Outgoings — review of lettable area
Broadly speaking, the definition of the lettable area in a lease must be appropriately drafted and scrutinised to ensure that it encapsulates the intention of the landlord and the tenant.
This is paramount in regard to a landlord’s ability to apportion costs to and recover costs from tenants and weighs heavily on the proportion of costs attributable to a building payable by a tenant.
In the decision Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd  WASCA (Ray Mullins Case), the landlord and the tenant were in dispute in regard to, amongst other things, the precise area of the building occupied by the tenant and other occupants in the building.
This point was significant because the area occupied by other occupants was a crucial factor in determining the lettable area of the building and, therefore, the proportion of outgoings payable by the tenants.
In essence, in the disputed lease, the Floor Area of the Building was defined as the aggregate floor area of the Lettable Parts of the Building as certified by the landlord from time to time using the latest method of measurement published by the Property Council of Australia Limited for commercial retail premises (citations omitted). This definition is what one would expect to see in a lease.
The expression Lettable Parts was defined as those parts of the building designated by the landlord from time to time as being intended for letting.
In the Ray Mullins Case, the term ‘letting’ was not defined in the disputed lease and it was held by Buss JA, Newnes and Murphy JJA that the precise meaning of ‘letting’ in a particular case will depend upon the context in which the word is used.
Significantly, it was held that the term ‘letting’ within the definition of Lettable Parts was confined to the granting of leases or tenancies in the strict sense. The term ‘letting’ in the disputed lease did not extend to licences, including licences for exclusive possession, unless the licence was, as a matter of law, a lease or tenancy.
Their Honours held that, on its proper construction, whether a part of the building is within the definition of Lettable Parts is a question of fact and an objective test is to be applied.
In circumstances where there is no certainty behind the definition of ‘letting’ one must look at the particular part of the building that is designated by the landlord as available for leasing or as set aside with the object or purpose of being leased.
The constitution of a tenancy
Various arrangements including “licences” of storerooms and outdoor areas were considered in determining whether those areas formed part of the Lettable Parts of the building.
In deciding whether parts of the building constituted a lease or tenancy or a licence or other informal arrangement, their Honours considered whether the relevant occupiers were granted by the landlord exclusive possession for a fixed or periodic term certain in consideration of a premium or periodic payments.
When drafting a lease, the lettable area of the building must be defined in detail to include what the landlord will, in practice, use to determine the lettable area of the space in the building.
If it is intended that the lettable area of the building is to include areas the subject of a licence, the definition of lettable area should explicitly provide for licences.
From a tenant’s perspective, understanding the areas that the landlord will classify as forming part of the lettable area of the building will impact on the proportion of the outgoings that a tenant is liable to pay. The more area attributable to the lettable area of the building will result in a lower proportion of outgoings payable by a tenant.