HWL Ebsworth Partner Gary Newton and Law Clerk Khushaal Vyas discuss the decision in NB2 Pty Ltd v PT Ltd [2018] NSWCA 10, where a greengrocer tenant alleged that the landlord had engaged in misleading and unconscionable conduct in relation to a retail lease agreement, after a competitor opened in the same shopping centre.
Gary will present the Conveyancing and Property Law Update at the Property Law Roundup Conference in March. He previously presented on New Leases, Significant Leasing Reforms, Developments and Trends at the Critical Leasing Updates, Drafting and Negotiation Conference.
In Brief
NB2 Pty Ltd v PT Ltd [2018] NSWCA 10 considered a case of alleged misleading and unconscionable conduct in relation to a retail lease agreement between a Landlord and the tenant, who was the owner of a fruit and vegetable shop. The tenant argued that both parties had an understanding that the tenant would have a first right of refusal and be notified of any competing fruit and vegetable retailers in the same precinct. Following the granting of a lease to a competing fruit and vegetable retailer, the tenant argued that the Landlord had engaged in misleading and unconscionable conduct. The Court held that whilst there was an understanding of a first right of refusal, this understanding only extended to independent retailers and did not extend to large supermarkets. Thus, the Court dismissed the tenant’s appeal.
Factual Background
In 2004, NB2 (the Tenant) entered into a 5-year retail lease for a fruit and vegetable shop in the fresh food precinct of Westfields Miranda shopping centre. During this time, it also acquired a lease over another premises following the failure of another fruit and vegetable shop. With the lease expiring in 2009, PT Ltd (the Landlord) entered into negotiations with the Tenant for a new agreement. For various reasons, the tenant considered consolidating their premises into a single shop. The Landlord noted that if this were to occur, the Tenant would be subject to a higher rate of rent. Whilst the Tenant stated that it would pay a higher rent, they noted their expectation that they did not want any competition. However, a subsequent Disclosure Statement did not include any suggestion of exclusivity. Following further negotiations, the Landlord ultimately stated that it could not provide an exclusivity clause but could offer a first right of refusal on any new independent fruit and vegetable shop. Accordingly, a new lease was entered into in September 2009.
In March 2011, a Franklins store began selling fruit and vegetables and in 2014 the Tenant’s lease was terminated for failure to pay rent. In response to the Landlord’s commencement of proceedings to retrieve the rent, the Tenant argued that the Landlord had engaged in misleading and unconscionable conduct by the Landlord’s failure to notify of the Franklins shop.
Judgment
The Court held that there was no representation made that the Tenant was to be notified about the granting of a lease to Franklins. Indeed, the negotiations between the Landlord and Tenant, at best, only provided a protection against ‘independent’ retailers. Such a limitation to the exclusivity protection did not extend to protection against competition from supermarkets like Franklins. Therefore, the Landlord was under no obligation to disclose the granting of a lease to Franklins and thus there was no misleading, deceptive or unconscionable conduct.
Accordingly, the Tenant’s appeal was dismissed with costs.
Lessons
Such a case highlights that all parties to a lease agreement, or any contractual arrangement for that matter, should be wary of the representations they make during the negotiation of a new agreement. For best practice and to avoid any misunderstandings or conflicting interpretations of contractual clauses, all parties should endeavour to entrench any mutual understandings or verbal negotiations in written form within the contract.
Partner Gary Newton is an accredited specialist in property law since 1994 and has a built broad property practice since 1983. Gary advises on a variety of real estate transactions including retail leasing and commercial leasing, both for landlords and tenants, property acquisitions, property developments and sales including residential, commercial, retail and industrial, buying property in Australia, strata, community and neighborhood title law, property joint ventures, due diligence, finance and structuring, partitions, environment and planning; and general property advice. Gary has been named in Best Lawyers™ Australia for Leasing Law and Real Property Law. Gary has also been recognised in the Recommended Tier of the ‘Leading Property & Real Estate Lawyers’ for the 2018 edition of Doyle’s Guide. In 2016, Gary was listed as a recommended lawyer in Real Estate by the Asia Pacific Legal 500.
He has been recognised in the Asialaw Leading Lawyers Guide (2017) as Leading Lawyer in Construction & Real Estate and has been selected for inclusion in the Asialaw Profiles Legal Directory (2017 & 2018) for Real Estate. He was also awarded in 2016 a Lexology Client Choice Award for his excellence in client service in the area of Real Estate. Gary is a member of the Law Society Property Law Committee and is the current Chairman of the Australia Property Law Group of the Law Council of Australia, General Practice Section. Gary has published 8 books on property law including 2 books in 2017. Gary is one of the authors of the LexisNexis Butterworths NSW Conveyancing Service (loose leaf). Gary is a regular speaker at Property Law Conferences. For the Real Estate Institute of NSW Gary presents a regular webinar programme for commercial real estate agents. Contact Gary at gnewton@hwle.com.au or connect via LinkedIn.
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Khushaal Vyas is a Research Clerk at Baker McKenzie. He is a final year undergraduate Arts/Law student at the University of New South Wales where he was President of the UNSW Law Society and was a finalist for Australian Law Student of the Year 2017 & 2018. Connect with Khushaal via LinkedIn.