Note for landlords: strict notice rules reinforced for retail tenancies

A recent decision of the Building and Property list at VCAT has reinforced the consequences of the 2008 Supreme Court Decision Xiao v Perpetual Trustee Company Ltd (Xiao). The ramifications of this decision are worth exploring, particularly given the potential pitfalls that it creates for landlords and managing agents.

Retail Leases Act – Section 28

Section 28 of the Retail Leases Act requires a landlord to give a tenant six months’ notice of the tenant’s last date to exercise its option to renew. If the tenant has no options available Section 64 requires the landlord to give the tenant six months’ notice of the landlord’s intention at the end of the lease (either to bring the lease to an end or to offer the tenant a further option).

Compliance with those clauses in general seems to be hit and miss. A surprising number of landlords are not aware of their obligation to provide a tenant with this type of notice and consequentially we are regularly seeing tenants afforded an opportunity to extend their tenure without committing to the premises – increasing uncertainty for landlords (and, unfortunately, leading to a broader breakdown of the landlord/tenant relationship). The consequence of failure to give notice gives a tenant a right to effectively extend their option period until the date six months after the notice is given (with the term of the lease extended as required to allow the tenant that time to renew).

The obligation to ‘Notify’

‘…If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing…’ – Section 28, Retail Leases Act (2003) (emphasis added)

More interesting, and even more misunderstood, is the position taken by the Supreme Court as to the meaning of “notify” in Section 28. It is not sufficient for a landlord to merely serve the relevant notice on its tenant. The obligation is on the landlord to notify the tenant of its last date. It is that word, notify, that Vickery J in Xiao determined went further than merely serving the document. Rather, the obligation to notify was determined to encompass ‘making the prescribed information available to the tenant through physical supply of the written document containing the relevant information such that it is actually provided to and received by the tenant’.

A Shifting Burden

In Xiao, there was a real question as to when the notification was received by the tenant, with the weight of evidence supporting the fact that the tenant did not actually receive the notice of the last date to exercise its option to renew. Given the severe consequences for the tenant in these circumstances (the loss of their retail premises), the term ‘notify’ was construed to give maximum protection to the tenant.

However, in the more recent VCAT case Nowrozi v Plains Property Pty Ltd (Nowrozi), there was not an overwhelming weight of evidence to suggest that the notice had not been served. Rather, the tenant claimed not to have received it, yet lacked the evidentiary compulsion that was shown in Xiao. Regardless, Section 28 was deemed to not have been fulfilled. Relevantly, Member Enquist’s decision states that the landlord ‘could not rely upon mere posting of the letter to achieve deemed delivery’.

Mere Service is Not Enough

A well-advised landlord should ensure that they can demonstrate their tenant received the notice to protect themselves against a disorganized, foolhardy or downright dishonest tenant. There are a number of ways to ensure that a landlord meets that ‘notice’ requirement. We recommend that any landlord serving a Section 28 or Section 64 notice take the time to hand deliver the notice to the tenant to be sure that it has been received. Alternatively, a notice could be served by registered post requiring a signature upon receipt (so as to remove the argument on the part of a tenant that a notice may have been sent, but was never actually received). Another alternative still is to send a notice to the tenant requiring the tenant to sign and return an acknowledgement of receipt and following this up appropriately – this is obviously then problematic if a tenant fails or refuses to send acknowledgment. Comprehensive records, including tracking numbers of any notices served by post, should also be kept.

It is worth noting that an email with a confirmed read receipt may not be sufficient. Vickery J in Xiao refers specifically to a notification under Section 28 only being satisfied by the ‘physical supply of the written document’ – it would be prudent to assume that an email can therefore not fulfil these requirements, notwithstanding any service provisions to the contrary within the lease.

Further Notes

It is important to note that the wording in Section 64 differs to that in Section 28 (Section 64 requiring the landlord to “give written notice’ to the tenant, as distinct from the Section 28 obligation to “notify”) however a landlord would be best advised to follow the recommendation above whether the notice is served pursuant to Section 28 or 64. It should be noted as an aside that the writer’s view on the concept of the term ‘notify’ as determined by the Court would be well served by being reviewed by an appropriate Court (or altered by the Parliament). The prospect of allowing a tenant to willfully ignore or dishonestly deny receipt of a notice does not sit well with the writer.

It is noted that the concept of ‘notice’ has been the subject of separate judicial consideration as amounting to no more than an ordinary service requirement (see for example Legal Services Commissioner v Rallis (Legal Practice) [2013] VCAT 389, where the Legal Services Commissioner successfully notified the respondent by sending two letters by ordinary post). Ultimately, however, until such time as a review is undertaken, landlords are best advised to follow the procedures outlined above.

If you have any queries in relation to the issues discussed in this article, or any leasing matters, please do not hesitate to contact Eastern Bridge.