Before a retail lease is entered into, the Retail Leases Act 1994 (NSW) (the RL Act) requires a landlord to give a signed Lessor’s Disclosure Statement (Disclosure Statement) to the tenant. The Disclosure Statement contains important information about the premises and the commercial terms of the lease — such as the permitted use, the rent and the tenant’s contributions to outgoings (if applicable).
When a landlord wants to rent out their property, it is important that they firstly consider if the premises are commercial or retail premises as this will determine the type of lease to be entered into. Section 4 and Schedule 1 of the Retail Leases Regulations 2022 (the RL Regulations) define what type of businesses are determined to be a retail shop business and are thus covered by the RL Act. If the premises are determined to be a retail shop, the RL Act requires the landlord to provide to the tenant a Disclosure Statement at least 7 days before the lease is entered into. If the landlord fails to provide a Disclosure Statement to the tenant or the Disclosure Statement that was given was incomplete or contained information that was false or misleading, the tenant may terminate the lease within 6 months of the lease being entered into.
However, what happens when a landlord allows a tenant to prepare the Disclosure Statement, or issues an incorrect or incomplete Disclosure Statement to the tenant?
The Hum Group Pty Ltd v Deep Blue No. 11 Enterprises Pty Ltd [2023] NSWCATCD is an example of a recent Tribunal decision that contemplates this question.
At first instance, the landlord in this case received incorrect advice that the property to be rented was commercial premises. A commercial lease was prepared and issued to the prospective tenant. The tenant disputed that the premises were commercial, as the permitted use was a café, being a retail shop under the RL Act. The landlord refused to provide the tenant with a Disclosure Statement. The tenant then prepared the Disclosure Statement and submitted it to the landlord for its approval and signing. The landlord signed the Disclosure Statement and the lease was entered into by the parties. When signing the Disclosure Statement the landlord failed to notice that the tenant had not prepared it in accordance with the terms of the lease, as the rent was inclusive of outgoings rather than exclusive of outgoings as agreed.
The landlord issued the tenant with invoices for the outgoings, which the tenant initially paid. After some time the tenant stopped paying the outgoings and the landlord issued a termination notice to the tenant. As the tenant was in breach of the lease for non-payment of the outgoings, the landlord re-entered the premises and changed the locks.
The tenant brought a claim against the landlord in the NSW Civil and Administrative Tribunal (NCAT) and amongst other things claimed that the tenant was not liable to pay outgoings under the lease pursuant to section 12A of the RL Act. As such, the tenant argued that the termination of the lease by the landlord was invalid.
NCAT Senior Tribunal Member, G Blake AM SC held that “the disclosure statement on its proper construction records that the amount payable for outgoings was included in the rent to be paid under the lease and does not disclose any amount for outgoings payable in addition to the rent. It follows that the [tenant] has not been liable to pay any amount to [the landlord] for outgoings pursuant to section 12A(1) of the RL Act and is entitled to recover the amount paid to the landlord [for outgoings]… and that the termination notice was invalid”.
This decision highlights the importance of making sure that the Disclosure Statement has been prepared in accordance with the agreed commercial terms of the lease, and accurately sets out the tenant’s obligations on whether they are required to pay outgoings.
Therefore, if you are contemplating entering into a lease either as a landlord or a tenant, it is recommended that you obtain proper advice from a reputable solicitor who has experience in all aspects of leasing. The solicitor can firstly assist you to correctly identify the type of lease that needs to be prepared for the relevant premises. Secondly, they can prepare or check the Disclosure Statement to ensure that the correct information is provided to the prospective tenant and avoid any pitfalls and potential claims to NCAT, which may be costly.
