A lease dispute involving Melbourne’s famous Hopetoun Tea Rooms in the iconic Block Arcade is yet another reminder of perils associated with lease incentives. Whilst this was a complicated involving other matters, the VCAT Tribunal essentially followed the 2014 Qld Supreme Court “Higginson” precedent we previously reported … https://actionproperty.com.au/2014/12/03/lease-incentive-deed-void
Incentives were granted to the tenant “Vinetea” in the form of a rent credit and contribution to fit-out works. The lease also included clawback provisions requiring part or all of the incentive to be repaid in respect of the unexpired term of the lease.
The tenant successfully argued that the clawback was a penalty (i.e. an unenforceable punishment) based on the test applied in the Queensland Supreme Court decision. That is, it is difficult for a landlord to justify the clawback amount as actual loss suffered by a landlord due to a tenant’s default. The Queensland Supreme Court decided:
- a clawback amounted to a penalty and that part of the incentive required to be repaid was “in excess of any genuine pre-estimate of damages
- the right to a repayment of the incentives, or part, enabled the landlord to recover money to which it would never have been entitled if the lease had run its course; and
- the giving of incentives was part of the bargain struck with the tenant to pay the to pay the to pay the fit-out incentive in order to complete the bargain with the tenant.
As a result of the VCAT decision in “Finetea”, a landlord will likely struggle to recover incentives paid to tenants upon the early termination of a lease if the repayment provisions contained in a lease or fit-out contribution deed are “extravagant and unconscionable in comparison with the maximum loss that might be suffered by the landlord”.
Finetea Pty Ltd v Block Arcade Melbourne Pty Ltd (Building and Property)  VCAT 1529
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