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April 18, 2011

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New disclosure statement – Retail Leases Act 2003 (Vic)

A new disclosure statement under the Retail Leases Regulations 2003 (Vic) came into operation on 1 January 2011.

When a draft of the disclosure statement was first circulated, I made the following comments in a practice note:

Attached is a link to a letter sent from Roger Arwas at DIIRD to the Shopping Centre Council of Australia last month which is now available on the SCCA’s website here:  http://www.scca.org.au/Pdf%20links/2010PDFlinks/Final%20National%20Disclosure%20Statement%20May%2010.pdf 

It appears that landlords of retail premises in Victoria will be required to provide tenants with a new form of disclosure statement from 1 September 2010 [Ed – this was subsequently extended].  Many practitioners in this area do not appear to be aware of the new disclosure statement yet.

Landlords should be advised of the new disclosure statement with time to ensure compliance by 1 September 2010.

A few things to look out for in the new statement are:

    1. Clause 24.2 allows the landlord to tick a box to mark whether or not ‘[t]he tenant is assured that the current tenant mix will not be altered by the introduction of a competitor’.  The definition of ‘current tenant mix’ and ‘introduction of a competitor’ are not clear and landlords and their agents should be careful to avoid inadvertently marking the affirmative box.  This could cause difficulties if the landlord or its agent inadvertently checks the ‘yes’ box, particularly if the tenant reads and relies on that tick prior to signing the lease. 
    2. Clause 23.1 requires the landlord to disclose particulars of the ‘major/anchor tenants’.  There is no definition in the statement of a major or anchor tenant.
    3. Clause 27.1 requires the landlord to disclose ‘[c]urrent legal proceeding[s] in relation to the lawful use of the premises or building/centre’.  The definition of ‘lawful use’  is not clear.  For example, it may cover a dispute over whether the tenant has breached the permitted use in its lease.  It may also cover a breach of health regulations or the Occupational Health and Safety Act by the tenant that has resulted in a notice served on or charges laid against a tenant in the centre, but not the landlord.  Until we have some further guidance from the Tribunal, it would be prudent to disclose as much as possible.
    4. Clause 28.1 requires the landlord to disclose ‘[a]ny other representations by the landlord or the landlord’s agent’.
    5. The disclosure statement has spaces for certain outgoings or expenses that may not currently be recoverable under the RLA 2003 (eg. claue 14.10 has a space for land tax, 14.11 has a space for repairs and maintenance, 16.1 has a space for legal costs).  There are various warnings throughout the document suggesting that retail leasing legislation in some states may prohibit recovery of some amounts.  However, the inclusion of spaces for those items could invite their completion by uninformed landlords or their agents.
    6. The new disclosure statement does not sit comfortably with s 61(5A) of the RLA 2003.  That section requires an outgoing tenant who has sold its business to provide to the incoming tenant and purchaser a disclosure statement ‘in the form prescribed by the regulations (but the layout of the statement need not be the same as the prescribed disclosure statement).’  Under s 62, the assignor/vendor and its guarantors are not liable for breaches of the lease after the assignment has taken effect, provided that the assignor/vendor has provided a disclosure statement under s 61(5A) (erroneous reference to s 61(4) notwithstanding) and the disclosure statement is not false or misleading or materially incomplete.  The ambiguity set out above may mean the disclosure statement is arguably false, misleading or materially incomplete, preventing the assignor/guarantor from obtaining the benefit of s 62.  Also, an assignor/vendor would not have any knowledge of some of the information required in the new disclosure statement.  That means that an assignor / vendor must rely on information provided to it, presumably by the landlord or centre management under s 61(5), in order to obtain the protection of s 62.

Now that the new statement has been in force for over three months, has anyone had any experiences with the new form?

I have been asked to give a CPD on the new disclosure statement later in the year, so any comments will be most helpful.

April 15, 2011

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Section 146 notices, relief against forfeiture and ss 601FS and 601FT of the Corporations Act

Justice Judd in the Victorian Supreme Court is currently reserved on an application by Primary RE Ltd seeking either to preserve leases that were granted to the responsible entity in some of the Great Southern managed investment schemes or for relief against forfeiture of those leases.

Primary RE Ltd is a responsible entity that was appointed by members (known as Growers) to replace the insolvent responsible entity of some of Great Southern managed investment schemes.  A managed investment scheme is a form of trust regulated by the Corporations Act.  As well as being the trustee, the responsible entity was also the head tenant of the land on which the plantations were established.  The Growers are beneficiaries of the trust and sub-tenants of the responsible entity.

After the collapse of the Great Southern group, the receivers and managers in control of the land owning companies attempted to terminate the head leases granted to the responsible entity.  The Growers appointed Primary RE Ltd as their replacement responsible entity.  It lodged a caveat and argued that the leases were not properly terminated.  In the alternative, it sought relief from forfeiture of the head leases.  Primary RE Ltd relied on s 601FS, which states that the rights, obligations and liabilities of the former responsible entity in relation to the scheme become the rights, obligations and liabilities of the new responsible entity, and s 601FT, which makes the new responsible entity a party to certain scheme documents.

The case raises a number of interesting issues for leasing lawyers and managed investment scheme lawyers, including:

  • whether a right to seek relief against forfeiture transfers to a replacement responsible entity under ss 601FS and 601FT of the Corporations Act.  One of the arguments in the case is that the right to seek relief from forfeiture is a bare right to sue that cannot ordinarily be assigned.  I am not aware of any cases considering the operation of ss 601FS and 601FT in that context;
  • the requirements of a notice of default under s 146 of the Property Law Act 1958 (Vic), including the description of the breaches in the notice, service of notices on sub-tenants, any requirement to request compensation, the requirement to provide a reasonable time for rectification;  and
  • the impact of delay, the viability of the schemes and other discretionary considerations in seeking relief from forfeiture in the context of an insolvent responsible entity.
The case was heard at the end of March.  I’ll post a comment when the judgment is handed down.  Any comments would be appreciated.

April 7, 2011

5 Comments

Rent payable “without deduction”

Hi all, welcome to the first post of my blog.

I am a property and insolvency barrister at the Victorian Bar and I intend to use this site to provide comments on interesting developments in the law that I come across in practice.

To start the ball rolling, I’ll tell you about a case I am involved with that I think will have an impact on Australian leasing practitioners.

A Full Federal Court recently heard an appeal from the decision of Norman; in re Forest Enterprises Australia Ltd v FEA Plantations Ltd [2010] FCA 1444, in which Justice Finkelstein reluctantly found that the words “without deduction” in a rental covenant, without more, were not sufficient to contract out of an equitable set-off.  An appeal was heard in early March 2011 and the Full Court has reserved its decision.

The context of the decision was quite unusual – the landlord and the tenant were related companies and, for reasons not relevant to this post, the landlord promised to pay the tenants debts up to a particular amount.  However, the impact of the decision could be significant.

When leases are terminated for non-payment of rent, tenants often bring a damages claim against the landlord.  Typical claims are over pre-contractual representations about the quality of the property or traffic flow in a centre, or over a failure to adequately repair and maintain the premises.  If the tenant can establish a credible claim for more than the rental arrears, it can usually argue for an equitable set-off and obtain an injunction to secure its possession of the premises until trial.  This leaves the tenant in a strong bargaining position (particularly in a no-cost jurisdiction) and often results in the case settling in the tenant’s favour.  A failure to secure an injunction often results in the tenant’s insolvency.

However, it is possible to contract out of an ability to claim an equitable set-off.  There are conflicting Australian decisions about whether the words “without deduction” are enough, or whether express reference to set-off is required.  This case should be the first appeal court decision in Australia on this issue.

There are a lot of leases around, including some of the copyright leases in Victoria, that do not include the magic words ‘set-off‘.  Consequently, the decision has the potential to affect a significant number of leases.

I will post a note as soon as the Full Court decision is handed down.

Has anyone had any recent experience of a dispute where this issue arose?

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