What is the cost of a tenant not understanding the obligations of their retail lease?
It could mean the termination of the lease by the Landlord and the a clan for damages.
Once a tenant signs a lease they are bound by it. It does not help them in any way to afterwards claim that they did not understand what they signed. One area of misunderstanding is sometimes in regard to outgoings payable under the lease.
In the case of Scudooda Pty Ltd v K and E Property Pty Ltd (2018) NSWSC 1397the tenant’s misunderstanding of the lease provisions lead it to act in a manner which brought it in breach of the lease. The background was as follows:
- In September 2009 the tenant, Scudooda, operated a restaurant and bar from leased premises in York Street, Sydney.
- The lease set out the outgoings that each party was required to pay.
- After taking possession Scudooda organised for the supply of electricity to the premises and paid all electricity bills.
- In November 2016, Scudooda wrote to the landlord claiming that the landlord was required to reimburse it the sum of $24,043.10 for electricity bills which had been paid by the tenant until that date.
- After December 2016, Scudooda stopped paying rent and claimed that it had the right to offset the electricity bills against the rent.
- By 2018 Scudooda claimed that over $266,000 was owing to it for all electricity bills paid by it since early 2010.
- In January 2018, the landlord served Scudooda with a Notice of Intended Termination by Default stating that it would terminate the lease if the rent owing in the sum of $145,622.78 was not paid within 7 days.
- Scudooda failed to pay the outstanding rent and as a result, in February 2018, the landlord formally terminated the lease.
The Court found:
- The lease specifically excluded electricity charges from the services Scudooda was required to pay for under the lease.
- The electricity charges payable by Scudooda under the contract for the supply of electricity with its energy provider did not fall within the services that the landlord was required to pay.
- The payment of electricity charges was not governed by the lease and the Court found that a reasonable business person would consider the matter of arranging and paying for electricity was something that the tenant had to deal with.
- As the landlord was not liable for the tenant’s electricity bills, the tenant was not entitled to set off the electricity costs against the rent. In ceasing to pay rent Scudooda breached an essential term of the lease and the landlord’s termination of the lease on the grounds of non-payment of rent was justified.
The key takeaway is that anyone entering into a lease should be crystal clear on what their obligations are under the lease. If a dispute arises regarding an alleged breach by the landlord, it is generally not resolved by the tenant refusing to pay the rent.
If you need advice about any kind of lease prior to or after the lease is entered into, call Paul Pritchard on 9543 1444.
