Could a landlord recover rent and lease incentives after the tenant abandoned the premises? Which case won?
Tenant and landlord agree terms of lease and incentives
A law firm was negotiating with a landlord for the lease of office premises in the inner Brisbane suburb of Bowen Hills, in Queensland. In November 2010, the parties agreed a deal and the terms were recorded in two documents:
- A standard form lease for a term of seven years, with three options to renew. Rent was to be paid monthly and a signage fee was to be paid annually; and
- An incentive deed, by which the landlord offered several incentives to the law firm to secure the deal, including a contribution to the fit out of the offices and a three-year reduction in the rent and signage fees payable under the lease.
Three guarantors provide personal guarantees
Both documents contained personal guarantees provided by three guarantors, who guaranteed to the landlord that the law firm would meet its obligations.
The incentive deed also contained repayment clauses so that if the lease was terminated because of a default by the law firm, the landlord could claim back a proportion of the cost of the fit out as well as the amounts by which the rent and signage fees had been reduced.
Tenant abandons premises and landlord commences legal proceedings
In May 2013, the law firm tenant abandoned the premises in breach of the lease. The landlord accepted the repudiation of the lease by the tenant and terminated the lease.
The law firm went into liquidation and the landlord pursued the three guarantors for monies owed under the lease as well as under the repayment clauses of the incentive deed.
The guarantors refused to pay the amounts claimed by the landlord under the incentive deed (in the sum of around $1.2 million) and the landlord commenced proceedings in the Queensland Supreme Court.
It was up to the court to decide whether the repayment clauses in the incentive deed were enforceable or whether they amounted to penalties, in which case they would be unenforceable.