If a tenant ceases or threatens to cease trade, landlords have the right to seek an injunction requiring the tenant to continue trading.
However, the reality is that courts are extremely reluctant to grant an injunction in circumstances where a tenant is running a loss-making business and where there is another way the landlord can be compensated. The grant of an injunction will only be considered if it can be shown that:
- damages would not be an adequate remedy to compensate a landlord; and
- “exceptional circumstances” exist to warrant the granting of an injunction.
This reluctance was again illustrated in a recent case handed down by the Supreme Court of Queensland. The landlord wanted the tenant to continue trading as a pizza shop business for the remaining 5 years of the lease even though the tenant was operating at a loss and had in fact ceased trading from the premises.
The court refused to grant an injunction. It was held that damages would be an adequate remedy to compensate the landlord for its loss. This was not a situation where the tenant was a drawcard or anchor tenant which generated substantial foot traffic for other tenants. Rather, there was clear evidence which showed that 90% of the tenant’s trade occurred after hours when most other stores were closed.
The fact that the tenant was a $1 company set up solely for the purposes of leasing the premises did not alter the Court’s conclusion. In this regard, the court found that if the landlord was unable to recover damages from the tenant, then it was the landlord’s own fault for failing to secure adequate guarantees as a condition of granting the lease.
In light of this decision, alternative strategies that a landlord should consider include:
- granting temporary rent relief so that the tenant continues trading; or
- taking steps to terminate the lease, re-letting the shop and then pursuing the tenant for losses incurred when re-letting.