Legal and Regulatory Issues of Retail Leases Part 2

 

With all retail businesses, rights in relation to use of the retail premises are an issue of critical concern to any business owner.  Retail optometry is no different.  Following on from Part 1 where we addressed issues to be considered in negotiating a retail lease and to be considered in negotiating a retail lease in a shopping centre, in this article, we will  address the impact of the Trade Practices Act in relation to retail leases.

THE TRADE PRACTICES ACT IN RELATION TO RETAIL LEASES

In addition to the State and Territory laws which regulate retail tenancies, parties to a retail lease should be aware of the provisions of the Trade Practices Act 1974 (Commonwealth) ("TPA").  The TPA is a very important piece of consumer protection legislation that applies to most businesses in Australia and, among other matters, contains provisions which prohibit corporations engaging in misleading or deceptive conduct, and provide some protections for small business in dealing with much larger business.  Of particular relevance to our discussion on retail tenancies is section 51AC of the TPA, which effectively prohibits a stronger entity engaging in conduct with, or behaving towards, a weaker party in a way that is "unconscionable".

Misleading and deceptive conduct

The TPA contains provisions prohibiting a corporation in trade or commerce from engaging in conduct which is misleading or deceptive or is likely to mislead or deceive.

Provisions similar to or the same as, this provision are contained in State and Territory fair trading legislation.  It should be noted that the State and Territory provisions prohibiting a person from engaging in misleading or deceptive conduct in the course of trade are not restricted to corporations, but apply to all persons.

In the context of the TPA, misleading someone includes lying to them, leading them to the wrong conclusion, creating a false impression, leaving out (or hiding) important information in certain circumstances and making false or inaccurate claims about services or products.

For instance, if a landlord fails to include relevant information in a retail leases disclosure statement, an aggrieved tenant may not only have remedy under the relevant retail tenancy legislation,  but also under the TPA and the applicable provisions contained in the relevant fair trading legislation.  A landlord's agent may have given undertakings or made promises on behalf of the landlord to induce a commitment to lease from a prospective tenant, not knowing whether they would be honoured or kept.  If the conduct is found to have been misleading or deceptive, the tenant will have a range of remedies available, including a right to terminate the lease.

In bringing a claim under the TPA (or the equivalent State or Territory legislative provision), it is not necessary for the claimant to prove that the conduct actually misled or deceived anyone, nor does it matter whether the conduct was intentional, deliberate or accidental.  What is important is the overall impression that the court considers, looking at the matter objectively, was left in the mind of the claimant.

On occasion, the Australian Competition and Consumer Commission (ACCC), which administers the TPA, may take enforcement action against a corporation which is alleged to have infringed the misleading and deceptive conduct provisions of the TPA on a complaint being made to that body by a person who has been misled or deceived as a result of the conduct.  The ACCC is more likely to take such action if it perceives that a matter of public interest is involved as opposed to a purely private commercial dispute.

Unconscionable Conduct

Most retail tenancy legislation have specific provisions dealing with unconscionable conduct. The TPA also contains provisions which address commercial unconscionable conduct. These provisions are set out in section 51AA of the TPA which deal with general commercial unconscionability and section 51AC which deal with unconscionable conduct in the supply of goods or services.

Section 51AA of the TPA is a broad provision which provides that a corporation must not engage in conduct that is unconscionable within the meaning of the unwritten law.  The reference to unwritten law in States and Territories is a reference to the Australian common law. The courts have interpreted section 51AA to mean that in order for there to be unconscionable conduct contrary to section 51AA, the weaker party in a transaction (such as the tenant of a retail shop in a landlord- tenant relationship) must establish that it was in a position of special disadvantage that the stronger party knew or ought to have known about, and that the stronger party took advantage of its stronger position unfairly. Note however, that while the courts have a role to ensure that section 51AA is not contravened, the courts generally avoid findings that would impede reasonable commercial practice, or hindering "robust competitive behaviour"; for example, the courts have made a distinction between unconscionable conduct (which is not permitted) and "striking a hard bargain" (which is permitted).

Section 51AC of the TPA is designed to protect small businesses from conduct by larger businesses which is "in all the circumstances unconscionable".  For the purposes of section 51AC, the value of the goods or services transacted between the parties must not exceed $3 million, and the business subjected to the conduct must not be publicly listed on a securities exchange.

The court has a discretion in considering claims under section 51AC of the TPA and can take into account a wide range of factors including the bargaining strength of each party, a party requiring conditions which are not reasonably necessary to protect the legitimate interest of the stronger party, the capacity of the targeted party to understand any document, the use of undue influence, pressure or unfair tactics, as to whether the weaker party could obtain an arrangement on better terms elsewhere, consistent conduct in similar transactions, the willingness to negotiate and the extent to which each party acted in good faith.

Some key examples of conduct which the courts have declared to be unconscionable under section 51AC in retail tenancy matters include failing to honour the terms of a retail lease, unreasonably refusing to transfer a retail lease and unreasonably refusing to renew a lease.

It is therefore important to consider, in the case of a dispute with a landlord in relation to the provisions of a retail lease, whether the provisions of the TPA (or the equivalent state fair trading legislation) have been breached. Of course, while the unconscionable conduct provisions in the TPA are an effective means of providing redress for unacceptably harsh conduct, prevention is better than cure. Some measures that retail tenants could take to minimise their risk of exposure to unconscionable dealings by larger business include getting understandings in writing, reading all documents carefully and if the terms are not satisfactory trying to negotiate better terms or seeking professional advice.

If you would like further information leasing related matters, please contact the Laura Dhana or Brent Wilson on 1800 617 624 or This email address is being protected from spam bots, you need Javascript enabled to view it .