A critical question: Is your premises fit for purpose?

Liberty Leasing

At law there is no provision which requires a premises to be fit for the purpose which it is leased. Furthermore, no Landlord (at least not those with worthy representation) is going to contract into a warranty that it is!

The law isn’t going to change either – this has been the way of the world since 1843 and the landmark case of Hart v Windsor.  Today, we still operate under the assumption that a Tenant has made its own enquires as to the condition of the premises and the Tenant takes the premises as it stands.

The same principle applies to whether a Tenant can legally occupy the premises. It is your responsibility, as Tenant, to ensure that you can legally occupy the premises and carry on your business.

SUITABILITY OF YOUR PREMISES

The principles above apply regardless of whether or not the Landlord is aware of the purposes for which you intend to occupy.  This is quite important, and we will explain why by a real life example:

Bradford House entered into a lease with Leroy Fashion Group. The lease provided that Bradford House must only use the premises for the purpose of a printing business. Both parties were taken to have an understanding that a forklift was used in the operation of a printing business. The forklift was required to move materials around the premises.

One day, the fork lift fell through the floor of the premises. Bradford House bought a claim against Leroy Fashion Group as Lessor for damages.

Bradford House was not successful because there was no implied warranty in the lease that the floor of the premises was suitable for the weight of the forklift.

Often in a commercial lease there will even be an obligation on the Tenant to comply with floor weight limits.  It is imperative that you make investigations as to the actual weight limits prior to entering into the lease, particularly if you use heavy machinery such as forklifts.

LAWFUL OCCUPATION OF YOUR PREMISES

Lawful occupation is the second critical step in determining whether the premises is fit for purpose. When entering into a new lease, it will be the obligation of the Tenant to ensure that occupation and the permitted use is allowed by law. This will include making investigations into whether you require the consent of a local authority.

Obtaining consent or approval from the local authority is of particular importance.  If (by law) you require the consent of a local authority, and that consent is not obtained, then you may continue to be bound by the lease. Namely, the lease will not be void. The exception is establishing an inference from the terms that the Landlord intended to lease the premises for illegal purposes. If a Landlord leases a premises for a specific permitted use and the Landlord is aware that the permitted use does not comply with local laws then the lease is likely unenforceable. However, we need to consider whether the heart of the transaction is illegal, not merely whether there is illegality as an incidental to the transaction. To demonstrate those principles, we provide another real word example.

Bawofi and Comrealty

Bawofi Pty entered into a lease (and entered into possession of the premises) with Comrealty Ltd. The consent of a local authority was required to carry out the permitted use. The local authority did not provide its consent.

Bawofi argued that the lease was not enforceable because:

    • it was a contract to do an illegal act; or 
    • at a minimum, there was an intention to perform an illegal act.

The lease provided that the premises:

    • was only to be used for the purpose of a commercial office and no other purpose; and
    • could not be used for any illegal purpose.

The lease was enforced  because there was no blanket prohibition of the use by the local laws, it merely required consent of the local authority. There was no obligation on Bawofi to enter into possession before consent was obtained.  Therefore it could not be argued that the lease was a contract to perform an illegal act.

However, if a Landlord makes representations about the lawful use of a premises you may have termination rights. These rights would come form the Australian Consumer Law, rather than any real property legislation. Also refer to our article regarding completion of your Lessee Disclosure Statement in respect of correctly documenting Landlord representations.

KEY TAKEAWAYS

Generally, a Tenant is not going to be released from its obligations under a lease because approval to use the premises was not granted by a local authority / council. In some cases, it would be appropriate to include a condition precedent in the lease surrounding the necessary consents.

Engaging Tenant Representation Services to carryout the site acquisition process and negotiate the heads of agreement protects you against the complexities in determining whether a premises is fit for purpose.

If you would like assistance from our site acquisition specialist, or have any questions about entering into your lease, get in touch with Liberty Leasing on (07) 3359 8273 or book an appointment online here.

You can read the full extract of the Bradford House matter here.

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