A NSW Appeal has overturned an earlier ruling about whether the Landlord had a genuine proposal to terminate a lease for demolition purposes.  Whilst Retail Leases legislation varies from State to State, there are similar provisions concerning lease termination for demolition purposes and therefore consequential implications.

The shop was located on the upper level of Burwood Plaza Shopping Centre (west Sydney) in the western wing where there were (reportedly) several vacancies.  In summary, the Landlord wished to demolish part of the shop occupied by the tenant to amalgamate it with two adjoining (vacant?) shops to create a larger rental area for which a potential tenant had agreed to occupy.

The existing tenant argued that the demolition notice was invalid because it did not indicate “a genuine proposal for demolition within a reasonably practicable time after the lease is to be terminated” as required by the Act, and the lessor’s motivation for terminating the lease was to lease the area to a more commercially advantageous client.

The initial Tribunal decided that the demolition notice was invalid because there is an implied term in a retail lease that the lessor will exercise its contractual right to terminate on the grounds of proposed demolition in good faith; whether a lessor has entered into an agreement with a “better” tenant is a relevant factor to be taken into consideration in deciding whether a notice is a “genuine proposal”.

The Appeal Tribunal Panel disagreed.  It determined that the notice was valid: as motivation of a lessor is irrelevant in determining whether the lessor’s demolition plan was a genuine proposal, it is not in bad faith or contrary to section 35 for the demolition to advance the commercial interests of the lessor. The notice must simply contain such details as are sufficient to indicate that it is a genuine proposal.  The Appeals Panel highlighted that it is not necessary for the notice to set out every detail of the proposed demolition. It will be sufficient if the details provided are indicative of a proposal that show a sign of or strongly suggest that there is in fact an existence of a proposal to demolish/renovate.

The Appeals Panel also noted that the motivations of the Landlord are irrelevant in determining whether a proposal is genuine.  It may only be relevant where that motivation demonstrates that there is in fact no genuine proposal to demolish.  It was emphasised that the fact a demolition advances the commercial interests of the Lessor or is motivated by a desire to release the premises is not relevant in considering whether the proposal to demolish is genuine.  So long as the proposal is genuine and demolition will occur within a reasonably practicable time after the giving of the notice, the Lessor’s private motivations are immaterial.

Wynne Avenue Property Pty Ltd v MJHQ Pty Ltd [2019] NSWCATAP 41

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