In brief: A recent decision of the New South Wales Court of Appeal presents a timely reminder of the importance of commercial negotiation and effective lease drafting
In NB2 Pty Ltd v P.T. Ltd  NSWCA 10
, the Court dismissed an appeal of a tenant who brought a case of misleading or deceptive conduct against their former landlord.
Tenant argued that the landlord misrepresented its terms in the lease
The tenant operated a fresh fruit and vegetable shop within a shopping centre owned by the respondent landlord. At the time of lease renegotiation, the tenant was the only retailer of fruit and vegetables within a particular precinct in the shopping centre.
In 2009, the lease expired and the landlord informed the tenant that they wished to charge higher rent for the new lease term. In exchange for higher rent, the parties agreed that the tenant would be "the sole independent fresh fruit and vegetable operator
" in the precinct.
After the new lease had commenced, a nearby supermarket opened and began selling fruit and vegetables. The tenant's profits deteriorated and they subsequently defaulted on their rental payments.
The landlord brought proceedings in the Supreme Court against the tenant and its guarantor for the recovery of rent and damages. The tenant argued that the landlord had represented to the tenant that it would have exclusive rights to sell fresh fruit and vegetables in the shopping centre.
Court found in favour of the landlord
The primary judge rejected the tenant's argument and found in favour of the landlord. The Court of Appeal affirmed the primary judge’s decision.
The Court of Appeal held that the landlord had not, as alleged, represented to the tenant that it would have exclusivity. Instead, they had only promised that the tenant would be the “sole independent
fruit and vegetable” retailer; the emphasis being on 'independent'.
Macfarlan JA endorsed the primary judge's finding that the word “independent” meant independent of other stores, with his Honour stating that the representations "had its ordinary meaning which did not involve a right of the tenant to be protected against competition from supermarkets".
As there was no misrepresentation made, there could be no finding that it was misleading or deceptive, or indeed unconscionable for the landlord not to disclose to the tenant that they would in fact face competition through a nearby supermarket that would soon open.
Precontractual representations could have been clarified by better legal drafting
The Court found that the tenant's decision to enter into a new lease was based on its own misunderstanding of the Landlord's representations. The tenant was ordered to pay the landlord in excess of three million dollars for its default.
First, tenants and landlords alike are reminded that representations, considered in context, will be given their natural and ordinary meaning. Although the word 'independent' as used in the negotiation stage was open to a number of interpretations, the Court found that it did not carry the wide interpretation of exclusivity contended for by the tenant.
The decision also reiterates that, as a general principle, when parties are negotiating at arm's length there is no obligation on one party to bring information to the attention of the opposing party that would or might cause that other party to take a different negotiating stance.
Lastly, the decision is an important reminder for all parties to ensure that the final agreed lease adequately reflects their own commercial understanding of the deal. In the example above, the tenant should have required an exclusivity clause, which is what it had in fact expected. The tenant's failure to do so resulted in it having to rely on a much weaker case of misrepresentation that failed due to its misunderstanding of the word "independent" as used by both parties.
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