Lease Dispute, rent and QCAT

The Facts

Fu Manchu Dining Pty Ltd (applicant) entered into a lease on 1 November 2015 with SP (QLD) Pty Ltd (respondent) to operate a restaurant from premises owned by the respondent.

The applicant claimed:

  1. Rental offset of $43,402 for cleaning costs incurred as at November 2018, plus a further unquantified amount, for dust which had blown into the restaurant from the gravel car park located at the rear of restaurant.
  2. Rental offset of $7,000 for a stairwell landing, which the applicant built for patrons to mitigate an alleged trip hazard.

The applicant’s evidence consisted of:

  1. A number of Notices to Remedy Breach of Covenants asserting failure by the respondent to maintain the common property car park, such that “excessive dirt, debris and dust” was blown into the applicant’s restaurant.
  2. A spreadsheet detailing additional costs for cleaning works related to dust contamination.
  3. Verbal evidence from its directors concerning conversations between the directors, a deceased director of the respondent, and the managing real estate agent regarding the dust issue and approval for construction of the landing.

The applicant submitted the re-sealing of the car park by the respondent in 2018 was an admission of the dust problem.

The respondent counter-claimed for arrears of rent and outgoings in the amount of $71,000.

The respondent’s evidence included:

  1. Numerous and frequent Notices to Remedy Breach of Covenants for arrears of rent and outgoings.
  2. Previous letters from the applicant to the respondent regarding rental arrears and other matters under the lease, none of which referred to the dust issue.

The respondent submitted the re-sealing of the car park in 2018 was for the repair of pot holes. Further, the respondent argued the alleged discussions between the directors of the applicant and the deceased director of the respondent regarding dust only commenced after the respondent had issued notices for rental arrears.  The respondent submitted the dust issue raised by the applicant was a contrivance to reduce the applicant’s rent liability.

The Issue

The Tribunal had to decide the whether the evidence provided by the applicant was credible and of sufficient weight to allow a large offset for cleaning costs against rental owed.

Further, the Tribunal considered whether it had jurisdiction under section 103(1) of the Retail Shop Leases Act (Qld) 1994 (the “Act”) to hear a lease dispute pertaining to rental arrears.

The Decision

In coming to its decision the Tribunal took into account the fact that one of the applicant’s directors had previously been convicted of fraud, imprisoned and struck off the solicitor’s role. This substantially reduced the credibility of this witnesses testimony.  Further, the Tribunal noted that the applicant had not produced any corroborating evidence for the cleaning costs, for example, photographic evidence or cleaning staff testimony, but instead had relied solely on the testimony of its two directors.

The Tribunal also took into account the fact that there was no documentary evidence of the respondent agreeing to the construction of the landing, and no legal basis had been pleaded by the applicant as to why it was entitled to recover the costs for the construction of the landing under the lease.

Accordingly, the Tribunal did not allow a set off or abatement for the cleaning costs or construction of the landing. Instead, the Tribunal ordered the applicant pay the respondent $71,289 in overdue rent and outgoings under the lease.

In determining whether it had jurisdiction under s103 of the Act, the Tribunal examined the legislative history of the aforementioned section.  The Tribunal noted the deliberate removal of an exclusion of its jurisdiction relating to arrears of rent in section 103(1) of the Act by the Retail Shop Leases Amendment Act 2016 (Qld), concluding that parliament had therefore intended the Tribunal to have jurisdiction over “arrears of rent” disputes.

Lessons Learned

  1. QCAT has jurisdiction with respect to lease dispute regarding arrears of rent.
  2. Comprehensive and detailed evidence will be required with respect to an offset claim against rent owed under a Retail Shop Lease. Evidence is best presented by credible persons who do not have a financial interest in the lease.
  3. Documentation of verbal discussions between lessors, lessees and managing agents with respect to the terms of a lease and their implementation will greatly improve your outcome in the event of a future lease dispute.

If you need legal advice regarding lease dispute and the QCAT process, please do not hesitate to contact our client engagement team and make an appointment with our litigation lawyer.

This article was written by Barry Klopper (Senior Lawyer) & James Tan (Director)

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