LAW100 Business Law | Gumland Property Holdings Pty Limited

Termination of a commercial lease due to the failure of payment by the lessee because of expiration of the sub-lease for which it was responsible.

Rule

A tenant must comply with the terms and condition of the commercial lease. A commercial lease lays down the rights and duties of the lessor and the lessee, the former is the owner of the property while the latter has agreed to lease that property. It is the primary rule of any form of tenancy that a tenant or a lessee would pay the rent amount without failure[1]. In general, commercial leases are prepared on different bases, like:

• Base rent, without outgoings;
• Base rent, without outgoings;
• Base rent, with a sales percentage
• Rent along with fixed percentage, market review based on CPI measure[2].

The tenants and landlord’s bargaining position determines the rental term of the lease. Commercial lease can be entered into for 3 to 25 years along with an option and an initial term to extend such lease[3].

Sub-let or sub-lease is not allowed on a tenant’s or lessee’s part unless it is permitted by the lessor under contract. Sub-lease enables a lessee to cut-down its operation when facing financial downfall and it also gets financial help by sub-letting the premises. However, sub-lease does not facilitate the lessee to evade its obligation pertaining to such sub-lease. It is to remembered that a sub-let or sub-lease is mainly allowed for the benefit of the tenant or lessee, therefore such tenant or lessee always holds certain liability for such sub-let or sub-lease.  therefore, on non-compliance of such lease or sub-lease, the lessor has the power to terminate such agreement and sue the lessee[4].

An assignment of a lease or sub-lease is the agreement between the lessee and a third party, which confers the obligation of the lessee pertaining to the sub-lease or it forms a fresh agreement involving the lessee and the third party[5]. This assignment may or may not be on the same terms as the lease between the lessor and the lessee. Therefore, the lessee cannot abandon or evade the terms of a lease on the basis of expiration of a sub-lease[6].

Application

Pertaining the laws of tenancy and lease, Duffy Bros Fruit Market Pty Ltd (Duffy) was held responsible for the non-compliance of the term of its agreement with the lessor. Duff was the lessee of the Transit Management Pty Ltd (Transit) where the former leased a property for 15 years. On arrears and non-payment of rent, the lessor and the lessee unanimously agreed to appoint sub-lease on the criteria that:

• the lessor would secure the sub-tenant for the part of the premises;
• lessee would be responsible for the payment of the sub-tenant’s rent;
• Duff was would be paying lesser amount of rent;
• The terms of the previous lease would be changed.

The deed was signed by both the parties and it clearly mentioned that Duffy would be responsible for the rent of the sub-tenant. Therefore, the shortfall in payment of rent by the sub-tenant would have to be covered by Duffy[7].

Part B

East v Maurer [1991] 2 All ER 733

Issue

Maurer falsely promised not to open a competing business when he sold one of his hair salon to East. Yet, Maurer continued working on another salon owned by him. East sued Maurer for fraud.

Rule

The law of Contract clearly states that a party must not enter into a contractual agreement based on fraudulent clauses or misrepresentation. The party forming such fraudulent contract shall be obliged to pay for damages in case of dispute[8]. Additionally, a contract based on fraudulent misrepresentation is not valid unless all the parties to such contract agrees to continue working under such fraudulent terms. If after the entering into such fraudulent contract, the other party comprehends such fraud and misrepresentation, then the party has the right to sue the other party.

The elements of Fraudulent Misrepresentation are as follows[9]:

• Representation was formed;
• Such representation was false;
• The defendant party entered into such fraudulent representation without knowing it to be false or recklessly without knowing;
• The defendant relied on such fraudulent representation; and
• The defendant suffered loss due to such fraudulent representation.

The remedies of fraudulent misrepresentation depends from case to case. It may attract rescission of the fraudulent contract or it may also attract damages to the defendant, or sometimes both. Fraudulent representation of a contract is necessarily not void rather it is voidable in nature, which gives the aggrieved party to decide whether to continue with such faulty contract.

While in terms of the Australian Consumer law (ACL):

• Contracts cannot be unfair and unjust in terms of consumers and small businesses;
• Consumers should be protected while they buy goods and services;
• Penalties, enforcement and consumer redressal should be focused on[10].

The ACL is applicable to all the Territories and States, and all businesses in Australia. ACL is laid down and controlled by the Australian Competition and Consumer Commission (ACCC) and the agencies of state and territory for protecting consumers[11]. The Competition and Consumer Act 2010 (CCA) broadly throws light on the provisions of Trade Practices Act 1947 (TPA) and is an extension of it. The TPA strived to protect consumers and promote a healthy competition between businesses. On a similar note, The ACL refrains businesses to put forward fraudulent contract and mislead consumers or other businesses entering into a contract. Therefore, the aggrieved party is eligible to claim damages under the Competition and Consumer Act 2010.

In addition to the remedies under Contract law and Consumer law, the aggrieved party can be brought under the Misrepresentation Act 1967 to award damages under the Common Law[12].

Application

In this case, East is the aggrieved party who entered into the fraudulent contract formed by Maurer promising that he would not start or continue working on a competitive business, which might hamper East’s business of hair salon that he bought from Maurer. Nevertheless, Maurer already had another hair salon when he sold one to East. After such Sale, Maurer continued with the other hair salon, defeating the profit of East’s business, giving it a heavy loss. East has the right to sue Maurer on the grounds of fraudulent representation of contract. However, East has the liberty to continue with the existing contract as it is a voidable contract. East may pray to the Court of Law for rescinding the contract or may pray for damages or both. The Court would rescind the contract on such prayer of the plaintiff. The Court would also award damages to the aggrieved party for incurring such heavy loss due to the fraudulent misrepresentation[13].

From the Australian Consumer Law’s point of view, East is also a consumers as he has bought the existing business of hair salon from Maurer. Therefore, East would also be protected under Consumer Law.  

Conclusion

It can be concluded by saying that the lessee can be held responsible for the arrears or default of rent made by the sub-tenant as sub-tenancy is a clause that is brought into the picture for the sole benefit of the tenant or lessee. Thus, a lessee is supposed to pay the arrears or defaults made by the sub-tenant. It would not be unjust on the part of the lessor if he sues the lessee on such non-compliance of payment of rent.

Therefore, East has the right to ask the court to cancel the contract on the grounds of fraudulent representation. East is also eligible to damages from Maurer for such misrepresentation.

Bibliography

Articles/ Books/ Reports

Carter, J. W. "Drafting termination clauses." Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 31.1 (2017): 22

Carter, John W. The construction of commercial contracts. Bloomsbury Publishing, 2013

Collins, Toni Leah. "The doctrine of frustration, commercial leases and the Canterbury earthquakes." (2016)

Duncan, William D., and Sharon A. Christensen. Commercial leases in Australia. Thosmson Reuter, 2017

Goldberg, Richard R. "SUBLEASING AND ASSIGNMENTS, PART 1 & PART 2"

Steiner, Beat U. "A Quick Review of a Commercial Lease." Prob. & Prop. 29 (2015): 48

Legislation

Commercial Tenancy (Retail Shops) Agreements Act 1985

Articles/Books/Reports

Corones, Stephen G. Competition law in Australia. Thomson Reuters Australia, Limited, 2014

Davies, Paul S. "RESCISSION FOR MISREPRESENTATION." The Cambridge Law Journal 75.1 (2016): 15-17

Klement, Alon, Zvika Neeman, and Yuval Procaccia. “Consumer Fraud, Misrepresentation and Reliance.” International Review of Law and Economics 54 (2018): 95-105

Stone, Richard, and James Devenney. The modern law of contract. Routledge, 2017

Cases

Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12

Legislations

Competition and Consumer Act 2010

Contract Law

Misrepresentation Act 1967

Trade Practices Act 1947

[1] Collins, Toni Leah. "The doctrine of frustration, commercial leases and the Canterbury earthquakes." (2016).

[2] Duncan, William D., and Sharon A. Christensen. Commercial leases in Australia. Thosmson Reuter, 2017.

[3] Carter, John W. The construction of commercial contracts. Bloomsbury Publishing, 2013.

[4] Carter, J. W. "Drafting termination clauses." Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 31.1 (2017): 22.

[5] Steiner, Beat U. "A Quick Review of a Commercial Lease." Prob. & Prop. 29 (2015): 48.

[6] Goldberg, Richard R. "SUBLEASING AND ASSIGNMENTS, PART 1 & PART 2."

[7] Commercial Tenancy (Retail Shops) Agreements Act 1985.

[8] Stone, Richard, and James Devenney. The modern law of contract. Routledge, 2017.

[9] Klement, Alon, Zvika Neeman, and Yuval Procaccia. "Consumer Fraud, Misrepresentation and Reliance." International Review of Law and Economics 54 (2018): 95-105.

[10] Corones, Stephen G. Competition law in Australia. Thomson Reuters Australia, Limited, 2014.

[11] Altman, Jon, and Sally Ward. "Competition and consumer issues for Indigenous Australians: A report to the Australian Competition and Consumer Commission by the Centre for Aboriginal Economic Policy Research, the Australian National University, Canberra." (2018).

[12] Davies, Paul S. "RESCISSION FOR MISREPRESENTATION." The Cambridge Law Journal 75.1 (2016): 15-17.

[13] Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12