VCAT recently held that s 92 of the RLA 2003 prevents recovery of costs in a dispute between landlord and tenant of a retail premises lease of less than one year.

Section 12 of the RLA 2003 states that the Act does not apply to retail premises leases of less than 1 year.

However, the finding relies on s 81(1)(c) of the RLA 2003, which states that a retail tenancy dispute under part 10 of the Act includes a dispute between a landlord and a tenant:

arising under a lease that provides for the occupation of retail premises in Victoria to which none of those Acts apply or applied

The reference to “those Acts” is a reference to the RLA 2003, the Retail Tenancies Act 1986 or the Retail Tenancies Reform Act 1998.

The decision is worth noting because disputes arising out of leases with a term of less than one year are likely to be relatively small claims where the impact of costs is significant.

The discussion is located in Burd & Cooper Pty Ltd (ACN 119 808 034) v C & P Cooper Pty Ltd (ACN 119 813 133) and Ors (Retail Tenancies) [2011] VCAT 1416 at [44] to [69].

The operation of s 81(1) was also discussed in State of Victoria v Tymbook Pty Ltd [2005] VSC 267.

Thanks to Jamie Bedelis of Cornwalls for alerting me to this judgment.

As most readers are aware, Victoria has had a new disclosure statement under the RLA 2003 since 1 January 2011.

A copy of the regulations with the new disclosure statement can be found here.

I previously posted some comments on the new disclosure statement here.

I have been looking at this again recently and have set out below some additional comments that readers might find useful.

Sections 17 and 18 of the RLA 2003 set out the consequences for failing to give a disclosure statement. There are also consequences for giving a statement that is ‘false, misleading or materially incomplete’.

In addition to the consequences set out in the statute, it seems to me that the main risk arising out of a landlord’s disclosure statement is their use by the tenant in a damages claim arising out of pre-contractual representations.  Damages claims are often used defensively by a tenant seeking to set-off damages against rental arrears (click here for a discussion on using a damages claim and equitable set-off defensively).  As discussed in my earlier post on the new disclosure statement, there are some parts of the disclosure statement that may be difficult to complete and may give rise to errors.  Solicitors advising landlords on the completion of the new disclosure statement should be aware of those difficult clauses and be careful to avoid inadvertent misrepresentations.

Clause 28.1 of the new disclosure statement requires the landlord to disclose ‘[a]ny other representations by the landlord or the landlord’s agent’.  I have been told that most landlords are saying something to the effect of ‘nil, other than those contained in the lease and this disclosure statement’.  This, on its own, will not absolve the landlord of any liability under the TPA or the FTA for pre-contractual representations.  However, as the statement is usually signed by the tenant, it supports an argument that the tenant did not rely on any pre-contractual representations.  For a discussion on the effect of acknowledgements of this kind, see Poulet Frai Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211; [2005] FCAFA 131 (otherwise known as “Lenard’s Chicken case”).

Clause 16.1 of the new disclosure statement suggests that legal costs may be recoverable.  However, costs associated with the negotiation, preparation or execution of a lease cannot be recovered under s 51 of the RLA 2003 and legal costs of a retail tenancies dispute generally cannot be recovered under s 92 of the RLA 2003.

Some other issues that have been drawn to my attention by solicitors who practice in this area are:[1]

• the ‘tick-a-box’ format of the new form invites error, particularly from ‘mum and dad’ landlords;
• clause 17.1 of the statement asks for:

…any alteration works, planned or known to the landlord at this point in time, to the premises or building/centre, including the surrounding roads, during the terms or any further term or terms…

It is not clear how far this reaches.  Are the roads limited to roads within the shopping centre, or does it extend to roads outside the centre and in the control of the council?  How much investigation is required?  At this stage, again, the best that landlords can do is disclose everything they are aware of and then add an appropriate qualifier.  It may also be prudent to add that the landlord has not made any inquiries or detail the inquiries that have been made.  This will not necessarily prevent the document from being materially incomplete, but it is difficult to see what else a landlord can do;

• clause 14 asks for estimates of outgoings including GST.  I am told that landlords often give their estimates of these figures pre-GST in negotiations.  Clause 22, on the other hand, specifies the figure as both including and excluding GST.  This could give rise to errors when completing the document;
• clause 4.2 asks whether the landlord has provided a copy of any Crown lease to the tenant and clause 33.2 only allows for either a ‘yes’ or a ‘not applicable’ to be completed.  It is not clear whether the landlord is obliged to provide a copy of any Crown lease.  However, as provision of a completed disclosure statement is required under the Act, it is prudent to provide a copy of any Crown lease (if applicable);
• clause 14.10 refers to the prohibition on recovery of capital costs under s 41 of the RLA, but does not make reference to the landlord’s obligation to conduct repair and maintenance under s 52 of the RLA and the difficulties associated with recovery by the landlord of those costs (for a discussion of this issue, click here);  and
• there is no obligation to disclose the security required by the landlord.  Some practitioners include this in the landlord’s representations in clause 28.1.

Another issue in the Primary RE case was whether a replacement RE can seek relief from forfeiture of part only of a terminated lease.

Primary RE was appointed as replacement RE for only the 2007 scheme.  However, some of the leased land was used for other schemes as well.   Consequently, Primary RE would be able to seek relief from forfeiture of part only of the terminated lease.

The Court found that:

• a right to seek relief from forfeiture of part only of a lease would not transfer under s 601FS;  and
• even if it did transfer, the unfairness created by seeking relief of part only of a lease would be a good reason to deny the grant of relief.

This finding may present a significant obstacle to responsible entities seeking to rescue distressed managed investment schemes where the lease has already been terminated.

However, the Court was willing to accept that part of a lease that had not been terminated could vest in a replacement RE.  Justice Rares in Huntley Management Ltd v Timbercorp Securities Ltd [2010] FCA 576 stated that two REs could be tenants of the same lease under s 601FT.  Justice Judd distinguished the Primary RE case on the basis that the right to seek relief against forfeiture is indivisible.  With respect, it is not clear why a single estate in land should be viewed as divisible by statute but that a right to seek relief from forfeiture of the same estate(s) in land is not divisible by the same statute.

The relevant discussion takes place in paragraphs [199] to [207] of the judgment.

The Federal Government recently published a discussion paper on Managed Investment Schemes.

The discussion paper arises out of recent high profile collapsed managed investment schemes and raises issues in relation to the transfer of a viable MIS, restructuring a potentially viable MIS and winding up a non-viable MIS.

A copy of the discussion paper is available here.

Submissions are due on 30 September 2011.

Primary RE replaced the old Great Southern RE of the schemes in this litigation.

Under s 601FS of the Corporations Act:

If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity. 

The question in the case was whether a right to seek relief against forfeiture ‘becomes’ a right of the new RE under s 601FS.

A number of arguments were raised in relation to whether the right to seek relief from forfeiture transferred to the new RE.  However, the Court ultimately decided that the new RE sought to exercise a right to seek relief against forfeiture under s 146(2) of the PLA and that the right under that statute was:

… confined to the person against whom the “lessor is proceeding, by action or otherwise, to enforce or has enforced without the aid of the court …” 

As the landlord had taken that action against the Great Southern RE, the Court found that Primary RE had no right to seek relief from forfeiture under s 146(2).

The Court’s reasons do not disclose:

• why a right in the hands of the former RE under s 146(2) of the PLA is any different to any other right, obligation or liability in the hands of the former RE;  or
• whether a right to seek relief against forfeiture in the Court’s general equitable jurisdiction would transfer to the new RE.

The relevant discussion is at paragraphs [165] to [181] of the Judgment.