Yang v Hapisun Pty Ltd - [2018] SASC 17

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
YANG & ANOR v HAPISUN PTY LTD & ANOR
[2018] SASC 17
Judgment of The Honourable Justice Parker
23 February 2018
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - OTHER MATTERS
Appeal against a decision by a Magistrate to dismiss an application for a declaration concerning the rights of the appellants under the Retail and Commercial Leases Act 1995 (SA) (‘Act’).
The appellants occupy premises under a retail shop lease which commenced in July 2015 for a term of five years. In July 2017, the respondents sought to terminate the lease by relying on a demolition clause. That clause complies with the requirements for demolition clauses in s 39 of the Act.
Section 20B of the Act provides that the term for which a retail shop lease is entered into must be at least five years. Section 20K of the Act provides that the "statutory rights of security of tenure" can only be excluded by a certified exclusionary clause. The issue on appeal is whether the demolition clause in the lease must be certified under s 20K.
Held per Parker J, dismissing the appeal:
1. There is no identifiable basis in policy or principle to suggest that demolition clauses should be treated differently to other rights to terminate that exist at common law and under the Act, at [64].
2. The substantial constraints upon a lessor’s use of a demolition clause imposed by s 39 means that demolition clauses are distinguishable from clauses that simply permit termination without cause on notice, at [63].
3. Subject to compliance with s 39, a lessor may terminate a lease under a demolition clause. That clause is not required to be certified under s 20K, at [63].
Retail and Commercial Leases Act 1995 (SA) ss 5, 20A, 20B, 20K and 39, referred to.
Blackler v Felpure Pty Ltd [1999] NSWSC 958, considered.

YANG & ANOR v HAPISUN PTY LTD & ANOR
[2018] SASC 17
Magistrates Appeal: Civil

PARKER J: This is an appeal against a decision of a Magistrate to dismiss an application for a declaration concerning the rights of a lessee under the Retail and Commercial Leases Act 1995 (SA) (‘Act’). The issue is whether the Act permits a lessor to terminate a lease prior to the expiry of the minimum five year term in order to demolish the property in circumstances where the lease does not contain a certified exclusionary clause covering demolition. The Magistrate held that the lessor was entitled to terminate the lease notwithstanding the absence of a certified exclusionary clause.
For the reasons that follow, I consider that the matter was correctly decided by the Magistrate and the appeal should be dismissed.
Background
The lessees operate a snack bar at premises in Franklin Street, Adelaide. They occupy the premises under a lease which commenced on 1 July 2015 for a term of five years with a right to renewal for a further five years (‘Lease’). The identity of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Keep reading for free

Create a free CaseChat account to read Yang v Hapisun Pty Ltd and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2018] SASC 17
Decision Date: 23 February 2018

CaseChat Overview and Summary

In Yang v Hapisun Pty Ltd, the South Australian District Court considered an appeal from the Magistrates Court's dismissal of an application by the lessees, Yang, to prevent the lessors, Hapisun Pty Ltd, from terminating their lease of a retail shop in Franklin Street, Adelaide. The lease, which was initially for five years with an option to renew for another five years, was assigned to Hapisun Pty Ltd in 2017. Hapisun Pty Ltd served the Yangs with a notice of termination, citing a proposed redevelopment of the premises. The Yangs argued that the lease should not be terminated because it lacked a certified exclusionary clause, which would have alerted them to the risk of early termination. The primary issue before the court was whether Section 39 of the Retail and Commercial Leases Act 1995 (SA) concerning demolition clauses is subject to the requirements of Section 20K concerning exclusionary clauses.

The court noted that the Act aims to balance the expectations of lessors and lessees regarding security of tenure. While Section 20K requires a certified exclusionary clause for certain rights to be excluded, Section 39 specifically deals with demolition clauses and does not require such a clause. The court reasoned that there is no policy or principle to treat demolition clauses differently from other termination rights at common law or under the Act. Consequently, the court concluded that the absence of a certified exclusionary clause does not preclude the lessors from relying on the demolition clause in the lease.

The appeal was dismissed, and the Yangs' application to prevent the termination of the lease was denied. The court held that the Act does not codify all aspects of retail shop lease termination, and general tenancy law applies where consistent with the Act. The court found that the unilateral decision of the lessors to terminate the lease for redevelopment purposes was distinct from other grounds for termination that do not require a clause in the lease. The decision underscores the importance of distinguishing between mutually agreed terminations and unilateral terminations by lessors, particularly in the context of demolition clauses.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

For the reasons that follow, I consider that the matter was correctly decided by the Magistrate and the appeal should be dismissed.Background The lessees operate a snack bar at premises in Franklin Street, Adelaide. They occupy the premises under a lease which commenced on 1 July 2015 for a term of five years with a right to renewal for a further five years (‘Lease’). The identity of the lessors has since changed. By way of a deed dated 28 March 2017 the Lease was assigned to the current lessors. For the purposes of this appeal the lessees are the appellants and the lessors are the respondents. The parties have proceeded on the common understanding that the Lease is a “retail shop lease” and the premises are not located in a “retail shopping centre” for the purposes of the Act.[1] [1] See definitions in Retail and Commercial Leases Act 1995 (SA), s 3(1). On about 26 July 2017 the lessors served the lessees with a notice of termination of the Lease together with a redevelopment proposal for the premises. The notice of termination requires that the lessees provide vacant possession as at 30 April 2018. The Court has been informed that the lessor proposes a major re-development of the site. Neither the Lease nor the notice of termination was in evidence before the Magistrate. However, the parties filed a statement of agreed facts. The matter proceeded on the basis that cl 15.9 of the Lease constitutes a demolition clause within the meaning of s 39 of the Act and the Lease does not contain a certified exclusionary clause within the meaning of s 20K of the Act. In light of the agreed facts, the Magistrate identified the issue for determination as being whether s 39 concerning demolition clauses is subject to the requirements of s 20K concerning exclusionary clauses. In other words, can the lessors rely on the demolition clause in cl 15.9 of the Lease despite the fact that there is no certified exclusionary clause in the Lease. The lessees state that they have invested a significant sum in the fitout of the premises and contend that it is unlikely they would have done so if a certified exclusionary clause had brought to their attention the risk that the Lease may be brought to an early end.The legislative scheme The relevant provisions of the Act are as follows:5—This Act overrides leases(1) This Act operates despite the provisions of a lease.(2) A provision of a lease or a collateral agreement is void to the extent that the provision is inconsistent with this Act.…20A—Objects(1) The Parliament recognises that conflicts sometimes arise between a lessor's expectation to be able to deal with leased premises subject only to the terms of the lease and a lessee's expectation of reasonable security of tenure.(2) The objects of this Part are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure as far as practicable fair dealing between lessor and lessee in relation to the renewal or extension of a retail shop lease.Division 2—Initial term of lease20B—Minimum 5 year term(1) The term for which a retail shop lease is entered into must be at least five years.The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.(2) A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.Example—If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).(3) This section does not apply to a lease if—(a)the lease is a short-term lease (ie a lease entered into for a fixed term of 6 months or less); or(b)the lease arises when the lessee holds over after the termination of an earlier lease with the consent of the lessor and the period of holding over does not exceed 6 months; or(c) the lease contains a certified exclusionary clause; or(d)the lessee has been in possession of the retail shop premises for at least 5 years; or(e)in the case of a retail shop lease that is a sublease—the term of the retail shop lease is as long as the term of the head lease allows; or(f)the lease is of a class excluded by regulation from the ambit of this Division.…20K—Certified exclusionary clause(1) Subject to this section, the rights conferred by this Part cannot be excluded or modified by contract.(2) However, the statutory rights of security of tenure may be excluded by a certified exclusionary clause.(3) A certified exclusionary clause is a provision of a retail shop lease in respect of which a certificate signed by a lawyer who is not acting for the lessor is endorsed on the lease to the effect that—(a)the lawyer has, at the request of the prospective lessee, explained the effect of the provision and how this Part would apply in relation to the lease if the lease did not include that provision; and(b)the prospective lessee gave the lawyer apparently credible assurances that the prospective lessee was not acting under coercion or undue influence in requesting or consenting to the inclusion of the provision in the lease.…39—Demolition(1) If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:(a)the lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated;(b)the lease cannot be terminated by the lessor on that ground without at least six months written notice of termination;(c)if notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than seven days written notice of termination at any time within six months before the termination date notified by the lessor.(2) If the lease is for a term of 12 months or less, the period of six months in subsection (1)(b) and (c) is shortened in each case to three months.(3) If a retail shop lease is terminated on such a ground and demolition of the building is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish the premises within that time.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Whilst Blackler v Felpure concerned different legislation, I have come to the same conclusion as Bryson J. There is no identifiable basis in policy or principle to suggest that demolition clauses should be treated differently to the various other rights to terminate that exist at common law and under the Act. Conclusion The appeal is dismissed.

Ratio Decidendi

Legal Principle Established

An important distinction between, on the one hand, s 39 and, on the other hand, each of ss 37, 38, 40 and 41, is that the rights and duties created and imposed by s 39 will only apply to those leases where a demolition clause has been specifically included as a term. However, each of ss 37, 38, 40 and 41 operate by force of the Act without regard to the terms of the lease. Operation of general tenancy law The parties acknowledge that the Act does not codify the law relating to termination of retail shop leases. For that reason, general tenancy law applies to a retail shop lease to the extent that it is consistent with the Act. Thus, a lease may be brought to an early end for a number of reasons that are not referred to in the Act notwithstanding the requirement in s 20B that a lease be entered for a minimum term of five years. A lease may be brought to an early end where the parties mutually agree to do so before the term expires. While s 20K(1) provides that the rights conferred by Part 4A cannot be excluded or modified by contract, I consider that clearer words are required to prohibit parties from agreeing to end a lease. Mutual termination of a lease does not involve an exclusion or modification of the rights conferred by Part 4A, but rather an agreement between the parties that they will no longer be bound by the initial term of the lease. The respondents refer to a number of situations (see paragraph [33] above) where a lease may be brought to an early end without being the subject of a certified exclusionary clause. Of the examples referred to by the respondents, a mutually agreed termination can be disregarded because of its consensual nature. Termination under s 40 of the Act can also be disregarded for present purposes as it involves the exercise of a right specifically conferred by statute. None of the other examples of early termination referred to by the respondents are founded entirely upon the unilateral action or decision of a party although, in some instances, the lease will only be terminated if a party elects to exercise the right to terminate after the relevant event, e.g. termination for breach following a failure to pay rent. In the situations referred to by the respondents (at paragraph [33] above) the lease may be terminated before the five year term has expired without the particular ground for termination being authorised by a clause in the lease. The fact that a lease may be terminated on these other grounds is not inconsistent with the requirement that the lease be for a minimum initial term of five years. The fact that an event, which is not brought about by either party, may entitle a party to bring the lease to an early end does not mean that the lease was not entered for a term of five years. A decision to give notice of termination because of a proposed demolition of the premises will occur solely at the behest of the lessor. That situation is very different to a decision by a public authority to acquire the land compulsorily or the destruction of the premises by fire.[19] It is also quite different to a termination following any of the other external causes referred to by the respondents at paragraph [33] above. In those situations the event that triggers the right to terminate is not the result of an action by the lessor or the lessee, nor is it necessary for the event to be the subject of a clause in the lease. [19] In the latter situation s 40 of the Retail and Commercial Leases Act 1995 (SA) would regulate the rights of the parties.