The commencement date specified on a lease document can often have no bearing whatsoever on the lease start date. In the recent case of Longjing Pty Ltd v Perpetual Nominees Limited [2019] NSWSC 1098, the New South Wales Supreme Court was asked to determine the commencement date of a lease after it was omitted from the lease document.
This matter concerned a commercial lease of shops comprised of individual stalls within a retail shopping centre. The stalls operated as Asian grocery stalls and an Asian hawker-style market.
The facts of this case were quite involved.
Longjin Pty Ltd (Tenant) leased the shops 203 – 206 (Premises) in the Orion Springfield Central (Centre) in Springfield Lakes, Queensland from Perpetual Nominees Limited as custodian and agent for Mirvac Funds Management Limited (Landlord). Ms Ng is the sole director of the Tenant and was the guarantor under the lease contract. Ms Ng was the controlling mind of the Tenant.
Mr Hedley of Allied Property Group was employed by the Tenant to negotiate with the Landlord. The Landlord engaged Theo van Veenendaal (Mr V) as a development consultant to work on the development of the Centre and negotiate leases with key tenants. Mr V was involved in negotiating the lease documents with the Tenant.
Mr Dumbrell was the project leasing manager of the Landlord and, during 2015, liaised with Mr Hedley about the Centre and the lease of the Premises. On 5 February 2015, the Landlord provided a document titled “Orion Springfield Central…Retail Lease Proposal” for the Premises and also on 15 February 2015 for Shop MM5 (the Retail Lease Proposals). Both documents expressly stated that the premises did not exist and would need to be constructed. The Tenant executed both Retail Lease Proposals.
On 23 March 2015, Mr Dumbrell advised that the Retail Lease Proposals had received all internal approvals. The Tenant paid a deposit of $27,500 for the Premises and $36,666.70 for Shop MM5. On 24 April 2015, Gadens, the solicitors for the Landlord, sent the Tenant’s solicitor (who at the time was Raymond Lee & Co) a copy of the draft lease documents for Shop MM5 for review by the Tenant.
On 7 May 2015, the parties agreed (via email) that the handover date for Shop MM5 would be 13 August 2015. On 21 July 2015, Mr White, the Development Manager for the Landlord emailed Mr Hedley confirming that handover of the store would be on 12 August 2015 to open on 7 October 2015. This was followed by an email from Gadens to Raymond Lee & Co enclosing a copy of the agreement for lease and the lease for the Premises and the agreement for lease and the Lease for Shop MM5 (Lease Documents). Gadens acknowledged that whilst the terms of the Lease Documents had been agreed, their client had not reviewed them and reserved the right to amend the documents.
A handover notice was issued on 29 July 2015 and Mr White for the Landlord confirmed that the Lease Documents had been finalised (even though the parties’ solicitors were still negotiating). On 4 August 2015, Mr Hedley wrote to Mr White requesting amendments to the Lease Documents and on 6 August 2015 Gadens issued a letter to Raymond Lee & Co stating that the Landlord had elected to withdraw the offer to lease as the Lease Documents had not been executed.
Despite the withdrawal, Ms Di Rossi, the national Mirvac leasing manager requested a meeting with Mr Hedley on 7 August 2015. During the negotiations, it was decided that the Yum Cha restaurant would be located to Shop 116A instead of Shop MM5. Gadens only reissued the lease for the Premises and not Shop 116A.
On 18 September 2015, Raymond Lee & Co advised Gadens that their client would only proceed if a lease for the Yum Cha restaurant (Shop 116A) was entered into. The Tenant also stated other conditions (including landlord works). Between 18 September – 21 September 2015, the Tenant (Ms Ng) executed the lease for the Premises and the Tenant provided the Landlord with a bank guarantee in the sum of $165,000. The executed lease documents for the Premises were delivered to the Landlord on 2 October 2015. The lease for the Premises was to be held in escrow. Mr Hedley was notified that handover would be on 3 October 2015 to begin trading on 28 November 2015.
On 8 October 2015, the Tenant’s requests were rejected. On 13 October 2015, the Tenant advised that they had always intended to lease the Premises and Shop MM5. At this point, Shop MM5 had been leased to a third party. There were no other premises available and if an alternative premise was not found by 1 July 2016, the Tenant required compensation of $350,000.00 (plus GST). On 15 October 2015, Mirvac paid the Tenant one third of the fitout contribution. Mr V arranged for $300,000 to be paid by the Landlord and this was accepted by the Tenant.
Gadens issued a new handover notice on 19 October 2015 with an opening date of 14 December 2015. Further replacement pages were issued by Gadens (amendments to the rent and Yum Cha restaurant premises). These were signed and returned to Gadens on 30 October 2015.
The Tenant experienced fitout delays and could not meet the opening date of 14 December 2015. The anticipated completion date was 23 December 2015. On 19 November 2015, a location for the Yum Cha restaurant was found and on 24 November 2015, the Landlord executed the agreement for lease and the lease.
Between 25 November 2015 – 2 March 2016, the Tenant engaged Thomas Kung Lawyers to prepare a sub-lease agreement for prospective sub-tenants for the Premises. On 18 December 2015, the Tenant did not open for trade as agreed. On 11 January 2016, the Landlord paid the final instalment of the fitout contribution.
On 22 January 2016, the Landlord issued the Tenant a notice of breach for failing to commence trade and paying rent. On 15 February 2016, Gadens advised the Tenant that the Landlord agreed not to terminate the lease, provided the Tenant opened all food stalls by 28 February 2016 and remained open for trade in accordance with the lease. On 1 March 2016, the lease was terminated.
Under section 11 of the Retail Shop Lease Act 1994 (QLD), a lease is entered into on the earlier of the date it becomes binding or on the date the lessee takes possession of a shop. The Tenant alleged that the lease did not commence as the lease date had been left blank within the lease document and the Landlord failed to issue appropriate notices. The Landlord’s termination meant repudiation which the Tenant accepted.
The Landlord argued the lease commenced on three of the following dates:
The Court held that the lease commenced on 19 October 2015. Interestingly, Ms Ng admitted in her affidavit of 10 April 2019 that on or about 19 October 2015, the Landlord formally handed over the Premises to the Tenant to begin the Tenant’s fitout works.
As a matter of general law, determining the commencement of a lease requires consideration of the parties conduct rather than the parties actual intention. The court applied an objective assessment to the scenario to determine whether the parties intended to create a legal binding relationship. Not only had Ms Ng admitted handover in her affidavit, the Tenant received a fitout contribution from the Landlord. As Hallen J stated ‘it would be commercially unrealistic to conclude that no lease had commenced in light of the parties conduct.’
This case provides an important lesson for landlords who handover their premises without a clear understanding of when the lease commences. Carrying out fitout works of commercial or retail premises is a significant investment for landlords and tenants. It is important that both parties fully understand their obligations prior to commencing major renovations.
The case also shows that conduct that is inconsistent with the terms of the lease can affect a variation to the lease. This can affect the purpose of the lease.
