Frustrated leases – Important recent case for Landlords and Tenants
Recently, the New South Wales Supreme Court (NSWSC) in Gazcorp Pty Ltd v Woolworths Ltd [2021] NSWSC 308 demonstrated that whether a lease is frustrated by changes in planning laws or approvals should be carefully considered in each case.
Until Gazcorp v Woolworths, the courts had generally only declared in dictum that the doctrine of frustration applies to leases as it does contracts (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd; Willmott Forests Ltd (rec and mgrs. Apptd) (2012) 91 ASCR 182 at [41]).
Background
Briefly, between 2004 and 2008, the owner (Gazcorp) of land suitable for development held negotiations with a potential lessee (Woolworths) about a lease space in the proposed development. In 2008, Gazcorp entered into an agreement for a lease with Woolworths which was varied a few months later. The parties disagreed as to the extent of the variation. Gazcorp alleged that the agreement for lease was varied to include Big W in addition to Woolworths. Woolworths claimed that the variation was only in relation to some dates and not the inclusion of a Big W store.
In 2009, the Land and Environment Court refused a development application which included the Big W store. This stage is when Woolworths alleged that the agreement was frustrated. In contrast, Gazcorp claimed the agreement was frustrated when the 2008 approval lapsed in 2014 or, alternatively, when the agreement was abandoned between 2012 and 2016.
The central issue in the case was whether the agreement for lease as varied had been discharged by frustration or mutual abandonment.
Findings
The NSWSC held that the agreement was discharged by frustration on the basis that:
- at the time of trial, there was no lawful means by which the agreement could be undertaken as the approval had lapsed and could not be renewed;
- both parties did not take responsibility in acting to maintain the approval;
- the agreement did not deal with the circumstances of a lapsed approval.
The NSWSC held that the agreement had been mutually abandoned on the basis that:
- for approximately four years until 2014, Gazcorp made no attempt to carry out the Landlord’s Works under the agreement for lease and Woolworths did not call upon them to do so;
- given the long period of inactivity on both sides, the agreement should be held to have been mutually abandoned.
Importance of this case
The case is notable as being one of the first in Australia that has successfully held an agreement for lease to be discharged by frustration and also discharged by mutual abandonment.
It is critical that both parties to leases understand the circumstances surrounding which frustration can occur and its consequences.
More Information
Please contact our Commercial Leasing Team at Matthews Folbigg Lawyers on 9635 7966 if you would like advice or assistance in respect of your rights and obligations relating to your lease.
| Anna Zdrilic
Principal T 02 9635 7966 annaz@matthewsfolbigg.com.au |
DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law. Liability limited by a scheme approved under Professional Standards Legislation.
