Can a Landlord claim amounts owing under a lease after it has expired?

Commercial leasing arrangements can be fraught with potential disputes.  Landlords and tenants must fully understand the terms of their lease when entering into the arrangement as well as the implications of not adhering to those terms.

When one of the parties involved realises that payments made over the course of a lease have not complied with the terms of the lease, it can end in court action to recover the amounts owing.

A recent case heard by the NSW Supreme Court, Shimden Pty Ltd v Park Pty Ltd [2022] NSWSC 267, involved a claim by a landlord (Shimden) to recover amounts from a tenant (Park) that he had failed to claim during the course of an 11-year lease, including GST payments on the rent, rental increases under CPI and certain outgoings.

An Overview of the Case

The Landlord (Shimden) and the Tenant (Park) entered into a lease for a service station commencing 1 December 2008 (expiring 30 November 2014 with a further 7 year option) that formally came to an end in August 2019.

After the lease ended, Shimden commenced legal action to recover amounts owing from Park that had not been claimed over the course of the lease.  These included:

1. Shimden claimed they had mistakenly charged Park rent of $232,003.20 per annum INCLUSIVE of the GST from the commencement of the Lease, when the Lease actually provided that the initial rent was $232,003.20 EXCLUSIVE of GST.

2. Shimden further claimed they had mistakenly failed to increase the rent under the Consumer Price Index annual rent review as per the Lease.

3. Finally, Shimden claimed that they failed to claim certain Outgoings (the Lease provided for 80% of the Land Tax, rates and insurance being payable by the Tenant). The Tenant had paid the rates as they fell due, but the Landlord had never claimed reimbursement of Land tax or insurance.

Further complicating this particular case was the argument made by Park that they had subleased the Property and would have sought higher rent from the sub-tenant had they been aware that Shimden would be claiming the outstanding amounts.  Accordingly, Park argued that the Landlord should be "estopped" from their claims in relation to the above, that is, the Court should prevent the landlord from going back on his word.

The Court’s Decisions in this Case

Issue A: the Contractual interpretation of the 3 claims

1. GST Owing:  His Honour Justice Darke determined that the correct reading of the lease was that rent was exclusive of GST. As a starting point, the Landlord could then claim the amounts outstanding that he had failed to claim over the years.

2. Rent Review:  Under the terms of the Lease the Landlord was entitled to an annual CPI rent review.  While the Landlord had failed to do so, it "could not reasonably be regarded as an abandonment of the right to claim the rent at the adjusted rate in accordance with the lease" and the Landlord was entitled to claim these amounts owing.

3. Outgoings:  The Court came to a different conclusion on this point, reading the terms of the Lease as requiring an annual regime to pass the Outgoings on, which the Landlord had not followed.

Issue B: That the Landlord should be “Estopped” from maintaining their claim

While there are various forms of estoppel, in essence, it involves a court order precluding one party from denying an assumption held by the other party. The assumption must be reasonably based, and the second party must be able to say they would suffer a detriment if the assumption was denied.

On the issue of outstanding GST and rent review increases, the Court found that there was no detriment to the Tenant because Park had enjoyed the benefit of paying less over the course of the lease.  It also found that his argument that he would have sought higher rent from the sub-tenant was not reasonable because he should have relied on the terms of the actual lease when determining how much to charge the sub-tenant, rather than the invoices from Shimden.   

In terms of the Outgoings, however, the Landlord was estopped from claiming the land tax and insurance Outgoings, as the parties had come to a ‘tacit agreement’ as to how the outgoings would be dealt with in a manner that was different from the lease and Park would suffer detriment if Shimden was permitted to depart from their mutual assumption as to how outgoings would be handled.  

Issue C: The Statute of Limitations

The final issue for the Court to determine was whether the Landlord's claim should be "reduced" to amounts owing within the last 6 years preceding the filing of the Landlord's claim in court.

The Tenant was successful on this point and was only liable for the rent in arrears for the preceding 6 years, and any rent in arrears arising before 23 July 2013 could not be claimed by the Landlord.

Conclusion

Both landlords and tenants need to be aware of their rights and obligations under a lease and regularly check to ensure compliance with the terms.

This case is a strong reminder of the importance of reading and understanding the terms of a lease carefully, and also ensuring that amounts claimed under the lease actually accord with the documentation. The landlord in this matter lost a considerable amount of money over the term of the lease and the tenant endured expensive litigation and had to pay arrears. 

For all leasing and property advice, contact Maclarens Lawyers on 9682 3777.