The High Court yesterday granted special leave to appeal the Court of Appeal’s decision in Willmott Forests Ltd (Receivers and Managers appointed)(in liquidation) v Willmott Growers Group Inc and Willmott Action Group Inc [2012] VSCA 202.

In a decision that has prompted a flurry of online discussions, the Court of Appeal held that a liquidator appointed to a landlord company could use the disclaimer power to extinguish leases granted by that company and sell the land free of the tenant’s interests.  The details and implications of the decision are discussed and links to other online discussions are contained in earlier posts on this blog here.

The grant of special leave, however, is only the first step in the appeal to the High Court.  The appeal will now be listed for a full hearing.  At this stage, a hearing is expected in August 2013.

In the meantime, the Court of Appeal’s decision still stands and practitioners should consider advising their tenant clients that:

1. the Court of Appeal’s decision is subject to a High Court appeal.   However, while the appeal is pending, the decision remains good law.  For the implications of the decision for tenants, have a look at the discussion here;
2. in the unlikely event that tenants receive a notice of disclaimer of their lease from their landlord’s liquidator, they should consider immediately making an application to set aside the disclaimer under s 568B of the Corporations Act.  That application ordinarily needs to be made within 14 days of the liquidator’s notice of disclaimer.  They should also consider challenging in the same proceeding whether a landlord’s Liquidator has power to disclaim the lease;  and
3. if the High Court overturns the Court of Appeal’s decision, the risk of their lease being unilaterally extinguished by a liquidator using the disclaimer power should be removed.  However, if the High Court affirms that decision, the risk remains permanently.

Also, tenants are unlikely to understand the significance of a notice of disclaimer in these circumstances. It is not hard to imagine a tenant approaching a practitioner for advice close to the expiry of the 14 day limit (see text in bold above).  Consequently, practitioners should pay particular attention to the 14 day time limit to avoid a claim being made against them for missing the deadline.

Practitioners acting for liquidators should consider advising their clients of the grant of special leave and, if they are liquidators of landlord companies, to consider the risk of a successful appeal before disclaiming any leases.

Trustees in bankruptcy have a similar disclaimer power under the Bankruptcy Act, so practitioners acting for trustees in bankruptcy of landlords should consider giving them the same advice.

Further to my previous post, the new Regulations have not made their way onto the Victorian Law Today page yet.

A copy is attached here: Retail Leases Regulations 2013 (Vic).

Regular readers will be aware that the Retail Leases Regulations 2003 (Vic) will sunset shortly and that the Minister for Innovation, Services and Small Business recently released a Regulatory Impact Statement and called for submissions about proposed new Regulations.

The Acting Minister Minister for Innovation, Services and Small Business published in the Victoria Government Gazette on 8 April 2013 notice of his decision to make the proposed Retail Leases Regulations 2013 (Vic), subject to a number of amendments.

The amendments are summarised in the Gazette entry as follows:

• The prescribed percentage for the purposes of section 47(5)(b)(i) of the Act, as provided under Regulation 12 has been retained at 10%.
• Transitional arrangements have been provided so as to enable landlords to continue to use the Disclosure Statement formerly prescribed by the Retail Leases Regulations 2003 until 22 July 2013.
• A further item has been included in each of the Disclosure Statements in Schedules 1, 2, 3 and 4.  This new rule requires retail landlords (or a tenant in the case of Schedule 4) to disclose to the prospective retail tenant (or assignee in the case of Schedule 4) any alteration or demolition works to the premises or building/centre in which the premises is locate, including surrounding roads or land adjacent to, or in close proximity to, the retail premises, during the term of the lease (or any further terms) where such works are planned or known to the retail landlord (or tenant in the case of Schedule 4) at the time of disclosure;  and
• other minor amendments to correct or clarify words used in Schedules 1, 2, 3 and 4.

A copy of the Gazette entry is available here: Gazette entry (8 April 2013).

I cannot see a copy of the new Regulations online yet.

Practitioners acting for landlords should note the following:

1. landlords can continue to use the current form of disclosure statement until 22 July 2013;
2. solicitors acting for landlords should ensure that their precedents (as well as and their clients’ and clients’ managing agents’ precedents) are updated with the new disclosure statements prior to 22 July 2013;
3. it is prudent to make appropriate diary notes now to remind yourselves to check for the new regulations in the lead-up to 22 July 2013;  and
4. if your clients are themselves planning to redevelop their centres or are aware of any neighbours that are planning to redevelop, they should start thinking now about the new disclosure obligations so that they can be prepared to give adequate disclosure when the new form takes effect.

Practitioners acting for tenants should be aware that the existing disclosure statement creates difficulties for assigning tenants (see an earlier post here).  An assignors’ disclosure statement has been foreshadowed in the new Regulations.  It is likely to be available to assignors under the new Regulations before 22 July 2013.  When acting for a tenant that is assigning its lease, practitioners should check to see whether the new form of disclosure statement is in force and, if it is, consider using the new form rather than the current form.

The Retail Leases Regulations 2003 (Vic) sunset on 23 April 2013.

For a useful discussion on the differences between the current Regulations and the proposed Regulations, refer to an excellent note prepared by Allens Linklaters, available here.  It should be noted that this note pre-dates the latest Gazette entry from the Acting Minister.

Thanks to Peter Lowenstern from the REIV for forwarding to me a copy of the recent Gazette entry.

In the recent VCAT decision of South Yarra Colonnade Pty Ltd v Designbuilt Industries Pty Ltd & Ors (Retail Tenancies) [2013] VCAT 266, a tenant of a retail shop sent a letter to its landlord advising the landlord that it intended to exercise its option.

When the lease was subsequently terminated, the landlord argued that the tenant had validly exercised its option, creating a new lease term.

The tenant argued, on the other hand, that the letter constituted no more than a statement of future intentions and that the option lapsed when the tenant failed to make good that intention.

The Tribunal found that the tenant had not validly exercised its option.

Senior Member Walker set out the relevant correspondence and surrounding facts as follows:

[18]            … on 12 October 2005 Mr Cumberlidge wrote to Mr Murray as follows:

“Re; exercising of lease option Shop 13 The Colonnade (554) Chapel Street, South Yarra

We write to advise you of our intention to exercise our lease option for a further 6 year period.

…

[19]            On 24 October 2005 Mr Murray wrote back to Mr Cumberlidge as follows:

“Acknowledgement of exercise of option.

Shop 13, The Colonnade, South Yarra

We are in receipt of your letter dated 12 October 2005 wherein you have exercised your option for a further term of 6 years from 1 February 2006.

On behalf of the lessor, South Yarra Colonnade Pty Ltd, we acknowledge that the option has been exercised in accordance with the Lease agreement.

Should you have any further queries, please do not hesitate to contact the undersigned”.

[20]            Nothing further was done by either side in regard to the exercise of the option or to determine what rental should be paid. In particular, no notice was served by the Landlord pursuant to Clause 14.1 to propose the market rental for the first year of any renewed term.

…

[22]            On 14 February 2006 Mr Murray wrote back to Mr Cumberlidge, confirming that the Tenant had exercised its option and that a market review of rent was due with effect from 1 February 2006. He stated in the letter that the Landlord sought a rental of $125,500 per annum and set out some calculations to justify that figure. The last paragraph of the letter states:

“We look forward to receiving your written acceptance of this proposal by return. However please do not hesitate to contact the undersigned should you have any queries”.

The landlord made a number of arguments in support of its submission that the tenant validly exercised it option, summarised at paragraph 33 of the Tribunal’s decision.

The tenant, on the other hand, argued that the plain meaning of the letter of 12 October 2005 was prospective.  Other circumstances relevant to the tenant’s argument are summarised at paragraph 37 of the Tribunal’s judgment.

After discussing authorities relevant to the issue, the Tribunal held that (emphasis added):

[38]            … I have to determine whether the option was exercised as a matter of objective fact. To find that the option has been exercised I must find that the letter, when viewed objectively, would have been understood by a reasonable person in [the landlord’s] position to clearly and unequivocally express the fact that the Tenant intended, by that letter, to exercise the option. In considering that question I must construe the letter taking into account the circumstances that the parties would have had in mind at the time.

[39]            The first such circumstance is the wording of the letter itself. As Mr McNamara said, it contains no qualification or reservation but, as Mr Frenkel pointed out, it is expressed in terms of an intention. It does not say, clearly and unequivocally, that the option is exercised. The letter on its own without more would, I think, amount to no more than an expression of a future intention.

After considering the surrounding circumstances, the Tribunal concluded that:

[46]            I cannot see that there is any circumstance that renders the letter of 12 October “clear and unequivocal”. It expresses an intention to renew the Lease but does not clearly and unequivocally do so. I therefore do not find that the option for a further term of six years was exercised.

I have been informed that it is quite common for tenants to purport to exercise options in a similar way.

Every case turns on its facts.  However, given the treatment of the letter by the Tribunal, it is prudent for:

1. lawyers acting for landlords to advise their clients to be on the lookout or correspondence expressing the tenant’s ‘intention’ to exercise an option and, if received, to seek confirmation in writing that the tenant has in fact exercised its option.  Given that a letter from the landlord’s agent confirming the exercising of an option was not found to be sufficient, landlords should be insisting on that confirmation being in writing from the tenant;  and
2. lawyers acting for tenants to advise their clients to avoid ambiguous language such as that discussed in this case to avoid inadvertently failing to exercise their option.

Thanks to Jamie Bedelis of Moray & Agnew Lawyers for his valuable input into this note.

In an interesting recent decision, Garde J in the Victorian Supreme Court:

1. confirmed that distress for rent remains abolished in Victoria, despite the repeal of the Landlord and Tenant Act 1958 (Vic); and
2. found that a lien in a lease over goods left behind by a tenant is effective, provided that it crystallised after re-entry and termination of the lease.

Distress for rent was an ancient self-help remedy that allowed landlords to seize and sell tenant’s goods on the leased premises to satisfy unpaid rent.  The remedy is called ‘distress for rent’ and the act of seizing and selling the tenant’s goods is called ‘distraining for rent’.  The remedy was only available to the landlord before termination of the lease.  Distress for rent was abolished in Victoria in 1948 in provisions that were replicated in the Landlord and Tenant Act 1958 (Vic).

In Asian Pacific Building Corporation Pty Ltd v Sharon-Lee Holdings Pty Ltd [2013] VSC 11, Garde J confirmed the widely-held view that the repeal of the Landlord and Tenant Act 1958 (Vic) did not revive distress for rent and that the remedy remains abolished in Victoria.

However, the landlord in that case held a lien over the tenant’s goods left at the premises that crystallised after the landlord re-entered the premises and terminated the lease.  Consequently, the lien was not characterised as distress for rent and Garde J held that the lien was effective against the tenant’s goods.

The Tribunal held that the lien was void as against public policy.  That argument was rejected by Garde J and the Tribunal’s decision was overturned.

It is standard practice for leases in Victoria to deem goods left behind by the tenant to be abandoned and often to vest ownership of the abandoned goods in the landlord.  If the clause is enforceable and the tenant simply abandons its goods, a lien is probably does not assist the landlord.

However, a lien over the tenant’s goods could be useful if the goods are valuable and, for example:

1. the tenant tries to remove them after the lease has been terminated;
2. the tenant’s financier tries to execute a charge over the tenant’s goods;  or
3. the tenant’s Liquidator tries to remove the goods after the lease is terminated.

Consequently, practitioners acting for landlords should consider updating their precedents to include a lien in similar terms to the lien in the Sharon-Lee Holdings case.

The text of the lien is extracted at paragraph [12] of the judgment.  However, although the Court upheld the lien, it was critical of the way in which it was drafted (see paragraph [62]).  Accordingly, practitioners should not slavishly copy the form of lien considered in the judgment.

It is important to note that the lien must take effect after termination of the lease in order to avoid being characterised as distress for rent.

Consideration should also be given to registering the lien on the Personal Property Securities Register.

Thanks to Jamie Bedelis of Moray and Agnew for drawing my attention to this case and for his valuable input in discussing this post.