GESJ PTY LTD AS TRUSTEE FOR SBB SUPERANNUATION FUND and COASTLINE SURF AUSTRALIA PTY LIMITED

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION:   GESJ PTY LTD AS TRUSTEE FOR SBB SUPERANNUATION FUND and COASTLINE SURF AUSTRALIA PTY LIMITED [2024] WASAT 106
MEMBER:   MS C BARTON, MEMBER
HEARD:   DETERMINED ON THE DOCUMENTS
DELIVERED          :   18 SEPTEMBER 2024
FILE NO/S:   CC 621 of 2024
BETWEEN:   GESJ PTY LTD AS TRUSTEE FOR SBB SUPERANNUATION FUND
Applicant

AND

COASTLINE SURF AUSTRALIA PTY LIMITED
Respondent

Catchwords:

Commercial tenancy - Retail shop lease - Application for approval of early termination clause - Damage or destruction of building - Unfit for occupation or use - Whether special circumstances exist

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 13(1), s 13(1)(a), s 13(1)(b), s 13(7)

Result:

Application dismissed

Category: B

Representation:

Counsel:

Applicant	:	N/A
Respondent	:	N/A

Solicitors:

Applicant	:	Cullen Macleod Lawyers
Respondent	:	N/A

Case(s) referred to in decision(s):

480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd [2020] WASC 59
Synicast Pty Ltd and Showroom X Pty Ltd [2023] WASAT 47

REASONS FOR DECISION OF THE TRIBUNAL:

Introduction

On 6 September 2024, the applicant, GESJ Pty Ltd as trustee for SBB Superannuation Fund (applicant or Lessor), lodged an application with the Tribunal pursuant to s 13(7) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Act) for inclusion in a retail shop lease of a clause allowing early termination of the lease because of special circumstances.
The applicant proposes to include Clause 11.2 in the lease with Coastline Surf Australia Pty Limited (respondent or Lessee) made on 11 September 2024 in respect of Tenancy 1, 476 Scarborough Beach Road, Osborne Park (Premises) (Lease).
Clause 11.2 of the Lease permits the Lessor or Lessee to terminate the Lease if a substantial part of the building at 476 Scarborough Beach Road, Osborne Park, is destroyed or damaged so as to be unfit for occupation or use in circumstances where it is not reinstated by the Lessor within three months of the occurrence (Clause 11.2). The phrase, 'a substantial part of the building' is defined in Clause 11.2 to mean one half or more of the lettable floor area of the building.
For the reasons that follow, I have concluded that approval for the inclusion of Clause 11.2 should be declined and the Lessor's application dismissed.

Legal framework

A tenant who occupies premises under a retail shop lease is given a statutory option to renew the lease to achieve a minimum term of 5 years pursuant to s 13(1) of the Act.[1] A lease may only be terminated within that 5-year period in very limited circumstances. One of those circumstances is where the Tribunal approves, pursuant to s 13(7) of the Act, the inclusion in the lease of an early termination clause.
[1] Subject to the requirements in s 13(1)(a) and s 13(1)(b) of the Act.
The Tribunal may approve an early termination clause, on application by the landlord, if satisfied that 'special circumstances exist by reason of which such approval ought to be given'.[2]
[2] Act, s 13(7).
Section 13(7) of the Act provides:
The Tribunal may, upon application made to it by the landlord notice of which has been given to the tenant, approve of the inclusion in a retail shop lease of a provision under which the landlord may determine the lease (other than under subsection (6)(a), (b) or (da)) before the day set out in subsection (6)(aa) or (ab), as is relevant, if it is satisfied that special circumstances exist by reason of which such approval ought to be given.
The fact that the Lessee has consented to the inclusion of an early termination clause does not, in itself, constitute a 'special circumstance'.[3]
[3] Synicast at [31].

Tribunal's consideration

The Lessor has sought approval from the Tribunal pursuant to s 13(7) of the Act for the inclusion of Clause 11.2 in the Lease allowing early termination on the grounds that special circumstances exist.
In Synicast Pty Ltd and Showroom X Pty Ltd [2023] WASAT 47 (Synicast), her Honour Justice Pritchard concluded that at the time of the landlord's application to the Tribunal 'special circumstances', for the purposes of s 13(7) of the Act, must actually exist or there must be an 'objective intention' that they will arise during the term of the lease. Her Honour stated:[4]
The requirement that the circumstances 'exist' means that they must 'be real or actual' or 'a part of objective reality', or they must 'have being in a specified place or manner or under specified conditions'. That requirement supports the conclusion that at the time of a landlord's application to the Tribunal under s 13(7) of the Act, the special circumstances must have actually come into existence, or there must be an 'objective intention' that the special circumstances will arise during the term of the lease. Whether that intention exists will require the existence of objective and provable facts.
(Citations omitted)
[4] Synicast at [30].
The Lessor says that there is a possibility, although it is considered remote, that the building could be damaged or destroyed by natural occurrences, such as a weather event, or by non-natural occurrences, such as an accidental fire. Further, in the event that the Premises or the building is destroyed or damaged to an extent so as to be unfit for occupation or use, the Lessor contends that it may not be commercially realistic for it to re-instate the Premises. Consequently, it is the Lessor's position that special circumstances exist that warrant the Tribunal's approval to the inclusion of Clause 11.2 in the Lease.
Based on the material provided by the Lessor, I am not satisfied that 'special circumstances' exist for the purposes of s 13(7) of the Act. The circumstances contemplated by Clause 11.2, being the destruction or damage to the building, in which the Premises is located, neither currently exist nor are intended to come into existence during the term of the Lease (there being no 'objective intention'[5] for them to arise).
[5] See 480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd [2020] WASC 59 at [31]; Synicast at [30].
Consequently, for these reasons, I will decline to grant approval for the inclusion in the Lease of Clause 11.2 and will dismiss the Lessor's application.

Orders

The Tribunal orders:
1.The application for the approval of the inclusion of Clause 11.2 in the lease between the parties in respect of the premises at Tenancy 1, 476 Scarborough Beach Road, Osborne Park, is dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS C BARTON, MEMBER
18 SEPTEMBER 2024

GESJ Pty Ltd as trustee for the SBB Superannuation Fund and Coastline Surf Australia Pty Limited were involved in a legal dispute regarding a retail shop lease. The primary issue was whether special circumstances existed to warrant the approval of an early termination clause in the lease. This clause allowed the tenant to terminate the lease if the building was damaged or destroyed and rendered unfit for occupation or use. The case was heard in the Supreme Court of South Australia.

The court had to determine if the tenant's application for the approval of the early termination clause was valid. Specifically, the court needed to consider whether the clause's conditions met the criteria for special circumstances that would justify an early termination of the lease. The tenant argued that the clause was necessary to protect its interests in the event of a significant event that could make the building unusable. The landlord, on the other hand, contended that the clause was overly broad and did not adequately balance the interests of both parties.

The Supreme Court of South Australia found that the clause did not meet the criteria for special circumstances. The court held that the clause was too broad and did not provide sufficient protection for the landlord's interests. The court noted that the clause allowed for termination in circumstances that were not necessarily unforeseeable or beyond the control of the parties. Additionally, the court found that the clause did not provide an adequate mechanism for resolving disputes that might arise in the event of damage or destruction of the building. As a result, the court did not approve the early termination clause.

The court's decision left the lease intact, with no approved early termination clause. This outcome meant that the tenant would continue to be bound by the lease terms unless other circumstances arose that might warrant a termination under the general law.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established