Leasing Insider | Sze Tu v Jam Studios Pty Ltd; Jam Studios Pty Ltd v Sze Tu [2018] NSWSC 868 (12 June 2018)

Margaret Sze Tu, Shiu How Sze Tu, Shiu Shing Sze Tu, Helen Sze Tu (the Landlord) were the registered proprietors and owners of premises known as Shop 5, 42-44 Queen Street, Campbelltown.

The dispute between the parties related to an alleged lease to Jam Studios Pty Ltd (the Tenant), who was in possession of the premises. The Tenant alleged that it held a lease in respect of the premises which was negotiated on behalf of the Landlord by its managing agent, CH Real Estate (CH).

The Landlord denied the existence of the lease on various bases, including that CH had no authority to enter into a binding lease on its behalf, that the Tenant was a mere licensee, that the Tenant’s evidence was capable of establishing no more than the existence of an implied ‘tenancy at will’ and that any such licence or tenancy at will had been terminated.  In the alternative, the Landlord contended, if there was a lease, that the lease included a requirement to pay a monthly rent which the Tenant had failed to do and, as a result, the Landlord was entitled to terminate that lease by notice or re-entry.

The Tenant contended that the Landlord had, through CH, granted it a “retail shop lease” of the premises, as defined in s 3 of the Retail Leases Act 1194 (NSW) and that the Tenant, acting in reliance of the express representations made by CH, entered into possession of the premises on or about 11 or 12 July 2013. The Tenant also alleged, among other things, that the the Landlord had breached an essential term of the lease by never installing air-conditioning and by refusing, ignoring or neglecting to provide consent to a Development Application by the Tenant to Campbelltown City Council which included a proposed use of the premises as a café.

Decision

The Court held that the Tenant’s possession of the premises was an implied tenancy at will, and further that it has been properly terminated by the Landlord by notice. On that basis, it was ordered that the Landlord were entitled to orders for possession of the premises and orders for arrears for rent up to the date of termination and mesne profits. The defendants’ counter-claim was refused.

Key takeaways

In any case where in a heads of agreement (or “Lease Advice Sheet” as the document is referred to in this case) it is presupposed that a formal lease will be negotiated and entered into:

• any material terms which a party considers are essential to it should be included in the Heads of Agreement;

• Courts are less likely to treat the terms contained in the heads of agreement as binding on the parties in circumstances where the formal lease is not subsequently executed, if the conduct of the parties after entering into the heads of agreement evidences that the parties did not at the time of entering into the heads of agreement consider themselves to have reached a concluded deal – for example because the parties’ correspondence after the heads of agreement refers to important terms and conditions not mentioned in the heads of agreement.

In circumstances where a tenant has entered into possession of premises and the landlord has accepted rent, but the parties have not agreed the length of the term for which the tenant will occupy the premises, an implied ‘tenancy of will’ may be created which is terminable by either party in accordance with the relevant laws of the jurisdiction in which the premises are situated – in this case one (1) month’s notice under s 127(1) of the New South Wales Conveyancing Act.  At paragraphs 165 and 166 of the decision Justice Walten did suggest that the outcome of the question as to whether a lease had been created may be different in circumstances where legislation has the effect of creating a lease that would otherwise not be one under common law; for example because the length of the implied tenancy extends beyond the threshold to create a lease in the relevant retail legislation (it did not in this case).  The specific example given in the decision was section 6A of the NSW Retail Leases Act which has the effect of bringing certain leases of more than one year within the ambit of that Act.

Jurisdiction: New South Wales
Date delivered: 12 June 2018
Property type: Retail

Authored by:
John Darmanin, Senior Associate