In Western Australia, the short answer to this question is yes, provided the profit sharing arrangements have previously been approved by the Director of Liquor Licensing (Director). This question was posed to McKechnie J in the case of Primewest (Lot 4 Davidson Street Kalgoorlie) Pty Ltd v Broadwater Hospitality Management Pty Ltd [2009] WASC 304, heard in the Supreme Court of Western Australia on 9 September 2009.

The facts

The defendant in the case was a tenant under a lease of licensed premises of which the principal purpose was to provide a formula for the calculation of the rent payable based on profit. The profit sharing arrangements under the lease were approved by the Director under section 104 of the Liquor Control Act 1988 (WA) (Act).

The licensed premises were later sold and the new landlord claimed all benefits under the lease in accordance with section 77 of the Property Law Act 1969 (WA) (Property Act). The tenant, however, refused to pay the new landlord any additional rent in accordance with the profit sharing arrangements under the lease arguing predominantly that the Director had not approved any direct agreement between the tenant and the new landlord and therefore the profit sharing arrangement is void.

What you need to know

Justice McKechnie rejected the tenant’s argument and agreed with the new landlord’s argument that under section 104 of the Act, an offence occurs on entry into any profit sharing agreement or arrangement and that the new landlord has not ‘entered’ into an agreement with the tenant (and has therefore not breached section 104 of the Act), but rather the new landlord claims the benefit, by virtue of section 77 of the Property Act, of the approved agreement between the tenant and original landlord and is therefore entitled to enforce the lease against the tenant.

Justice McKechnie held that the concurrent operation of section 104 of the Act and section 77 of the Property Act does not have the effect of reducing the control of liquor as there must be in existence an approved profit sharing arrangement before a new owner can take any benefits under it.

It is important to note, however, that McKechnie J stated that if the new landlord sought to vary the terms of the lease, the new arrangement would require the Director’s approval.