<Last week we looked at a landlords rights under a commercial lease where the tenant left the property and stopped making rental payments mid way through a lease.
Our firm brought the matter before the Tamworth Local Court before the lease term expired.
In short there were three periods in which the court had to consider the landlord’s right to damages under the lease. To recap they were as follows:
the time between the tenant ceasing to make rental payments and surrendering the keys;
the time between the tenant surrendering the keys and the date the matter was brought before the court; and
the time between the court date and the end of the lease which was not due to expire for a further six months.
In the first period, the tenant simply owes the landlord the rent not paid, as discussed last week.
In regard to the second period, the landlord could recover the unpaid rent because he was entitled to be compensated as though the contract had been completed without default. During this period however, the landlord needed to show that he had taken reasonable steps to mitigate his loss. This meant demonstrating that steps had been taken to encourage other tenants to lease the empty premises.
The third period is legally tricky. For that period, the court could not be sure that the landlord would continue to advertise the property or that the premises would remain empty.
There is no NSW case law on the point. We researched and relied on a Western Australian case of Luxer Holdings v Glentham which stated that:
Where the matter is decided in court before the term of the lease expired, the normal damages are the total rent that would otherwise have been paid, less any amount the landlord has, or is likely to obtain, as profits from the use of the premises until the date the lease would have otherwise expired.”
We were able to prove that the landlord had taken all possible steps to mitigate its loss up to the date of the court hearing and that it was unlikely that the landlord would obtain any profit from the premises between the date of the court hearing and the expiry of the lease.
Our client was awarded the full value of the rent that he would have been paid had the tenant stayed in place until the end of the lease.
Should you wish to discuss any aspect of commercial leasing please contact Everingham Solomons, because Helping You is Our Business.
An interesting legal point arose recently in a case that I conducted in the Local Court. The question centred around the damages that a landlord is entitled to recover from a commercial tenant that breaches a lease.
Six months into the lease the tenant stopped making rental payments. Nine months into the lease, the tenant surrendered the keys to the premises and moved out.
Court proceedings were brought by the landlord and when the matter came before the Tamworth Local Court, about six months of the original lease term remained yet to expire.
The court had to consider whether the landlord was able to recover from the tenant, rental payments for three separate periods:
the time between the tenant ceasing to make rental payments and surrendering the keys;
the time between the tenant surrendering the keys and the date the matter was brought before the court; and
the time between the court date and the end of the lease which was not due to expire for a further six months.
Leases are contracts. There are two general contractual principles which have relevance.
Firstly, where a contract is unlawfully terminated by one party, the other party is entitled to recover damages so as to place him or her in the position that he or she would have been in, if the contract had been completed .
Secondly, the aggrieved party must take reasonable steps to mitigate his/her loss. You cannot claim for a loss that you have not attempted to avoid.
In respect to the first period of time, the application of the law is relatively simple. The tenant owes the landlord money just like a debt. The landlord cannot mitigate their loss because the tenant was still in the premises.
Establishing the landlord’s rights to damages in the second and third periods is a little more complex and requires further explanation which will be explored in an article next week.
If you have any questions regarding commercial leases, please do not hesitate to contact Everingham Solomons because, Helping You is Our Business.
In a recent full Federal Court decision, a New South Wales property developer purchased a single story house, intending to develop it into units for use other than for residential accommodation. At the time of settlement the home was occupied by a tenant. The developer adopted the view that the sale was a taxable supply because it was his intention to develop the land into commercial units and consequently claimed a tax credit from the ATO.
The ATO took a different view.
The GST legislation provides that the supply of property is not subject to GST if the premises are to be used predominantly for residential accommodation. The issue was whether the property was to be used predominantly for residential accommodation.
The developer contended that the question as to whether the premises were to be used predominantly for residential accommodation is to be determined by reference to the subjective intentions of the developer. The developer asserted that it intended to develop the property at the end of the tenancy period for uses which were not predominantly for residential accommodation.
The full Federal Court dismissed the developer’s submissions and determined that the test as to whether residential premises are to be used predominantly for residential accommodation should be determined objectively by reference to the physical characteristics of the property as at the date of acquisition and that the intentions of the future owner are irrelevant.
The implications of GST must be considered in every property transaction. It is still an area which is fraught with uncertainty.
At Everingham Solomons we have the expertise to assist you with all of your property and development matters because Helping You is Our Business.
Last week we looked at a landlords rights under a commercial lease where the tenant left the property and stopped making rental payments mid way through a lease.
