In This Issue

• eNews index
• PAMDA just one of many hazards in 2010
• Sustainability red tape adds costs to home sales
• New Cap on First Home Owners Grant
• How good is your lease? - Court rules change in tenant's operations not a change of use of rented premises - landlord's Notice to Remedy dismissed

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How good is your lease? - Court rules change in tenant's operations not a change of use - landlord's Notice to Remedy dismissed

Every lease has a "permitted use" clause which specifies the nature of the operations that a tenant is entitled to conduct on the premises. Typically, the lease provides that any change of use requires the consent of landlord.

However as the Australia Post decision* (discussed in our December eNews in relation to unauthorised assignments) illustrates, the latitude a tenant has as regards its occupation depends entirely upon the construction of the permitted use clause itself.

Australia Post had leased a warehouse from Ace Properties in West End since 1998 and exercised a further five-year option of renewal in 2006.

The permitted use was specified in clause 6.1 as follows:

The Lessee must use the Premises only for the purpose of conducting the business of warehousing, storage, equipment testing, research and development of mail sorting equipment or such other use as approved by the Lessor which approval will not be unreasonably withheld.

In late 2001 the landlord consented to the addition of "mailroom solutions operations" as a permitted use.

In 2008 the landlord wrote to the tenant stating that it considered there had been a breach of the lease, inter alia the tenant was conducting operations on the premises outside the scope of the "permitted use".

The landlord offered to consent to the change of use provided the tenant agree that the rent be reviewed to market from the date upon which the above changes occurred. The tenant refused and the landlord issued a Notice to Remedy Breach of Covenant. The tenant sought relief in the Supreme Court.

The tenant acknowledged that since 2007, its use of the premises had included tender and courier services as well as more intricate and contemporary methods of processing mail items but contended that this nevertheless fell within the definition of "mailroom solutions operations" and was therefore permitted under clause 6.1

The court construed the permitted use clause and upheld the tenants position ruling that the expression "mailroom solutions operations" although not in common usage, must be determined in the context of the lease and was not limited by what the parties may have contemplated as relevant activities at the time permission for that use was given. The term was, it said, suggestive of a service for processing and sorting mail which was exactly the operation being performed by the tenant.

It also ruled that clause 6.1, despite being expressed in positive terms, was not to be construed on the basis that the tenant was obliged to carry on all of the permitted uses. Rather, it allowed the tenant to carry on any of them.

The decision is currently under appeal.

* Australian Postal Corporation v Ace Property Holdings Pty Ltd [2009] QSC 199

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How effective are the corresponding provisions in your leases?

Don't assume that your leases already include all protections available to landlords for rental increases.

If your leases do not already contain sufficient landlord protections, they may be able to be remedied sooner rather than later. Every variation, renewal and even a default gives you an opportunity to potentially rectify deficiencies and improve the provisions of the original lease!

Carter Capner Law will review your leases now and let you know what deficiencies exist and what improvements can be achieved.

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