NSW Need advice on getting out of a commercial lease

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alex_d1

Member
27 April 2018
2
0
1
Hi,

I've taken over a commercial lease in January 2016, it is expiring in 2021.

I have been running a restaurant in that location for a year before realising that the rent is too expensive to break-even in that location. In January 2017, I have started looking for a new tenant by employing 2 real estate agents as well as posting the ad myself and showing people through.
I kept paying rent until January 2018 at which point I ran out of capital to sustain it. During that year I have had a few strong applicants submit their applications, and the owner declined both of them.
First one was happy with everything and wanted to provide a 3 month bond, when the landlord wanted 6 months. The second one wasn't even given a reason.
A few months later, I get a phone call from the landlords agent saying that they are happy with 3 months bond, but the applicant obviously wasn't interested anymore. After my solicitor approached the owners solicitor to resolve the matter, by saying that it has been enough time and with the landlord declining 2 applicants I am not able to pay anymore, except $25k to break the lease, the owner declined everything and said that he is taking the bank guarantee and is not willing to let me out of the lease.
I have reason to suspect that my solicitor was influenced by the other solicitor as I noticed a change in behaviour after that day - before we put the offer through my solicitor felt strongly that we have a case and can take it further to end this, and after he kept saying that we have to keep looking and find another tenant.
The bank guarantee runs out next month and I need help, please let me know your thoughts.
Thanks in advance for your time.
 

Rod

Lawyer
LawTap Verified
27 May 2014
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979
2,894
It may be your solicitor was influenced by the terms of the lease or the other solicitor pointed to a legal principle showing you have no case.

Ask your solicitor why his opinion changed.
 

James D. Ford - Solicitor

Well-Known Member
LawTap Verified
Hi alex_d1

Your business is a restaurant: this category of business is within the definition of a "Retail Shop" in NSW.

Therefore -> your commercial lease is deemed to contain additional statutory protections (that cannot be contracted out of) within the Retail Leases Act 1994 (NSW).

"Section 39 of the RL Act overrides the terms of your lease.

Four (4) circumstances are listed where the Landlord is entitled to withhold their consent (with a fifth to be added when the Retail Leases Amendment (Review) Act 2017 (NSW) commences on 1 July 2017).

The legislation states, that the Landlord "is not entitled to withhold that consent in any other circumstances".

Those circumstances are:
  1. Change of use – where the New Tenant proposes to change the use of the premises;
  2. Inferior resources or skills – where the New Tenant has financial resources or retailing skills that are inferior to those of the current tenant;
  3. Failure to comply – where the current tenant has failed to follow the procedure for obtaining consent to the assignment of the lease outlined in the RL Act.; and
  4. Inferior skills for international airport – where the New Tenant has inferior skills for competing in the international airport retail market.
  5. (from 1 July 2017) Public tender– where the lease was granted by public tender and the New Tenant does not meet any criteria of the tender."
Based on my preliminary understanding of your situation, I need to understand what reason was provided by the Landlord for requiring the increased 6-month bond?

Was it because they deemed the New Tenant to have less financial resources or retailing skills than yourself?

Please advise, and we can discuss further.

Kind regards,
 

alex_d1

Member
27 April 2018
2
0
1
Hi alex_d1

Your business is a restaurant: this category of business is within the definition of a "Retail Shop" in NSW.

Therefore -> your commercial lease is deemed to contain additional statutory protections (that cannot be contracted out of) within the Retail Leases Act 1994 (NSW).

"Section 39 of the RL Act overrides the terms of your lease.

Four (4) circumstances are listed where the Landlord is entitled to withhold their consent (with a fifth to be added when the Retail Leases Amendment (Review) Act 2017 (NSW) commences on 1 July 2017).

The legislation states, that the Landlord "is not entitled to withhold that consent in any other circumstances".

Those circumstances are:
  1. Change of use – where the New Tenant proposes to change the use of the premises;
  2. Inferior resources or skills – where the New Tenant has financial resources or retailing skills that are inferior to those of the current tenant;
  3. Failure to comply – where the current tenant has failed to follow the procedure for obtaining consent to the assignment of the lease outlined in the RL Act.; and
  4. Inferior skills for international airport – where the New Tenant has inferior skills for competing in the international airport retail market.
  5. (from 1 July 2017) Public tender– where the lease was granted by public tender and the New Tenant does not meet any criteria of the tender."
Based on my preliminary understanding of your situation, I need to understand what reason was provided by the Landlord for requiring the increased 6-month bond?

Was it because they deemed the New Tenant to have less financial resources or retailing skills than yourself?

Please advise, and we can discuss further.

Kind regards,

Hi James,

Thank you very much for your reply.

In answer to your question, from what the managing agent relayed to me, the landlord requested a 6-month bond because they deemed the new tenant to have less financial resources. What made me question the decision, is that a month later the landlord seemed to change his mind and lower the requested bond.

Kind regards,
Alex
 

James D. Ford - Solicitor

Well-Known Member
LawTap Verified
Hi Alex

Was the Landlord's assessment of the prospective tenant's financial resources objectively correct?

Could the Landlord have objectively made a similar assessment regarding prospective tenant #2?

If the answer to either of the above is "objectively" then let's proceed to discuss your options.

If you were struggling to make ends meet due to the poor trading conditions (such an assessment doesn't make sense to me).

In future, please be aware that a deal could have been struck regarding your sale (whereby 3 months of additional bond from your sale price could have been applied towards the bond), and released to you at a later date, or after the new tenants had proven their worth, or some other variation that made commercial sense, and obtained the result everyone was seeking.

Kind regards,