Beware of lease variations

It is trite law that a slight variation to a lease may effect a surrender and re-grant. See: Pascoe-Webbe v Nuguna Pty Ltd (1985) 3 BPR 97,231 (SC, NSW per Young J). In Richmond Football Club Limited v Verraty Pty Ltd [2011] VCAT 2104 a variation to a lease had major consequences for an unwitting and unfortunate landlord.

The lease, which had been made in 1998, was for a term of 10 years with an option for a further term of 10 years and required the tenant to pay land tax and outgoings. In 2004 the lease was varied: the changes included reducing the rent, amending the bank guarantee and rent review provisions, introducing an obligation to pay GST and extending the lease term by 10 years. The tenant contended that the variation effected a surrender and re-grant with the consequence that from the date of the variation the Retail Leases Act 2003 applied to the lease.

By reason of s.50 of the 2003 Act a provision in a lease requiring a tenant to pay land tax is void. Also, by reason of s.46 of the 2003 Act a tenant was not required to contribute to outgoings until given a statement of outgoings.

The tenant sought recovery of land tax and outgoings paid after the variation. The landlord claimed that the tenant was estopped from alleging that a surrender and re-grant occurred; this submission was rejected on two bases, namely that the tenant had not been aware of its rights until 2009 and the provisions of the 2003 Act could not be circumvented on the basis of estoppel. The tenant sought recovery of the land tax and outgoings on the basis that they were paid under a mistake because the tenant was unaware that it had no liability to do so. Consequently, there was a total failure of consideration and therefore the landlord was obliged to repay the amount paid by way of land tax and outgoings as money had and received. The landlord’s defences based on estoppel and unconscionable conduct failed.

The landlord also relied on Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd (2006)VSCA 6 in alleging that good consideration had been provided by the landlord for the payments; this claim was rejected with respect to land tax because there was no obligation on a tenant to pay land tax and s.50 of the 2003 Act expressly prohibited a tenant from recovering land tax. The landlord’s argument based on The Dog Depot was successful with respect to outgoings because outgoings were part of the consideration payable by the tenant; the tenant received a benefit in exchange for the payment of outgoings and therefore the tenant’s claim for money had and received failed.

The landlord also relied on The Dog Depot to claim compensation for lost land tax based on the tenant’s use and occupation of the premises; this claim failed because consideration had not been given for the payment of the land tax. The tenant recovered $125,320 in land tax, being all the land tax paid that was not caught by the Limitations of Actions Act 1958.