpreting the lease is to consider the plain meaning of the language. Where there is conflict, other relevant terms in the lease might help determine the meaning of the language. It is important to consider the contract as a whole. There are circumstances where it is permissible to look at surrounding circumstances to assist with interpretation.

[20]     I have no evidence before me of the negotiations prior to the lease terms being agreed. The lease is for a short term of two years with two, two year options. The maximum term is six years. It is quite conceivable that the parties intended five years of the lease to have 4% rent increases. I simply do not know.

[21]     I am left with the text of the lease itself.

[22]     When interpreting a contract, the text is given its natural and ordinary meaning. There is nothing ambiguous about the wording in clause 12 or item 16. This is not a situation where I can give effect to both sets of wording or read down one clause to overcome any inconsistency. This is not a situation where other parts of the lease provide a resolution to the apparent conflict. 

[23]     The parties by including the “further term” mechanism in item 16 inserted an inconsistent provision.

[24]    As a general rule of contract construction where there are two clauses in a contract that conflict with each other, the clause which is specifically negotiated, ie item 16 of the Schedule to the lease, prevails over the printed clauses forming part of a standard form contract …^[3]

[25]    To the extent that there is an inconsistency between the requirements in item 16 to determine the starting rent of any renewed term being what the parties engrossed and a requirement in clause 12 of the lease, item 16 will prevail. For this reason, the commencing rent for any renewed term is a 4% increase on the previous year. 

[26]     For the reasons stated I find and declare that the commencing rent for each further term of the lease is as set out in item 16 of the schedule to the lease, being a 4% increase of the rent payable in the previous year.

As discussed in my earlier post here, the latest re-draft probably addresses this issue, provided that the Schedule is filled out correctly. 

However it appears that there are a lot of poorly drafted leases and schedules in the marketplace, particularly in the old versions of the LIV lease that are still out there.

Consequently, practitioners should be:

• aware of these decisions and keep an eye out for further decisions as they arise (I will try to post about any that I see on my blog);  and
• alert to drafting quirks that are caused by items 16 and 17 of the Schedule to the LIV copyright lease whenever they cross your desk.

^[1]   [2022] VCAT 516.

^[2]   [2016] VCAT 1718.

^[3]   Dalges Trading Pty Ltd v Skamper Pty Ltd [2006] VCAT 1220.