In today’s volatile retail environment, it is becoming increasingly common that retailers are finding themselves in financial difficulty and unable to meet their obligations to landlords and suppliers. This is often driven by decreased sales due to trends in online shopping and increased competition from international low-cost brands. For already struggling retailers, financial and solvency issues are often exacerbated by retail shop leases which contain unfair contract terms, that impose high rent and non-negotiable lengthy terms. Those conditions have culminated in recent high profile voluntary administrations of popular brands, including:-
- EB Games;
- Harris Scarfe;
- Napoleon Perdis; and
Unfair Contract Terms
The Competition and Consumer Act 2010 (“the CCA”) and the Australian Consumer Law (“the ACL”) provides a degree of protection to businesses whether there have been unfair contractual terms imposed or one party has engaged in misleading and deceptive conduct.
In November 2016, the ACL was amended to include provisions regarding unfair contractual terms. These provisions relate to consumer or small business contracts. A small business contract can include the grant of a lease where:-
- One of the parties is a business that employs less than 20 persons; and
- the total price payable under the contact does not exceed $300,000 or $1,000,000 where the contract is for more than 12 months.
The ACL provides that a small business contract term is void if it is both unfair and a standard form contract.
In determining whether a contract is fair, a court will consider whether the term:-
- Causes a significant imbalance in the parties’ rights and obligations;
- Is not reasonably necessary in order to protect the legitimate interests of the party advantaged by the term; and
- Would cause detriment to a party.
The ACL gives examples of terms that would be considered unfair. These are terms that:-
- Allow a party to unilaterally avoid performance or vary terms under the contract;
- Allow a party to unilaterally renew or terminate the contract;
- Allow a party to vary the price payable without allowing a party to terminate;
- Require only one party to pay a penalty on termination.
Retailer tenants within shopping centres should be way of unfair contract terms imposed by landlords, for example, many retail shop leases include centre rules or regulations which are incorporated into the terms of the lease. It is usual for a landlord to reserve the right to amend those rules and regulations as it wishes. It is also not uncommon for a tenant to be in breach of the lease if it violates a term of the rules and regulations.
Tenants should keep in mind that a landlord can only make reasonable rules and regulations (and reasonable variations) that are not inconsistent with, and do not detract from, a tenant’s rights under the lease.
Misleading and Deceptive Conduct
The CCA contains a fairly broad prohibition on misleading and deceptive conduct. Section 18 of the CCA relevantly states:-
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
This is especially relevant in cases concerning leases in shopping centres. The courts have considered cases where the shopping centre or the landlord has made representations to a prospective tenant regarding foot traffic, anchor tenants and the composition of other retailers in the centre.
In the case of John Pravit Tantipech & Anor v IOOF Australia Trustees (NSW) Ltd, the Federal Court considered that an agent of the landlord made the following pre-contractual representations which were later found to be false:-
- 80% of the centre had been leased; and
- Shops surrounding the tenancy had been leased;
The court held that the misleading statements induced the plaintiff to enter into the lease as it is recognised that the success of a shop is largely influenced by the business being conducted in the surrounding areas. As such the court awarded damages and relief for any other liability under the lease.
In Fico v O’Leary, the court considered that the defendant, in negotiating the sale of a pharmacy, made misrepresentations regarding the following matters:-
- Turnover and profitability;
- Proximity of operating medical clinic;
- Airconditioning; and
- Computer systems for stock control and sales.
As these matters had induced the plaintiff into the lease, the court declared the lease void to the extent that it requires the payment of outstanding rent and variable outgoings.
Dispute resolution under the Retail Shop Lease Act
Pursuant to section 43 of the Retail Shop Leases Act 1994 (Qld) (“the RSLA”), a landlord can be compelled to pay a tenant reasonable compensation for loss or damage in some circumstances, for example if it makes an untrue statement or misrepresentation which causes the tenant to enter into the lease.
The Retail Shop Leases Act 1994 (“the RSLA”) provides a dispute resolution process that aims to provide a low-cost alternative to the issuance of court proceedings.
The process has three basic steps:-
- Notice of dispute;
- Mediation; and
- Determination by the Queensland Civil and Administrative Tribunal (“QCAT”).
Notice of Dispute
A Notice of Dispute is a standard form 4 which outlines the parties, the basis of the dispute and the issues to be determined. The form is then lodged with the QCAT registry.
The QCAT registry will then notify the parties and arrange for a mediation to take place. Parties cannot be represented at the mediation without the permission of the mediator. If the dispute is resolved at mediation, then the parties will sign a binding agreement which will be lodged with the registry.
Determination by QCAT
If the mediation if not successful or one of the parties does not attend, then the mediator can refer the matter to QCAT for determination.
QCAT has fairly broad power to make orders with respect to Retail Shop Leases. These can include an order that:-
- A party do or not do something;
- Pay compensation;
- Set aside a mediation agreement; and
- Give effect to a settlement.
Rose Litigation Lawyers has extensive experience in dispute resolution in relation to unfair contract terms and misleading and deceptive conduct in relation to retail shop leases.
Our knowledgeable team can also assist with lease negotiations to ensure unfair or arbitrary terms are avoided, your interests are protected and a more balanced position is achieved.
Please contact our office if you require further information on your rights or if you require assistance with your dispute.