Australia: Low Cost Retail Shop Lease Disputes Does Not Mean Low Evidence

To avoid costly and time-consuming disputes in the Retail Shop Leases Tribunal, the party intending to commence proceedings should ensure that it has evidence to the standard required to prove its claim. This is a 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 a claim for compensation by a tenant.

What happened?

• The tenant operated a café and take-away food outlet and service station business. The tenant's lease was for a period of three years, commencing on 30 September 2003, with two three-year options to renew.

• The landlord was required by the lease to supply all the fuel required for the operation of the service station and to maintain the fuel bowsers in good repair. The lease also made provision for the tenant to supply its own fuel if the landlord did not supply fuel for 7 days or more.

• The tenant's obligations under the lease included accounting to the landlord for the proceeds of fuel sales (less the tenant's commission) and keeping proper records of all purchases and sales of fuel.

• The tenant was in arrears in its accounting to the landlord for the proceeds of fuel sales (less commission) and the landlord locked the fuel pumps. Within a few trading hours, the tenant had removed the locks from the fuel pumps and it was able to continue selling fuel.

• During the term of the lease, the landlord served three separate notices to remedy breach in relation to the tenant's failure to make certain payments under the lease (including the proceeds of fuel sale less commission) and provide daily control sheets to the landlord recording sales of fuel and stocks held.

• The landlord terminated the lease on 17 August 2006 after the tenant failed to comply with the latest notice to remedy breach. The tenant remained in possession of the premises for a further six months, but it only operated the café part of the business.

What the tenant claimed

• The tenant claimed damages for breach of the term implied in the lease by s43 of the Retail Shop Leases Act ("RSLA"), alleging that the landlord substantially restricted the flow of potential customers and caused significant disruption to the café and service station business by:

• The tenant also claimed damages of an unspecified amount for unconscionable conduct, the conduct being the landlord's refusal to renew the lease after a purported exercise of the option by the tenant and alleged interference with the tenant's quiet enjoyment of the premises.

What the landlord argued

• The landlord denied that the tenant was without fuel on the days alleged by the tenant. The landlord argued that it was diligent in efforts to maintain supplies of fuel, but in the absence of the daily control sheets, the landlord was forced to estimate the amount of fuel to be delivered, which at times resulted in an over or undersupply of fuel.

• The landlord denied that any failure to supply fuel caused significant disruption to the café trading because the business attracted numerous walk-in customers unrelated to the sale of fuel and the tenant kept the café open for trading in the evenings after the service station had closed.

• The landlord argued that it had properly maintained the fuel pumps and it gave the Tribunal evidence of that maintenance.

• The landlord made a counterclaim for arrears of rent, electricity, other payments owing to the landlord by the business and the value of equipment removed from the premises by the tenant.

What the Tribunal decided

• The Tribunal found that the tenant had failed to substantiate its claim that the landlord had substantially restricted the flow of traffic to the premises by failing to supply fuel.

• The Tribunal's view of the landlord's conduct in locking the fuel pumps was that the tenant did not appear to have suffered any loss.

• The tenant's claims in relation to interference with quiet enjoyment and the landlord's failure to maintain the fuel pumps were dismissed due to lack of evidence. The Tribunal also dismissed the claim that the landlord had failed to maintain and repair the premises, as the majority of alleged defects were minor and did not adversely affect the business.

• The Tribunal found that the tenant forfeited the right to exercise the option because it was in breach of the lease at the time, a circumstance not permitted under the lease.

• The tenant's claim for loss of capital value was dismissed due to lack of evidence of the market value of the business. The Tribunal did not accept the tenant's accountant's evidence of the value of the goodwill of the business, pointing to declining sales and diminishing gross profit, as well as the nominal value of the plant and equipment that remained.

• In relation to the landlord's counterclaim, the Tribunal rejected the claim for the value of the plant and equipment but awarded the landlord a reduced amount for rental arrears and electricity costs.

Why the decision is important

The tenant's failure to prove any aspect of its claim should be a timely reminder about the standard to be met in proving a case before the Tribunal. While the RSLA provides that the object of the RSLA is to be achieved through a low cost dispute resolution process for disputes, landlords and tenants should not expect that the low cost process is available at the expense of the evidence that a party would otherwise be required to adduce in other courts or tribunals.

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.