“Pallas” revisited – The consequences of failure to give a disclosure statement - Retail Shops Act perspective

The facts of the recent case determined by the Western Australian Court of Appeal, the subject of Lavan’s Update on 16 May 2017,¹ could have been different if the tenant had been aware of their right to terminate the lease because the landlord failed to provide a disclosure statement under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act).

This case highlights the importance of the landlord providing a disclosure statement to a tenant in accordance with the Retail Shops Act.

Recap

Pallas Bride & Fashion Pty Ltd (Pallas) leased premises in Subiaco.  The lease was to expire on 2 January 2015.  In November 2014, the landlord and tenant signed a letter of agreement pursuant to which the landlord agreed to: “hold over (i.e. continue) the Lease on the same terms and conditions as are contained in the Lease document dated 15 December 2009, with the exception of the Rent [which remained at the same amount]”, and pursuant to which the landlord could “increase the Rent on or before 2 January 2016, for rent applicable to any further period of the Lease… beyond 2 January 2016”.

In March 2015, Pallas purported to give one month’s notice of termination of the lease, and relocated its business to another store in Claremont.

The landlord sued for damages claiming the tenant had repudiated the lease.

At trial, the landlord contended the November letter agreement (NLA) created a continuing fixed term lease for a year (ending on 2 January 2016).

The trial judge found for the landlord.  The tenant’s (Pallas) appeal was dismissed by the appeal court.

The appeal – Retail Shops Act perspective

At the trial the tenant had attempted to raise the following argument:

1. the NLA was a “retail shop lease” as defined in the Retail Shops Act;²
2. the signing of the NLA constituted entry into a retail shop lease for the purposes of the Retail Shops Act;³
3. Pallas had not, at least 7 days before entering into the lease, been given a disclosure statement in accordance with the Retail Shops Act;⁴
4. the provision of the Retail Shops Act,⁵ which provides that a disclosure statement is not required to be given on renewal of a retail shop lease under an option or on the assignment of a retail shop lease, did not apply; and
5. in those circumstances, the Retail Shops Act⁶ gave Pallas the right, within 6 months after the lease was entered into, to give the landlord written notice of the termination of the lease.

Unfortunately the tenant had not pleaded the facts showing the NLA to be a retail shop lease, or the absence of a disclosure statement.

The determination of the appeal court included that if a party’s case is not disclosed in its papers prior to trial but a line of questioning is attempted of the other side’s witnesses in relation to a non-pleaded set of facts, that undisclosed case will not be allowed to be put at trial.

This was a real blow for the tenant because the words of the Retails Shops Act are very clear with respect to the requirement for the landlord to provide a disclosure statement to the tenant.  The summary in paragraphs numbered 1 – 5 above succinctly set out the position under the Retail Shops Act.

Had this been properly pleaded, in our view, the court’s decision would have been very different.

Lessons for learning – Retail Shops Act perspective

The following learning points flow from this case from a Retail Shops Act perspective:

1. the importance of establishing if the Retail Shops Act applies to a lease; and
2. the importance of the landlord providing a disclosure statement to the tenant 7 days before the lease commenced.