Mark Blundell and Shannon Davies take a look at legislated protections for pharmacist tenants
In what are challenging economic times, the article published here recently about a landlord being ordered to repay a WA pharmacy over $42,000 in management fees highlights the importance of pharmacist tenants knowing their rights under applicable retail tenancy legislation.
The pharmacist’s lawyer in the case, Mark Blundell (litigation partner of Solomon Brothers), and Shannon Davies, (commercial property partner) draw attention in this follow-up article to some of the important protections that the legislation gives to pharmacist tenants.
Although there are differences in the retail tenancy legislation from State to State, the stipulations governing leases of retail premises are generally consistent and usually apply to pharmacies. Importantly, every State and Territory Act has a provision effectively stating that where a lease provision is inconsistent with the legislation, that provision is effectively void.
Sometimes the landlord fails to satisfy its obligation to give estimates of outgoings for the forthcoming year that comply with the legislative requirements for content and detail, and the tenant may have the right to demand those before being obliged to pay.
Similarly, landlords are obliged to provide an adequate written report of the year’s outgoings at the end of each accounting period; in most States it must be formally audited.
The tenant is then typically entitled to an adjustment between what has been paid and what is shown by the audited written report. The fact that the money by that stage is in the landlord’s hands emphasises the importance of having proper estimates in the first place.
The unfortunate reality often arising in this context is that “possession is nine-tenths of the law”. Better that the tenant knows its rights before handing over the money than having to fight in a tribunal or court to recover excess payments later.
The legislation typically requires not only proper written estimates and statements of outgoings, but also that the lease provisions properly inform the tenant of what is or isn’t payable as an outgoing.
However, tenants should know that they do not have to blindly follow what the lease says where it provides for the recovery of outgoings that in fact the landlord cannot lawfully recover. In those circumstances, the legislation prevails.
The categories vary between the States and Territories: so management fees are unlawful in WA, and land tax may be unrecoverable in whole or in part in other States.
Rent reviews are an area where a lease may provide for the particular manner of rent review but in a way that offends the requirements under the legislation. The SAT case demonstrated for example that a landlord may mistakenly assert that it doesn’t have to conduct a review at all.
In this way, landlords may attempt to get the sort of benefit that is otherwise removed by the statutory provisions prohibiting “ratchet” clauses (clauses that never allow the rent to decrease, even if the market rent has gone down) and the like.
Other things for tenants to bear in mind with respect to their rent review rights typically include: the stipulation that market rent reviews may not take into account the value of the pharmacist’s own fixtures and fittings (which they may have spent a lot of money on); the requirement that the tenanted area must be accurately calculated; and the tenant’s right to request a determination of the current market rent by licensed valuation or the relevant tribunal or court.
Pharmacy tenant protections in the legislation extend well beyond what landlords must or must not include in the lease and in outgoings documentation.
So the legislation provides in every State that neither party can engage in what is called unconscionable conduct.
Because the primary criterion of such conduct is unequal bargaining power, the reality is that the prohibition will generally be directed to the landlord’s conduct, especially when enforcing onerous provisions in the lease.
One might be hopeful that with the sorts of protections outlined here, pharmacy tenants will be fairly treated by their landlords, but disputes arise nevertheless. The tenant’s objective will be to resolve those with minimum stress and cost.
Each State’s legislation sets out requirements or alternatives open for dispute resolution and this typically requires mediation (or at least negotiation) before the tenant may go to the relevant tribunal or court.
The tribunals are usually “no cost” bodies, meaning that neither party ordinarily recovers its legal costs of representation from the other, but that is not typically the case if the dispute is taken to a court.
Unfair contract terms
In addition to the retail tenancy legislation, it is important for pharmacists to stay abreast of other changes in the law affecting their rights as tenants. So for instance, on 12 November 2016 changes to the Australian Consumer Law, a Commonwealth Act, extended that Act’s reach to many retail premises leases.
Relevantly, the changes govern unfair contract terms. In simple terms, the changes will apply to most “standard form contract” leases where one of the contracting parties employs fewer than 20 people, and the rent and outgoings total less than $1,000,000.
Lease extensions, assignments and variations made after 12 November 2016 are likely governed by the changes if they fit these criteria.
The Act makes void in these circumstances any lease terms that are determined to be “unfair”. It is not possible in these brief remarks to outline all the definitions and provisions, but it may be simply put that unfair terms in the leasing context could include e.g. a term that permits only one party to terminate the lease, and a term that permits only one party to vary the lease.
The pharmacist will be better placed to avoid adding tenancy disputes to their already existing challenges when they know their rights before and after signing their lease.