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Interpretation of section 38(2) of the Retail Shop Leases Act
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Tenant's obligation to pay proportion of Outgoings
Facts
The plaintiff was the tenant of a lot in a strata titled building from which the tenant conducted a retail business. The body corporate contribution schedule required the defendant landlord to pay 14.5% of the outgoings for the building. The terms of the lease between the tenant and the landlord passed on the landlord's obligation to pay 14.5% of the outgoings to the tenant.
However, the lot which was leased to the tenant comprised of only 7.3% of the total area of the lots in the building. Despite agreeing to pay 14.5% of the outgoings in the lease, the tenant argued that under section 38(2) of the Retail Shop Leases Act 1994 ("Act"), she need not pay more than that the percentage attributable to the proportion of the area in the lot compared to the total of the lots in the building namely 7.3%.
Section 38(2) of the Act states:
The proportion of a lessor's apportionable outgoings for a ... leased building payable by a lessee ... who is ... sharing the benefit of the outgoing must not be more than the proportion that the area of the lessee's leased ... shop bears to the total area of all premises in the ... building that are:
- leased to or occupied by lessees who ... share the benefit resulting from the outgoing (whether or not they are lessees under retail shop leases); or
- available for lease to or occupation by lessees who would, if leased or occupied,... share the benefit resulting from the outgoing (whether or not they would be lessees under retail shop leases).
Issue
The question to be determined was whether s38(2) of the Act limited the tenant's liability to pay outgoings for the building to 7.3% despite the lease requiring the tenant to pay 14.5%.
Decision
The court held that the literal interpretation of s38(2), as proposed by the tenant could lead to results that were fundamentally inconsistent with the intention of the Act. Such an interpretation could remove the protection that the section was intended to confer on a tenant, i.e. preventing a landlord from requiring a tenant to pay a greater amount of outgoings than the landlord is required to pay to the body corporate.
Consequently, the court considered that it should look beyond the literal wording of s38(2) to have regard to the intention of the section. This was held to involve notionally amending the first part of the section so it read:
The proportion of a lessor's apportionable outgoings for a leased building payable by a lessee who is enjoying or sharing the benefit of the outgoing must not be more than the proportion that the area of the lessee's leased shop bears to the total area of all premises in the ... building owned by such lessor that are..."
The court held that this approach better reflected with the intention of the legislation and so the tenant's claim failed with the court finding that the tenant's promise to pay 14.5% under the lease was not inconsistent with s38(2) of the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
