Pursuant to section 13(7) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act), a landlord can apply to the State Administrative Tribunal (SAT) for approval of the inclusion in a retail shop lease of a provision which allows the landlord to terminate the lease within the first 5 years.
In our earlier article Update On Early Termination Clauses In Retail Leases | Lavan, we discussed a series of decisions which had been handed down by the SAT, each of which followed the decision of Synicast Pty Ltd v Showroom X Pty Ltd [2023] WASAT 47 (Synicast Decision).
Since that article, a series of further decisions have been handed down by the SAT, including:
(together the Further Decisions).
This article will consider how these Further Decisions have continued the precedent set in the Synicast Decision.
As a refresher, the Synicast Decision involved an application by a landlord for the inclusion in a retail lease of a clause allowing the landlord to terminate the lease within the first 5 years of the term in order to redevelop.
As we outlined in our earlier article, the key findings in the Synicast Decision were as follows:
In particular, President Prichard at [30] in the Synicast Decision stated that:
[A]t the time of a landlord’s application to the [SAT] under [section] 13(7) of the [Retail Shops] Act, the special circumstances must have actually come into existence, or there must be an ‘objective intention’ that the special circumstances will arise during the term of the lease. Whether that intention exists will require the existence of objective and provable facts.
President Prichard (also at [30]) went on to say that:
(If an unforeseen special circumstance arises during the term of the lease, in a case where there is no early termination clause in the lease in respect of that circumstance, it would of course be open to the parties to negotiate a variation of the lease to permit early termination, and for the landlord to seek approval under [section] 13(7) of the [Retail Shops] Act on the basis that the special circumstance then exists.
The Further Decisions each concerned the inclusion of an early termination clause pursuant to allow for early termination if the leased premises were substantially damaged or destroyed.
The SAT in each Further Decision relied on the Synicast Decision to confirm that such early termination clauses could not be approved as the relevant ‘special circumstances’ could not be said to exist.
These Further Decisions remain consistent with the precedent set by the Synicast Decision and the conclusions we made in our earlier article.
As confirmed at [30] in the Synicast Decision, a landlord would need to get SAT approval to terminate a lease following substantial damage to or destruction of the premises. Against this, the doctrine of frustration would suggest that where the premises are damaged to such an extent as not to be capable of use, the retail lease would be frustrated and, as a result, come to an end.
However, the effect of these Further Decisions is that the application for approval of clauses for early termination arising from damage or destruction can only be made if the damage or destruction is imminent or has occurred. By then, it is clearly too late to be making such an application. In reality, the parties will more than likely reach a commercial position.
These Further Decisions support our position that it is not worth seeking approval in the SAT for these clauses. The doctrine of frustration and commercial expediency will more than likely deal with the consequences of such damage or destruction.
Although we maintain that in most circumstances parties will be able to reach a commercial agreement in the event of damage to or destruction of the premises, we suggest that there is commercial practicality (for both the landlord and the tenant) if leases could contain provisions that provide what will happen in those circumstances.
However, it seems that the Retail Shops Act will have to be amended to allow this.
