BEWARE … If You’re a Commercial Tenant

A LANDMARK DECISION by the Court of Appeal of the Victorian Supreme Court means that a landlord’s liquidator can now disclaim a tenant’s lease — meaning that you, the Commercial tenant, no longer hold a leasehold interest in the land.

Case: In the Matter of Willmott Forests Ltd (in liquidation) [2012] VSCA 202 (‘Willmott’)

The Facts of the Case

The facts can be summarised as follows:

• The landlord owned land that was leased to a number of individual forestry plantations used to grow and harvest trees.
• Liquidators were appointed to the landlord.
• Under s.568 of the Corporations Act 2001 (Cth), a liquidator can disclaim property that consists of land burdened by onerous covenants.
• The liquidators sought directions from the Court as to whether they were able to disclaim the leases (to effectively bring the leases to an end and therefore extinguish the lessees’ leasehold interest in the premises). This would enable the liquidator to sell the land without being subject to the leases.
• At first instance, the Court held that the liquidator was unable to disclaim the leases.
• The liquidators then appealed the decision.

The Decision

• The Court of Appeal overturned the original decision … and held that the leases could be disclaimed by the landlord’s liquidator in accordance with s.568. Therefore, they extinguished any rights and interests that the lessees held in the land.

Please note that the matter is currently before the High Court and until a decision is released — the decision of the Court of Appeal remains good law.

What this Means For You as a Tenant

In legal terms: Under s.568B of the Act, if a party receives a notice of disclaimer from a liquidator pursuant to s.568, the party has 14 days to apply to the Court for an order setting aside the notice.

Bottom Line: If you, a tenant, receive a notice of disclaimer from a liquidator of your landlord — seek immediate legal advice.

And before entering a lease, it is important that you undertake due diligence in relation to the solvency of your landlord.

Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice and you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.