Everything in business is negotiable, particularly when it comes to commercial leases.
Whether you’re a small business owner, a mid-tier company, or a large multi-national corporation, it is important to remember that commercial lease terms are set by the landlord and are usually drafted in their favour. This makes it crucial to negotiate terms that are well-suited to both parties (or at least reach a compromise) rather than accepting the initial lease terms as is.
The importance of lease negotiation was recently highlighted in the recent ruling of the NSW Supreme Court in Goldfish Bar and Restaurant Pty Ltd v Roche Group Pty Ltd  NSWSC 1481.
- The case concerns a dispute regarding the interpretation of a commercial lease entered into by Goldfish Bar and Restaurant Pty Ltd (“Goldfish Bar” or “the tenant”) and Roche Group Pty Ltd (“Roche Group” or “the landlord”), with the premises being the locally renowned Roche Estate.
- The Lease contains a standard clause granting the tenant with rights of quiet enjoyment and possession of the premises without interruption or disturbance from the landlord. However, this is subject to the rights of the landlord, which include the following:-
- Roche Group’s right to use or grant rights of occupation to others to use any parts of the premises for any purposes; and
- Roche Group’s right to hold concerts or other events on Roche Estate up to 4 days each year (“4-event limit”), during which access to the premises by the general public may be restricted or prohibited.
- In October 2021, Roche Group wrote to Goldfish Bar proposing to conduct about 9 concerts on the Estate over the next 12 months. This was intended to make up for the events which could not take place during the peak of the COVID-19 pandemic. Some of the events did not take place and were cancelled between 2 to 9 days from the date of the event, noting that there was no defined mechanism in the Lease for the cancellation of events.
Goldfish Bar brought a claim requesting for the Court to make orders preventing Roche Group from conducting more than 4 events a year. In doing so, the Court was asked to determine what a “reasonable period of cancellation” was and whether the landlord already exhausted its 4-event limit, noting that if an event is not cancelled within reasonable time, then it will count towards the 4-event limit.
The Court’s Decision and Orders
- The Court refused to make a decision as to what a “reasonable period of cancellation” was but noted that cancelling an event 4-5 days beforehand was not enough.
- By 2 April 2022, the landlord already exhausted the 4-day limit. Two events proceeded whilst the other two were cancelled without reasonable notice.
- The Court restrained Roche Group from holding any further events in the 2022 calendar year and from holding any more than 4 events on the Estate during any subsequent calendar year whilst the Lease continues to operate.
Negotiating a lease from the outset is crucial in ensuring that the terms of the lease are suitable for both parties and the specific nature of their relationship as landlord and tenant. It also ensures that any potential ambiguities that can arise from the lease are addressed to maximise clarity regarding future dealings between the parties and minimise the risk of disputes in the long-term.
This case also highlights the Court’s reluctance in imposing terms that were not negotiated or expressly agreed to by the parties through the lease. Because every commercial transaction is unique from case to case, the Court is hesitant to establish and enforce any specific mechanisms which could have been negotiated by the parties prior to entering into the lease. There are also extenuating factors distinct in every transaction which must be considered. There is no one solution or mechanism that can be applied in all circumstances.
If you are looking to enter into a commercial lease and require assistance in the negotiation process, contact Mullane and Lindsay today and speak with one of our experts.
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