Australia: When One Disclosure Statement Is Probably Not Enough

To avoid having to pay compensation when there are any significant changes in circumstances between the issue of a disclosure statement and the signing of a lease, landlords are "probably" obliged to issue an amended or further disclosure statement to tenants. This is the key point to take away from a recent decision by the Retail Shop Leases Tribunal in which our firm successfully acted for the landlord in defending 3 claims for compensation by a tenant.

What happened?

• A long term shopping centre tenant's lease was due to expire in February 2007.

• The tenant intended to open a new rebranded store when the new lease commenced.

• In July 2006 the tenant agreed to move to a nearby shop so another retailer could expand its business to take advantage of a new "Market Lane" concept being introduced by the centre manager for the section of the centre.

• On 22 September the tenant signed an offer to lease for the new shop, which included a commencement date of February 2007 and was accompanied by a schematic of the new concept for the area. The tenant included further special conditions to enable him to have until 30 June 2007 to complete the fitout of the new shop and to continue trading from the current shop until that was completed.

• In the disclosure statement issued a few days later, the commencement date for the lease was shown as 11 February 2007.

• The draft lease given to the tenant in October 2006 only referred to the commencement date as "2007" and contained a sunset clause allowing either party to terminate the agreement if the landlord did not have vacant possession of the new shop by late 2007.

• In November 2006, Woolworths expressed an interest in leasing an area directly opposite both the current shop and the new shop. The landlord negotiated this lease and the works for the Woolworths tenancy progressed in conjunction with the new concept works during mid to late 2007.

• The tenant finally signed the lease for the new shop in early May 2007 and the landlord gave possession of the new shop to the tenant in late May 2007.

• The tenant's new shop opened in September 2007.

• The tenant complained that the building works were adversely affecting its business and in response, the landlord granted considerable rent relief to the tenant.

What the tenant claimed

• Compensation for loss and damage allegedly suffered both before and after the opening of the new shop as a result of the building works. The tenant alleged that the building works substantially restricted access to the current and the new shop and altered the flow of customers past the shops. Significant disruption to trading was also alleged.

• Further compensation on the grounds that the landlord:

What the landlord argued

• The landlord argued that it took reasonable steps to minimise disruption by installing floor to ceiling plastic sheeting around Woolworths and giving rent relief to the tenant. Trading figures and customer counts supported the landlord's claims.

• The landlord accepted that the disclosure statement was defective as it made no reference to the uncertainty about the commencement date. However, as the tenant didn't sign the lease until May 2007 he could not have been misled by thinking it would commence from 11 February.

• The landlord denied that it failed to disclose the extent of the works, as the centre manager met regularly with the tenant, usually at the tenant's request, to provide progress updates.

• At the time when the disclosure statement was issued there were no plans for Woolworths to become a tenant of the Centre.

What the Tribunal decided

• The Tribunal agreed the building works did not substantially affect access to the tenant's shop or significantly disrupt trading (confirmed by the trading figures and customer counts)

• The tenant had not proven that the landlord failed to take all reasonable steps to minimise the interruption to the trading.

• The Tribunal's view was that the cause of the delay in the opening of the tenant's new shop was the tenant's own delay in securing a suitable shop designer.

• The disclosure statement was defective when the tenant signed the lease in May 2007, as it should have made reference to the building works.

• As to whether the landlord should have issued another statement disclosing the building works, the answer was "probably".

• On the issue of causation (whether the absence of a new statement made any difference to the tenant's conduct), the answer was that it did not, as the tenant was well aware of the works from the frequent meetings and emails between the centre manager and himself. Even if the statement had disclosed the works, the tenant would probably have proceeded with the new lease anyway.

Why the decision is important

There is nothing in the Retail Shopping Leases Act or Regulations that obliges a landlord to provide a disclosure statement on more than one occasion. However, a cautious landlord should consider providing an updated disclosure statement if any circumstances change. This is a common sense approach in case a stronger word than "probably" is the Tribunal's answer in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.