False and Misleading Statements or Representations in Retail Shop Leases

False and misleading statements used to enter into a landlord tenancy lease agreement can amount to compensation if proven by the tenant.

The Retail Shop Leases Act 1994 (Qld ) provides “reasonable compensation for loss or damage suffered by the [tenant] because… the [tenant] entered into the lease, including a renewal or assignment of the lease, on the basis of a false or misleading statement or misrepresentation made by the [landlord] or any person acting under the lessor’s authority”.

We look at the recent decision of Daggar & Anor v Lawrence & Ors [2019] QCAT 314 handed down in the Queensland Civil and Administrative Tribunal as an example.

In this case, it had to be determined whether a tenant was entitled to compensation for alleged false and misleading statements or representations made by the landlord and their agent, in relation to a retail shop lease.

The story

Ms Daggar and Ms Mackenzie alleged that they were “induced to enter a lease of the premises by misrepresentations by the lessor, Mrs Lawrence, and by Ms Coory of Wave Realty Pty Ltd and suffered loss and damage as a result of this”.

The Tenant’s Allegations of Misrepresentation

Purchasers of a business or new tenant looking for a business premise commonly complain about misrepresentations by landlords. The issue is that the landlord or real estate agent were “up-sold” about the business, and made representations about the premises that they discovered were untrue when they moved into the premises.

Ms Daggar and Ms Mackenzie claimed that they are seeking compensation because they entered into the lease on the basis of certain false or misleading statements or representations as follows:

  1. “That the premises were capable of obtaining a food business licence from the Council;”
  2. “That the premises were capable of being a café and could produce a high income;”
  3. “That there was a high level of foot traffic past the premises;”
  4. “That they would make a fortune and could have 2 days off during the week;”
  5. “That the lessors had good friends in the Council, so the applicants could just put in a coffee machine and it would be alright;” 
  6. “That the premises were opposite the beach was an incredible opportunity;” 
  7. “That the premises were compliant with the Council by-laws;” 
  8. “That the plumbing and potable water were adequate for the proposed use;” 
  9. “That the electrical circuits were suitable for the proposed use;” 
  10. “That a food business licence had been held for some years in respect of the premises previously;” 
  11. “The existence or otherwise of the required Council approvals that they needed to run the business;” 
  12. “That the applicants did not need to listen to the Council in relation to the requirement for a food business licence and/or a development approval to operate the business; and” 
  13. “That no disclosure statement was given to them and they were not given the opportunity to obtain legal and/or financial advice prior to entry into the leases.”

Based on this, the tenants alleged that they had “lost everything; that the compliance issues were insurmountable and there was not the foot traffic represented.”

In making those allegations, the tenants admitted they were “naïve and inexperienced”.

The decision

Findings of the Tribunal

After the Tribunal considered the allegations of misrepresentation, they made a number of findings. Some of them were that:

  1. The agent was found to be a reliable witness and Ms Dagger (one of the tenants) was found to be unreliable. Her business partner, Ms Mackenzie (the other tenant) was not present at many of the meetings with the agent and her evidence could not be relied on.
  2. If a landlord fails to provide a Disclosure Statement this does not account for a misrepresentation as the Disclosure Statement would not have addressed the misrepresentations which the Tenants say were made. Not obtaining legal or financial advice also could not have been a misrepresentation;
  3. Ms Daggar had evidence that the landlord did not tell them to obtain relevant Council Approvals and that the tenants figured out the requirement on their own. There was evidence that although the tenants found out that they needed to (and did not) obtain the relevant Council Approvals, they continued to trade.
  4. On this point the Tribunal took the view that the Landlord“made no representations regarding the zoning of the property. As to the complaint that the [Landlord] did not tell the [Tenants] of the requirement to obtain Council approvals (including the time and cost associated with this) this does not constitute a representation.”
  5. Further to this, the Tribunal took the view that if “the Tribunal is wrong and such representations were made, then the Tribunal is satisfied that there was no reliance upon such representations by the [Tenants]and they did not induce the [Tenants] to enter into the lease. The [Tenants] ignored the Council requirements during their operation of the business.”
  6. As to the allegations of misrepresentations in relation to the desirable location of the premises, the amount of foot traffic past the site and the income able to be generated by the proposed use, the Tribunal finds the [Landlords]made no such representations.”

Points for Reflection

It is clear that tenants need to be clear about the evidence of misrepresentation. The silence of the Landlord or a tenant’s ignorance will not assist the Tenant if they have to make a claim of representation. It is important therefore to seek legal or financial advice before hand as the risk of entering into a lease largely rests on the tenant.

As a tenant or prospective tenant looking to enter into leases you may have to consider the following practical tips:

  1. Have you appropriately documented the various representations made by the landlord or agents which you have relied upon?
  2. Have you flagged those various representations with your lawyer who is reviewing your draft lease? A casual representation could be made by an agent, but may not have been conveyed to the landlord’s solicitor who prepared the lease. Most leases also include “entire agreement” clauses, which exclude prior representations once the lease is signed.
  3. Have you fully considered what licences and permits you will require to conduct your business, and whether the premises is appropriately zoned for it? Brisbane City Council have prepared a helpful resource in relation to various licences or permits you may require to conduct your business, which can be accessed here: https://www.brisbane.qld.gov.au/laws-and-permits/laws-and-permits-for-businesses

Have further questions regarding false and misleading statements relating to retail shop leases?

Contact our Client Engagement Team to make an appointment with our leasing dispute lawyers.

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