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When the leasing honeymoon turns sour

Property Law News | August 2016

The terms of a lease are often “glossed over” by tenants while being presented to a tenant during the “honeymoon” period of being excited to occupy a premises and get on with starting their new business (and make some money!). However, terms relating to the calculation of rent and rent rises, and the calculation of outgoings and other expenses to be incurred by a tenant may require serious consideration by the tenant as any misunderstanding can have very expensive consequences.

In the recent case of Fitness First Australia Pty Ltd v Fenshaw Pty Ltd [2016] the court considered the consequences where a lease prepared by the landlord contained terms regarding outgoings drafted in a manner which did not clearly specify which outgoings were to be covered by the tenant and on what basis.

The tenant (Fitness First) claimed that they had overpaid by an amount of $188,284 on the basis that the outgoings and charges should be relative to the area of leased floor space. The defendant (Fenshaw), however, claimed his original intention when drafting the document was to have outgoings and charges paid with reference to outgoings incurred for the entirety of the property.

The NSW Court of Appeal evaluated the contract objectively to determine what a ‘reasonable’ person would have concluded. In applying this method the court found in favour of the defendant stating that it could not accept Fitness First’s position, and concluded they had not overpaid the outgoings as claimed.

Our solicitors have had strong and extensive experience in advising lessors and lessees in all forms of retail and commercial leasing transactions. Call us for a free 30-minute conversation on (02) 9560 3388 or in our friendly and professional office in Leichhardt where parking for clients is free.

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