Retail tenants lose out on demolition clause

In the recent decision of Laldy Pty Ltd v Archer & Ors [2016] QSC 257, the applicant landlord ended its shop leases with the respondent tenants in order to carry out demolition works. The parties were in dispute as to whether the tenants were entitled to compensation under section 43 or section 46K, or both of these sections, of the Retail Shop Leases Act 1994 (Qld).

The leases contained a clause allowing the landlord to require vacant possession and terminate the lease if the building containing the shops was to be demolished. The landlord served demolition notices on the tenants which were accompanied by a copy of the agreement between the landlord and the demolition company to carry out the demolition works. The leases were due to terminate 6 months after the notices had been served. It was common ground that the landlord’s proposal to demolish was genuine.

The landlord considered that it was required to pay reasonable compensation pursuant to section 46K, which included damages for money spent on the fit-out of the business. The tenants responded to the effect that section 43 also entitled them to claim reasonable compensation for loss or damage suffered as a result of the landlord forcing them to vacate the premises early. Section 43 allows tenants to claim compensation for business disturbance in certain circumstances, including relevantly where a landlord causes the tenant to vacate because of the extension, refurbishment of demolition of the building containing the shop.

The Queensland Supreme Court considered the application of sections 43 and 46K and found that compensation was payable only under section 46K as the leases were terminated before the demolition took place. Section 43 did not apply as the tenants were not required to vacate as a result of the commencement of the demolition works and the landlord was merely exercising its right to terminate the lease in anticipation of the commencement of the demolition. As a result of this decision the tenants were compensated only for the value of the fixtures and fittings. Importantly the court noted that their orders were subject to the landlord not causing the tenants to vacate the premises prematurely by allowing the commencement of the demolition works before the leases had expired.

This decision will have implications for landlords and tenants who are parties to retail shop leases, and parties should act to ensure that their interests are protected.  Please do not hesitate to contact us if you would like us to review your lease, or if you require advice about whether you are entitled to compensation in similar circumstances.

elicia lin

Elicia Lin

Associate

Brisbane 07 3009 8444
Email e.lin@rclaw.com.au

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