Unconscionable Conduct in Leasing

The Issue

In dealing with a Lease, a Landlord or Tenant will act to maximise their respective commercial positions, of course. However, both Landlord and Tenant need to be careful about engaging in conduct which is unconscionable, being acts which are so unfair and excessive that they are illegal and in breach of s.77 (for Landlords) or s.78 (for Tenants) of the Retail Leases Act 2003 ('the Act').

What Conduct is Unconscionable?

Unfortunately, there is no easy definition of what a Court would consider to be unconscionable conduct in a Lease. Instead, s.77 and s.78 of the Act set out various factors to be considered when assessing a party's conduct, including:

1. The relative strengths of the bargaining positions of the Landlord and Tenant,
2. Whether the Landlord or Tenant were able to understand as to what they were agreeing,
3. Was the conduct necessary to protect a party's legitimate interest?,
4. Was there any undue influence or pressure exerted one party on the other?,
5. Were the lease terms comparable in the market?,
6. Any risks to the Landlord or Tenant arising from the other party's conduct or intended conduct which one party can see but the other party would not be able to foresee?, and
7. Were the parties able to freely negotiate?

As an example, in the case of ACCC v Dukemaster Pty Ltd, the Court found the Landlord's conduct in negotiating a renewal of lease with several Tenants to be unconscionable because (amongst other conduct):

1. In negotiations for the lease, the Landlord knew the Tenants could not read or speak English and yet, in their correspondence with the Tenant, the Landlord did not allow adequate time for the Tenants to obtain independent advice,
2. In conducting assessments of rent, the Landlord significantly increased the rent without having any genuine or reasonable basis to believe that those increases reflected the current market rent, and
3. In general terms, the Landlord did not comply with the Act and repeatedly threatened eviction.

Although this case was not about the Retail Leases Act, the Court did analyse factors noted in the Act and, ultimately, it found that the Landlord engaged unfairly with the Tenants and deliberately (or at least recklessly) showed no regard for conscience or what was right and reasonable in dealing with the Tenants.

Who is bound by these rules?

The Act applies to both the actions of a Landlord and the actions of a Tenant. Irrespective of the Landlord being often in a more powerful bargaining position, both parties should be mindful of their obligations pursuant to the Act.

Practical Tips

The parties to a Lease, whether Landlord or Tenant, should be aware of the factors that could lead to unconscionable conduct. Be aware of things like:

• whether one party does not communicate well in English,
• whether there are any practical, mental and physical impairments (real or arguable),
• whether there is any special knowledge of the premises,
• circumstances or parties, or
• whether there is any imbalance in relative bargaining positions.

How can Sharrock Pitman Legal help me?

If you think your Landlord or Tenant has acted unfairly or unconscionably toward you, call Sharrock Pitman Legal today on 1300 205 506 to speak to our Property Law team for advice on your legal options.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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