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Commercial Property Sales & Leasing
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Retail Shop Lease expenditure statements - It can be too late !
Post by Dominique Engelter | Posted 4 years ago on Wednesday, April 29th, 2020
In a situation that is not unusual in the commercial retail shop leasing space; particularly with small scale commercial landlords, a tenant has paid the landlord’s operating expenses for many years but subsequently realised that perhaps they should have been provided by their landlord with prior estimates, and subsequent audited statements, of those expenses. This might mean the tenant is entitled to a refund of the operating expenses they have paid, or that the landlord cannot sue for operating expenses that were invoiced but are unpaid.
To avoid this risk, it is critical that landlords of a retail shop lease ensure they have given an estimate of operating expenses before the end of the year in which those expenses are invoiced and paid.
The landlord cannot subsequently give an “estimate” of operating expenses after the fact. Once the quantum of those expenses is a known element, it would be artificial and there is no remaining room for a landlord to retrospectively give an estimate. In the absence of a valid estimate of outgoings, the outgoings are not payable.
In the Western Australian Court of Appeal decision of Trimat Holdings Pty Ltd v Investment Club Pty Ltd delivered on 28 April 2020:
- the tenant leased a retail shop for a term of 10 years commencing 1 November 2010;
- the tenant paid its share of the landlord’s operating expenses for 6 years before commencing court proceedings in June 2018 seeking to recover these payments; and
- the tenant claimed the lease was a retail shop lease under the Commercial Tenancies (Retails Shops) Agreements Act 1985 (WA), that section 12 of the Act required the landlord to give estimates of operating expenses and operating expenses statements, and that the landlord had never given compliant statements.
In very general terms, the effect of:
- section 12(1)(d)(i) of the Act is that operating expenses are not payable until one month after an estimate of the years’ (or part years’) expenditure has been given to the tenant; and
- section 12(1)(d)(ii) of the Act is that the landlord must then give a statement of actual operating expenses within 3 months of the end of the landlord’s accounting period (for example, the end of the financial year), and if it does not do so, the tenant’s obligation to pay operating expenses is suspended during the period of non-compliance.
A defence raised by the landlord was that it could, prior to trial, belatedly comply with section 12 of the Act and thus nullify the tenant’s claim. The District Court dealt with as a preliminary issue, finding in the landlord’s favour.
The Supreme Court of Appeal took a different view.
In essence, the Court of Appeal determined:
- a statement of expenditure for a year or part of a year in which all expenditure has been incurred and its amount is ascertained would not be an 'annual estimate of expenditure' for the purposes of the Act. The reference to an 'annual estimate of expenditure' is to an assessment of the annual expenditure prospectively anticipated to be incurred in a year but which has not, at least fully, been incurred. It is not a reference to a statement of expenditure in a year which has already been fully incurred and ascertained;
- the landlord cannot neutralise the suspension of payment provided by section 12(1)(d)(i) of the Act by belatedly giving an estimate of expenditure after that expenditure has been fully incurred and ascertained;
- an operating expenses statement can theoretically be given to a tenant more than after 3 months after the end of the accounting period to which it relates. However, that does not help a landlord who has not provided a valid estimate of operating expenses beforehand – the tenant’s requirement to pay expenditure will not have arisen if the required estimate has not been given; and further
- to the extent the operating expenses statement relates to expenditure that requires an auditor’s statement - as to whether or not the total amount of estimated operating expenses exceeded the total actual expenditure by the landlord – the landlord will not be able to give a compliant operating expenditure statement in the absence of a prior estimate.
Landlords of retail shop leases should check their compliance with section 12 of the Act and, if they have not yet given the tenant an estimate of operating expenses for the year, make haste to now do so before that expenditure has all been incurred and finalised.
For further information or for help in navigating the rights and obligations of your retail shop lease, please contact Dominique Engelter of our office.
This article is general information only, at the date it is posted. It is not, and should not be relied upon as, legal advice. This article might not be updated over time and therefore may not reflect changes to the law. Please feel free to contact us for legal advice that is specific to your situation.
Covid-19 relief for commercial tenants in Western Australia
Post by Amy Knight | Posted 5 years ago on Thursday, April 23rd, 2020
The State and Commonwealth Governments are in the process of enacting legislation to provide relief to commercial tenants affected by Covid-19.
The West Australian State Government has recently passed legislation that limits the ability of a landlord to take certain action against tenants under a "small commercial lease" during the "emergency period" (the Commercial Tenancies (COVID-19 Responses) Act 2020).
The emergency period roughly aligns with the Commonwealth Government's Jobkeeper payment period, being 30 March – 29 September 2020, unless another end date is specified. This new State legislation is not yet in force, but it should be very soon.
The relief provided by the new Act operates in favour of tenants under "small commercial leases". A small commercial lease means:
- a retail shop lease as defined in the Commercial Tenancy (Retail Shops) Agreements Act 1985
- a lease where the tenant is a small business as defined in the Small Business Development Corporation Act 1983
- a lease where the tenant is an incorporated association as defined in the Associations Incorporation Act 2015
- another type of lease as prescribed in Regulations to the new Act (yet to be determined).
During the emergency period protections in the new Act include:
- A six-month moratorium on evictions due to non-payment of rent
- A freeze on rent increases
- A restriction on penalties for tenants who do not trade or reduce their trading hours
- A prohibition on landlords making a claim on any form of security (e.g. a bank guarantee or security deposit) for the performance of the tenant’s obligations under the lease
- A prohibition on landlords progressing action against a tenant for a breach that occurred after 30 March 2020, but before commencement of the new Act
- A resolution mechanism for disputes arising out of, or in relation to, the operation of the legislation or a proposed new Code of Conduct (see below), including a mechanism to protect landlords where tenants are refusing to pay rent despite the capacity to do so.
The West Australian Government will soon pass Regulations to operate in conjunction with the new Act. These Regulations will deal with specific points not set out in the Act. For example, the Regulations might exclude certain small businesses from the protection that is given by the Act.
The Regulations will also set out a new Code of Conduct equivalent to the National Cabinet Mandatory Code of Conduct – Small to Medium (SME) Commercial Leasing Principles during COVID. This is the Code of Conduct developed by the Commonwealth Government and released on 7 April 2020 to regulate how a landlord must negotiate with tenants who have suffered Covid-19 related downturns.
Of note, the Code of Conduct requires that landlords must offer tenants proportionate reductions in rent payable in the form of waivers (i.e. a reduction in rent that will not be recovered by the landlord) and deferrals (i.e. a delay in payment of part of the rent which will be recovered) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the Covid-19 pandemic period and a subsequent reasonable recovery period.
So, if a tenant's turnover is affected by Covid-19, it may be able to rely on the new Act and the Code of Conduct to negotiate a rent reduction and waiver with their landlord.
The Regulations may impact on the matters outlined above. Specific advice is needed on a case by case basis. However, many small businesses should take some comfort that if they suffer a Covid-19 related decline in turnover, protection from adverse action by their landlord may be available.
Other legislation is also currently before the West Australian Parliament which, if passed, is expected to allow tenants to request a termination of their lease if their business will not recover from a Covid-19 related decline in turnover. If passed, this legislation may limit a tenant's liability if they have to terminate their lease early for that reason.
Please contact Amy Knight for further advice.
This article is general information only, at the date it is posted. It is not, and should not be relied upon as, legal advice. This article might not be updated over time and therefore may not reflect changes to the law. Please feel free to contact us for legal advice that is specific to your situation.
Amy Knight
PrincipalLLB (Dist), BCom
EXPERTISE
EXPERIENCE
Amy practices in general commercial and corporate law with a focus on property, business and share acquisitions and disposals.
Amy has a particular interest in property law and is routinely involved in all aspects of property transactions including legal due diligence, acquisitions and disposals, financing, leases, subdivisions, strata titles, transfer duty advice and conveyancing.
On the corporate side, Amy has acted on buy, sell and financier sides of company and business acquisitions and disposals.
Amy is based in our West Perth Office.
Amy’s recent experience includes:
- Due diligence, contract negotiation and settlement of the acquisition of multi-lot properties exceeding $30m;
- Acquisition and funding (via convertible notes and security trust) of farming properties exceeding $25m;
- Negotiation and settlement of the disposal of securities to a multinational group exceeding $20m;
- Subdivision and sale of semi-rural development site exceeding 100 lots;
- Acquisition and disposal of a number of vineyards in the Margaret River region.
Commercial Property Sales, Leasing and Contaminated Sites
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We act for many property developers and advise across the range of issues involved in sourcing, developing and selling commercial, residential and mixed use property developments.
We have extensive experience advising on property leasing matters for large industrial, office and shopping developments, including lease preparation and lease disputes.
Our clients include landlords, tenants, real estate agents, property developers and buyers. We have extensive experience in the Perth and Geraldton property markets, and have strong relationships with major leasing agents in both markets.
We act as town agents in Western Australia for various interstate law firms.
Our expertise in this area includes:
- Advising on sale and purchase of retail, commercial and industrial buildings and properties
- Advising in relation to “off the plan” sales
- Preparing property development and syndicate agreements
- Preparing property management agreements
- Drafting and reviewing offers to lease and lease agreements (including retail, commercial and industrial properties), including negotiating fixtures and fit-out terms and dealing with caveats and liquor licensing issues
- Preparing deeds of assignment and variation of leases
- Advising on termination of leases, make good obligations and lease disputes
- Advising on the Commercial Tenancy (Retail Shops) Agreements Act, Property Law Act, Transfer of Land Act and other relevant legislation
- Advising in relation to structuring of property investments, including establishment and administration of property trusts
- Advising in relation to strata issues
Contaminated Sites
We have extensive experience advising in relation to contaminated site issues.
We are routinely involved in matters relating to the leasing, sale and purchase of businesses, companies and commercial and residential properties. As part of these transactions, we are often required to advise clients in relation to contaminated sites issues.
Our expertise in this area includes:
- Searching the Contaminated Sites Register to identify potential contamination
- Advising clients in relation to their remediation obligations under the Contaminated Sites Act 2003
- Advising owners and occupiers of land in relation to pollutants and contaminants that have emanated from adjacent properties
- Advising landlords and tenants in relation to who has responsibility for remediating contamination
- Drafting special conditions, warranties and indemnities for commercial contracts in relation to contamination
- Drafting land owner’s disclosure forms required under section 68 of the Contaminated Sites Act 2003 (WA)
- Advising clients and liaising with the Department of Water and Environmental Regulation in relation to compliance with the Contaminated Sites Act 2003 (WA)
- Litigation involving contaminated sites, pollution and environmental liabilities
Commercial Law & Contracts
Williams + Hughes advise public and private companies and individuals across a wide spectrum of industries. Our range of commercial litigation expertise and experience, coupled with ready access to senior legal personnel and our responsiveness, makes us top choice commercial litigation lawyers in Western Australia.
We recognise that clients often choose their legal advisors based on their knowledge and understanding of the client’s industry. Our lawyers work hard to understand the commercial and technical drivers underpinning our clients’ industries, as this enables us to quickly and efficiently advise on complex and technical matters affecting their businesses.
Get in touch with our top tier commercial litigation lawyers in Perth or Geraldon to see how we can assist you.
What we do
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Damian Quail
PrincipalLLB, B.Com (Acc & Fin) (Hons) MAICD
EXPERTISE
EXPERIENCE
Damian is a Director and Principal of Williams + Hughes. He has practiced as a lawyer for over 28 years in the commercial, resources, agribusiness, software and technology fields. He has managed many large deals, including major investments, farm-ins and JV’s, asset and share sale deals, capital raising transactions and construction matters.
Damian acts for a wide range of clients, including ASX and TSX listed companies, large private family groups and small to medium enterprises. Damian has special expertise in M&A transactions.
Damian adopts a pragmatic approach with a strong focus on ensuring his advice adds value and allows clients to get deals done.
Damian has significant business experience outside of law. This experience helps ensure he does not waste time on legal points that are not commercially important. His past and current roles include:
- Director and Executive Producer at Perpetual Entertainment West and Director at Quail Entertainment, television production companies
- Board member of the Churchlands Senior High School Foundation
- Director of eight unlisted gold exploration companies
- President of The West Australian Mining Club 2019/20; Secretary 2017-2019; Committee Member 2015-2020
- co-founder of four start-ups in space launch, biotech and mobile app sectors
- founding Trustee of the Rotary Club of Crawley Charitable Foundation
- Analyst and Management Consultant at boutique investment bank (3 years)
- Senior Associate at Perth's largest law firm (3.5 years)
Damian is a current member of the Australian Institute of Company Directors, Energy and Resources Law and the Law Society of Western Australia.
Damian is based in our West Perth office. He is a regular legal CPD seminar presenter for the Law Society of Western Australia and Legalwise, where he has presented extensively on M&A topics. He is married with three children and enjoys making TV shows, travelling and playing indoor cricket.
Some of the significant matters Damian has advised on include:
Mining, resources and mining services
- Prepared numerous M&A agreements, farm-in agreements, joint venture agreements, land access and compensation agreements for listed and non-listed exploration companies.
- Prepared numerous subcontractor, procurement and hire agreements for mining services companies supplying to major resources construction projects
- Legal adviser to ASX-listed Image Resources for over 13 years in relation to numerous aspects of its Boonanarring and Atlas Mineral Sands Projects, including:
- negotiating and preparing numerous land access, compensation, option and acquisition agreements relating to mining on private land and on Crown leases.
- general day to day legal advice including FIRB approvals, exploration and mining agreements, petroleum pipeline easements and easements over adjoining properties.
- Australian legal adviser to TSX-V listed Novo Resources Corp. including:
- establishing Australian subsidiaries and serving as a Director 2010-2023.
- negotiating and preparing numerous farm-in, joint venture, sale and purchase and royalty agreements, including due diligence and transaction agreements with Creasy Group, Millennium Minerals, Artemis Resources, Comet Well vendors, Pioneer Resources, Calidus Resources, Northwest Resources, Nimble Resources, Talga Resources, Mesa Minerals and others.
- general legal and contracting work including heritage agreements, split minerals rights agreements, refining agreements, toll treatment, leases, access agreements, DMIRS compliance work, advising in relation to tenements issues, etc.
- legal compliance and advice including company secretarial work, FIRB applications, DMIRS compliance, employment issues, complex stamp/transfer duty matters and general day to day legal advice.
- Legal adviser to ASX listed Middle Island Resources for over 10 years on numerous matters, including:
- purchase of Sandstone Gold Project. Conducted legal due diligence and negotiated Asset Sale Agreement and related documents.
- sale of Sandstone Gold Project to Aurumin Limited. Negotiated Sale Agreement and related documents.
- bidding for Samira Hill gold mine in Niger. Extensive assistance with due diligence, advice in relation to Mining Code of Niger and negotiating sale agreement and related documents.
- proposed purchase of a Moroccan copper project.
- sale of project interests in Burkina Faso, Niger, Liberia and Western Australia, including negotiating farm-in and royalty agreements.
- Legal adviser to Coil Group and JT Metallurgical Services, including toll processing, mill operation and various service contracts.
- Legal adviser to Resource Mining, including in relation to purchase of Goongarrie Gold Project, contract mining agreement and contract variation iss
- Legal adviser to Titan Plant Hire and Territory Plant Hire, including in relation to numerous infrastructure and resources projects in Western Australia and Northern Territory.
- Acted for ASX-listed Apex Minerals in successfully restructuring of $87 million debt facility, including negotiations with security trustees and banks in New York and reset of debt facility, warrant deeds, security trust deeds, etc.
- Prepared oil and gas services agreements for Plexal for gas pipeline projects in Australia, Bangladesh and Thailand.
- Advised ASX-listed Cougar Metals in relation to Brazilian lithium project.
- Acted for Lime Industries Group in relation to limestone and sand mining.
- Advised ASX-listed Magnetic Resources in relation to acquisition of gold projects.
- Advised ASX-listed Mindax in relation to acquisition of gold projects, including farm-in agreements.
- Acted for ASX-listed Emu Nickel in relation to various minerals projects.
- Advised Australian investment company to set up Limited and General Partnerships in the Cayman Islands for investment in global resources opportunities.
Mergers & Aquisitions
- See above for mining and resources related M&A work.
- Acted for owners of Western Australia's largest hospitality supplies company, Hisco, on sale of business to French owned Reward Group.
- Acted for MBL on purchase of Southcoast Food Services business.
- Acted for INX Software shareholders on sale of majority stake in INX to private equity buyer Tanarra Capital.
- Acted for Perth Medical Laboratories (Perth’s largest independent pathology business) shareholders on sale of company to Australian Clinical Laboratories (private equity owned).
- Acted for buyer of Titan Digital and Titan Brand businesses (120 staff across Australia and South Africa).
- Acted for Craig Mostyn Group in numerous acquisitions and divestments including:
- assisted with aspects of the acquisition of V&V Walsh
- acquisition of Jade Tiger, Australia’s largest abalone farm
- acquisition of Australian Seafoods (abalone and rock lobster) in Dover, Tasmania
- acquisition of Fertal rendering business
- divestment of Fataway business
- divestment of Tasmanian seafoods business
- Advised vendor of HPC Data Centres on sale of data centre to ASX-listed Amcom.
- Advised vendors of Orelogy mining software on sale of software business to Maptek.
- Advised vendors of Orelogy Consulting business to Perenti.
- Advised Conducive shareholders on sale of IT services business to ASX-listed Empired Limited.
- Advised Silicon Valley based software company on purchase of Australian software business, including IP due diligence.
- Advised Wild Geese International (oil and gas safety and induction training) to ASX-listed Site Group International.
- Advised sellers of Ecologia to ASX-listed RDG.
- Advised numerous buyers and sellers in private M&A transactions, including involving vendor finance, earn-outs and funds escrow arrangements, including acting as escrow agent.
Pipelines, Tanks and Terminals
- Acting for Coogee Chemicals for many years, including:
- acted for the Coogee Chemicals - Mitsubishi joint venture regarding construction and operation of $100m+ Port Bonython diesel fuel terminal, including FEED study, build, terminal services, terminal lease and shareholders agreements and related documents
- negotiating multi-decade pipeline leases and easements in Kwinana industrial estate.
- negotiating multi-decade chlorine and caustic supply agreements.
- negotiating land access agreements and easements for pipelines, tanks, railway sidings, elevated pipebridges, etc in in Kwinana industrial estate and Kalgoorlie.
- acted for Coogee Chemicals in relation to sale of interst in Port Bonython Fuels
- negotiating industrial leases and licences.
Construction
- Advised subcontractors supplying services and equipment to major resources projects including Inpex Icthys Darwin, Rio Tinto (various Pilbara), FMG Cloud Break, BHP Newman, and Main Roads WA projects (various in Western Australia)
- Acted for the Coogee Chemicals - Mitsubishi joint venture regarding construction Port Bonython diesel fuel terminal- see above.
- Prepared numerous construction contracts for Craig Mostyn Group, including construction contracts for:
- multiple abalone farm extensions in several locations across Australia, including at Australia's largest abalone farm
- multistage expansion of Western Australia’s largest pig abattoir, including new buildings and plant upgrades
- multistage construction of large commercial piggeries at Mogumber (six large buildings)
- multistage expansion of Western Australia’s largest meat and poultry waste rendering facility, including plant upgrades, new water treatment plant, new boilers and new rendering line
- refit of the Group’s head office in Fremantle
- Prepared construction contract documents for Fujitsu for multi site data centre upgrade program across Australia
Software and IT related
- See above for software and IT related M&A work.
- Advised large private company in relation to moving from in-house IT solution to Telstra hosted Cloud environment (production, disaster recovery, backup).
- Advised large industrial company in relation to Oracle software licensing audit and licensing compliance, including compliance with licensing terms and challenging licence fees demanded for virtual machines and multiple software instances.
- Advised IT vendor entering USA market - prepared manufacturing, distribution, branding and licensing agreements.
- Advised ASX-listed property company in relation Microsoft Dynamics enterprise agreements.
- Prepared suite of software licencing, maintenance and support agreements for spatial software developer (Australia and USA).
- Prepared numerous software license agreements, distribution agreements, reseller agreements, EUSLAs, support and maintenance and service level agreements (including SaaS and Cloud Agreements), consulting contracts, etc for numerous Australian software companies.
- Reviewed and advised numerous clients in relation to IT procurement contracts.
- Prepared numerous website and app T&C's
- Advised many software, medical and mobile app start-ups in relation to business structuring, shareholder agreements, terms and conditions, fundraising documents, commercialisation agreements, manufacturing, distribution, branding and licensing agreements.