Lease problem
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Question-Assessment2Sem12020AYN456.pdf
Page 1 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
Assessment 2
Semester 1 2020
DUE DATE: Monday 27 April 2020 by 11:59 p.m.
Please Note:
- This is an individual assignment weighted at 20%
- The word count is 1000 words
- Familiarise yourself with the Criteria Sheet (CRA) for further information on what is required
- You will be marked in accordance with these criteria.
- You must upload your answer via the link provided on the unit’s Blackboard site under Final
Submission by the due date and time (this applies to On-campus, Online and External
students).
- Your assignment and feedback will be returned to you online.
- It is each student’s responsibility to check online submissions have been uploaded correctly
(i.e. you should open the file from Turnitin to check this, once your files have been
uploaded).
- Each student should check for a digital receipt from Turnitin at their QUT email address as
proof of submission. This email should be retained until marks are received. No marks will be
given for submissions where the file is corrupt and unreadable.
Assessment
It is March 2020 and you have been consulted by a friend who is aware you are taking Business Law.
Before you jump to the problem and issues though, some words of advice.
The case facts below ask you to read around the relevant areas in more depth and to work through
what it would mean to successfully apply the relevant law. In other words, you are asked
• to identify the issues,
• identify the applicable law(s) the fact scenario raises
• state and show how the tests that support each of these areas of law would be applied to
these facts and
• reach outcomes/conclusions based on this at law – plus identify commercial advice if
relevant.
Some suggested cases appear at the end of the problem but your textbook will have more. A good
place to start is looking up these key terms in your book and reading around them (including more
broadly if needed) – as well as doing some searches around the cases provided. Reading a full case
can be complex (an important understanding in itself) and a decent case summary may suffice.
By ‘decent’ however I suggest you will need to have a reasonably detailed understanding of the facts
and of the elements of the tests the court applied to reach their final conclusion. You will need to
then ask yourself if the same tests would come out identically in this case – and why/why not? This
last bit is a critical step to showing you understand how legal precedent is applied. It is, in other
words, what ‘legal reasoning’ is about.
You should start asap as areas identified will not necessarily be covered in detail and are designed
to be the basis for applied independent research around legal issues.
Page 2 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
• As the course is only a term, the problem (and course) is structured for you
o to do preliminary reading
o application and analysis against a real world set of facts
o following up these concepts and processes in the context of class discussion.
Please take a look at some of the additional information posted as to getting started for more ideas.
There is also a short clip on doing legal research – although this will not be overly extensive in this
case with emphasis resting more on application of the cases you find below, in your text and in class.
Do not get too concerned about how to write your submission. ILAC/IRAC form is a logical
presentation format that separates out the issues, the relevant law, and application of that law. In
keeping these areas discrete, it is easier to remain objective around the first two, and to explain
clearly the pros/cons of the case facts as they align (or don’t align) with the law. Conclusions then
are the logical final step. See additional information around this on the assessment page.
This format is used in legal judgments but if you are more comfortable writing a memorandum of
advice, don’t get unduly hung up on the formalities. The bottom line is identifying and applying the
law.
• Similarly, use a citation system that is consistent with your other MBA studies and is easy for
you to apply. If you want to try legal citation, fine but it is not expected. Any referencing used
however must be consistent and done correctly within the confines of the (recognised)
system you elect to use.
• Remember – judges do not use textbook authors or quotes from textbooks as ‘law’ or
authority. Case law (precedent) and statutes are the standard tool with text citations being
extremely rare and only in exceptional cases. Text books (and equivalent summaries) are
considered secondary authority – so are descriptive but not ‘ the law’.
Please
• See the timeline and getting started hints at the end of the problem as the launching space
• confine your analysis and legal arguments to common law authority and to such provisions
that arise as part of this course (and text). In other words, do not attempt to use
landlord/tenancy specific legislation outside the scope of this course.
Cast of characters:
CommercialMalls Pty Ltd (CM) is the owner of a number of small shopping malls, including Happy
Home Base.
• Dick – CEO and Executive Director
Gourmando’s Delight (GD), a restaurant that is a tenant of Commercial Malls’ Happy Home Base
complex.
• Jones – owner of GD
Page 3 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
Leasing Problems at the Happy Home Base
On March 1 2020, Jones, owner of a local restaurant came to see you. He is very worried about the
lease on his well known restaurant and is seeking your advice (as he is aware you are doing
business law).
Jones’ restaurant has been an anchor tenant of Commercial Malls’ Happy Home Base shopping
centre for nearly two decades. His current lease is set to run out in 2021 and he has just
substantially renovated the restaurant. Not surprisingly, he is keen to continue on in that location
on favourable terms. On February 1, 2020, Jones emailed Dick indicating his intention to continue
on in the site post 2021 and raising discussions the two had around the current lease, making it
clear he considers Dick has a contractual promise of a lease extension beyond 2021.
Jones was alarmed to get a letter shortly after from Dick not only indicating that no renewal would
be forth coming but, to the contrary, asserting that as Jones was in violation of a condition of their
contract, CommercialMalls Pty Ltd was giving Jones notice to vacate. Under the lease term they
cite, Jones must do so in 21 days with a daily liquidated damages rate of $10,000 applying to each
day beyond that date. As Jones believes he could not possibly move out (vacate) in less than a
month – and absolutely does not want to go regardless – he is concerned as to:
1) Whether Dick’s termination notice is valid
2) Whether, on the facts as set out below, Dick has a contractual obligation to grant Jones a
renewal extension ‘as promised as part of the 2016 agreement’.
3) What options, including compensation measures, he is either entitled to recover or may be
at risk of having to pay depending on the legal outcome.
4) The most commercially sensible course of action you would recommend with reference to
the likely legal outcomes.
Overview:
The background to Jones’ dispute with CommercialMalls (CM) goes to construction of the terms of
their 2016 contract. Although when he entered the lease in 2001 on an ‘incentivised’ basis, his rent
was $1500/commercial month based on a five year contract and including 2 renewal options
subject to performance, the rent has crept up slowly since then. In 2016 Jones and Dick negotiated
an extension at a rental rate of $2700 which includes the clauses extracted below. Jones is keen to
stay because his restaurant is well known in that venue, the lease is reasonable and, importantly,
because in line with agreements struck in 2016, he has just put a lot of money into renovating the
premises.
__________________________________________________________________
Facts:
CommercialMalls Pty Ltd (CM) owns Happy Home Base (HHB), where Jones’ restaurant, Gourmands’
Delight, is situated. Built a couple of decades earlier, by 2015, Happy Home Base was looking a bit
tired and had the ‘vibe’ of a complex that had seen (much) better times. Business and revenue lines
had fallen and, to make matters worse, a new competitor, Flashy Home Base (FHB), had opened
across the road. Flashy’s new stores, stylish architecture and $5 lunches in their food court
generated a booming business (for Flashy) and was taking a serious toll on HHB.
Page 4 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
CM’s CEO and Managing director, Dick, and the CM Board decided in 2014 that things had to
change. Key to this strategy was the need for a substantial upgrade. Dick believed that in particular
Gourmando’s Delight (GD), the mall’s restaurant, needed to be refreshed to lure back lunch and
dinner trade. GD’s dated décor, shabby crockery & cutlery, and $35 lunches were all out of step with
customer expectations.
GD’s most recent lease was set to expire in February 2016. GD’s owner, Jones, had made it clear he
wanted an extension with subsequent renewal options. Dick believed the 2015/6 upcoming renewal
discussions were therefore optimally timed to procure Jones’ agreement, as part of the contract, to
perform significant renovations. The parties did indeed reach agreement, signed a lease and have
been doing business since that point. The 2016 lease expires on 1 March 2021.
Both sides (Dick and Jones) have good recall of the events surrounding the 2016 lease negotiations
and agreement. Both agree that all facts below represent an accurate narrative of events leading up
to and around it.
Lead up to the 2016 Lease
On 1 November 2015 Dick reminded Jones his lease was due to expire on 28 February 2016 and
indicated that he would be keen to see an upgrade of the premises as part of this agreement.
On 1 December 2015, Dick emailed Jones a new lease for a fixed 5-year period. The new lease
included the clauses below, but had no renewal options:
_________________________________________________________________________________
15.1 Procedure for post-expiry arrangements
CommercialMalls Pty Ltd will give at least 3 months’ notice to Tenant prior to expiration of the lease
stating whether:
• (a) the Landlord will renew this Lease for a subsequent 3 year extension with a renewal right on
the same terms as this provision and subject to such lease rates as the tenant and Landlord shall
mutually agree upon at that time; or
• (b)the Landlord will allow the Tenant to occupy the Premises on a monthly tenancy after Expiry;
or
• (c) the Landlord will require the Tenant to vacate the Premises by the Expiry Date.
29.1 Refurbishment
(a) A major Refurbishment1 of the Premises must be undertaken by the Tenant;
(b) The Refurbishment must be complete and the premises ready to open for trade not more than 3
months from commencement of this lease (“Reopen Date”); and
(c) Time is of the essence in relation to the Reopen Date. If the Tenant fails to complete the
Refurbishment by the Reopen Date, CommercialMall shall have a right, exercisable at its discretion, to
terminate this lease and require the Tenant vacate the premises within 21 days.”
(d) Failure to vacate the premises in a timely manner under clause c above shall attract a liquidated
damages charge of $10,000 per day.
Page 5 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
On 3 January 2016, Jones emailed back:
“Thanks - your draft lease has been received. My solicitor however says as there is no renewal clause
options beyond 2021 it isn’t worth signing. You don’t want to lose me!”
Jones however most certainly didn’t want to move, having just installed expensive kitchen
equipment, so he added:
“But I like CM and you are a good guy to deal with, Dick, so I’ll think about it.”
Dick, like Jones, was nervous as he did not want to lose Jones’ well known restaurant which was a
significant draw card for the shopping center. GD’s CardiaQ Arrest signature dish of a steak filet
encrusted in a double fried camembert and bacon wrapping was a crowd pleaser and the Straight to
the Promised Land cheesecake - iconic.
On 1 February 2016, Jones emailed:
“Dick, I can’t agree to this lease without a commitment from CM Pty Ltd to a renewal for a further 5-
year term, especially if I have to do a refurbishment.”
On 14 February 2016, Dick emailed back:
“I refer to your email of 1 February and your subsequent telephone call yesterday to the same effect.
Unfortunately, I confirm again this is a Board-level decision. CM’s policy is that it will not confer a
right to renew in any new retail food tenancies it owns, yours included.”
Jones later called Dick on 16 February 2016:
“You know I’m a major draw-card for the centre? You need me. I need that further 5-year term.”
After a lengthy pause, Dick said, “Jonesy, Jonesy…mate, you know CM…we’ll look after you at
renewal time.”
Jones attended CM’s office on 25 February 2016. Dick, CM’s Solicitor, CM’s Bank Manager and
several CM Board members were also in attendance. Jones said to Dick, “You know, I need that extra
5-years …” Dick replied “Jonsey, We’ll look after you at renewal time.”
Jones signed the lease.
Jones redesigned the restaurant space and ordered expensive furnishing, cutlery and artwork from
Italy. However, the container ship carrying the order sank shortly after leaving Italy - meaning the
order was not able to be delivered on time.
Frantically Jones ordered replacements for the lost items but they the soonest they could be
installed meant there would be delay of a week beyond the lease nominated deadline for reopening
– a fact Jones communicated to Dick by email on 30 May 2016.
The deadline came and went, with the restaurant successfully re-opening on 5 June 2016. Jones this
time around introduced a different business model that emphasised cheaper meals with high
turnover. Customers who had gone across the street to eat returned and revenue improved both for
Jones and CM.
Three years on from the re-opening (2019), however, Jones elected to return to a high end/high
price menu. On 1 April 2019 he changed to an all-new menu, with no lunch option cheaper than $50.
Patronage dropped away markedly and reviews were awful but Jones felt he was on the right track
Page 6 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
and should persevere. In December 2019, Jones emailed Dick to remind him that lease renewal was
expected and would be upcoming in 2021.
Due to Jones’ restaurant changes, however, patronage of CM had again dropped away, with
customers heading across the road to the competitor’s food court. In the wake of a record low
holiday season revenue outcome, on 28 February 2020 Dick emailed Jones, “we note that after your
refurbishment, you failed to reopen on the Reopen Date. Given this failure, we hereby terminate this
Lease in accordance with clause 29.1(c). Please deliver up vacant possession in 21 days. We will seek
to enforce all damages arising beyond that point as agreed in clause 29.1(d).
Jones was furious and argued with Dick, demanding he be able to stay and threatening to sue for
breach of the lease and agreement terms. Dick indicated he wanted Jones gone and, in line with the
terms in the lease, considered that he had given Jones full and proper notice. It was his intention,
Dick further added, that should Jones not comply, CM would enforce the contract terms to the full
extent including the liquidated damages clause and other measures under 29(1)D.
Jones has sought your advice. Jones believes GD/Jones have claims for:
• 1) A five year extension and damages for emotional distress, stress and suffering around this
transaction.
• 2) in the alternative, full damages suffered due to wrongful breach by CM including for stress
and emotional trauma around the experience and penalties for breach of good faith.
• 3) An order for a further 5-year lease on existing terms for the five year period or damages in
lieu if such is not viable.
CM/Dick has indicated (in heated arguments) that they will counterclaim:
• 1) For damages due to late departure of 10 days ($100,000) if Jones does not move out until
1 April 2020 which Jones indicated to Dick is the soonest viable departure date that Jones
can exit and
• 2) a declaration that its exercise of rights under clause 29.1(c) was valid. It denies the further
lease.
The Task
Please advise Jones as to his likely best commercial option going forward. This should include at a
minimum reference to:
• his likely legal position (highlighting the relevant legal principles and law that arise under
these facts)
• the legal consequences and risks Jones faces going forward if he ignores the termination
notice and goes beyond the 21 days to vacate and/or doesn’t exit until 1 April 2020.
• what legal remedies he is most likely to be entitled to on these facts
• whether Jones can claim for a further 5 year lease on existing terms for the five year period
• recommendation of a commercially sensible course of action
___________________________________________________
Page 7 Assessment 2, Semester 1 2020, AYN456 Business and Corporations Law
Getting Started:
For the avoidance of doubt, please ignore any real (or imagined) issues re:
• landlord/tenancy, Qld real estate or other equivalencies
• Agency – assume this not to be at issue on these facts
• Any formalities for executing the existing lease- assume all steps were fully compliant
Focus primarily on the major issues that may be relevant to this including
breach, estoppel, certainty, collateral contracts, termination, damages and liquidated
damages, good faith.
In preparing, you can read the materials on estoppel and termination for breach, and (at least)
summaries of the following
Waltons Stores v Maher (esp Brennan J) (1988); • Sargent v ASL; • Austotel v Franklins (note in particular
views by Kirby P, Rogers AJA); • Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26;
Hadley v Baxendale et al.
Citation Style
Formal legal citation form is not required unless you elect to use it (information around this are
contained in more detail on the assessment 2 page). It is acceptable to use a standard form of
citations standardly recognised in Business programs. You should, however, ensure the citation
system elected is well known and used correctly. Consistency and legitimacy will be essential
however.
Table 1: A chronological overview of events
March 1 2016 Start date of the lease (signed 25 February 2016)
May 30, 2016 Notification email from Jones to Dick’s Office, no acknowledgment or reply
received from Dick
June 1, 2016 Contract-specified reopening date
June 5, 2016 Jones reopens
28 February, 2020 Dick emails Jones termination as per cl 29(1)(D)
(21 Dec 2019 Jones queries renewal)
21 March, 2020 Clause 29 deadline for Jones to vacate the premises
1 April 2020 Jones’ soonest viable departure date
1 December 2021 Final day for Dick to notify Jones of what his options would be for end of lease
1 March, 2021 Scheduled end of lease (renewal of new lease to go in to operation)
- December 2019 – Jones to Dick: lease renewal – request for confirmation
- 28 February 2020 - Dick to Jones email: termination as per 29(1)(D).
