The Qld Supreme Court of Appeal unanimously overturned a lower decision, ruling a Lessee (Aust Post) was in
breach of lease conditions concerning sub-letting and works without approval. The matter covers a range of
connecting issues including permitted use, related entities, effective possession, relief from forfeiture and
estoppel, together with a comprehensive list of landmark precedents.
Australian Postal Corporation v Ace Property Holdings Pty Ltd [2009] QSC 199
Australia Post leased a warehouse in West End, Brisbane in 1989. In late 2001 in conjunction with renovations
proposed to be undertaken in respect of about half of the premises, both parties agreed to an extension of the
term of the lease until 28 February 2007, with an option for a further term of five years (potentially 2012).
From about February 2003, the Aust Post business activities were operated by a related business enterprise
called Decipha, which subsequently became a wholly owned subsidiary entity of the Lessee later that year. At
various times from late 2004 until October 2006 the parties engaged in negotiations regarding additional
proposed renovations to the other half of the premises to allow for the expansion of Decipha’s business into the
whole of the premises. The works were undertaken by Decipha and commenced in late September 2006 and
were completed by January 2007.
Throughout these periods, it seems the market rent had risen well in excess of the arbitrary lease provisions of
maximum 5% at market review and interim annual 3% increases. In addition, Land Tax had become a
mushrooming expense that was non-recoverable under the existing lease. Whilst these are not quantified, the
Court noted “Australia Post knew that if Decipha was to be given a sub-lease, the rent advantage which it
enjoyed would have to be renegotiated“.
There were multiple issues concerning the sub-letting highlighting the fine legal line points concerning
possession. It was found that (a) Decipha’s business was carried on by it in its own right; (b) Decipha exercised
control over the Premises; (c) that the business activity conducted on the Premises was conducted by Decipha
through its employees who were not employees of Australia Post; (d) the circumstance that activity conducted
on the Premises consisted of the performance of contracts made between Decipha and its customers; (e) the
renovations to the Premises were carried out by Decipha: the contract for the renovations was made by
Decipha. The Court consequently concluded that Australia Post did in fact part with possession and was
therefore in breach of the Lease.
The Appeal Court found in relation to obtaining Lessor’s approval for works, “… Australia Post’s breach of cl 9.1
was deliberate and, initially at least, high-handed.” and ” … Ace is not precluded by estoppel or waiver by
election for terminating for that breach“.
Among other things, this case highlights:
1) Long term leases with arbitrary rental adjustments or limits, rather than unrestricted market reviews, often
disadvantage one party (see also News Alert “OPTION DEAL DONE DIRT CHEAP” January 23, 2010)
2) Any changes of business activities in leased premises should be carefully checked against lease provisions
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