How good is your lease? – Court says change in occupier is not always a change in possession

As a recent Supreme Court decision* illustrates, a change in the identity of the occupier of commercial premises does not necessarily constitute an unauthorised dealing with the lease by the tenant. Australia Post had leased a warehouse from Ace Properties in West End since 1998 and exercised a further five-year option of renewal in 2006.

From about 2003, Decipha – an associate of Australia Post – occupied the premises.

Clause 7.1 of the lease provided:

The Lessee may only sublet or licence or otherwise part with possession of the Premises with the consent of the Lessor.

In 2008 the landlord wrote to the tenant stating that it considered there had been a breach of the lease because of its occupation by Decipha and also because the tenant was conducting operations on the premises outside the scope of the “permitted use”.

The landlord offered to consent to the above as “variations” to the lease provided the tenant agree that the rent be reviewed to market from the date upon which the above changes occurred. The tenant refused and the landlord issued a Notice to Remedy Breach of Covenant.

The tenant sought relief in the Supreme Court.

The tenant contended that it had never parted with possession of the premises notwithstanding the activities of Decipha.

Rent was always paid by or on behalf of Australia Post. The premises were managed on behalf of Australia Post and not Decipha. Maintenance issues in respect of the premises were raised on the tenant’s behalf with the landlord. There was no documented arrangement between the tenant and Decipha. The tenant had always represented to the landlord that it was the tenant of the premises. Decipha was its wholly-owned subsidiary.

On this basis – because Australia Post remained in control of the possession of the premises – the court distinguished the current situation from that of a tenant and subtenant. There had been no assignment or subletting and no breach of clause 7.1 of the lease.

Landlords should also note that section 121 of the Property Law Act 1974 specifies that consent to an assignment must not be unreasonably withheld. The decision is currently under appeal.

* Australian Postal Corporation v Ace Property Holdings Pty Ltd [2009] QSC 199

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