As a business owner or company director, there are many elements you need to consider on a day to day basis to ensure your business runs smoothly. If you lease your premises it is important to understand your rights and what risks you face as a tenant.
A recent decision in the High Court of Australia gave liquidators of landlords extra powers to disclaim leases that are registered on title. For example, if a landlord leases a site to a tenant, and the landlord subsequently goes into liquidation, the liquidator does not have to abide by the terms of the lease, and may refuse to recognise the lease and ask the tenant to vacate the site.
- Willmott Forests Ltd leased land to various tenants for the purpose of growing and harvesting trees.
- Willmott Forests went into liquidation, and the liquidators saw no benefit of keeping the leases in place. The liquidators approached the Court to have the leases terminated, so that the property could be sold.
- The lessee joined the proceedings and argued that the liquidator did not have the power to disclaim the leases.
The High Court decided that the liquidators did have the power to disclaim leases under section 568 of the Corporations Act.
Consequences for tenants
The implications of this decision are extremely serious for tenants, and it was not a decision the High Court took lightly. Essentially, this decision will allow all liquidators of a landlord the right to disclaim any leases that the landlord has entered into. This decision is especially dangerous for tenants who have just spent a substantial amount on fitting out a premise. It may mean that the tenant loses the benefits of the fitout because their lease is terminated, rendering the value of their fitout worthless.
This decision has been quite controversial, but because the decision was made by the High Court, it cannot be challenged any further. If the law wants to change in the future, then amendments to the Corporations Act will need to be made to overturn this decision.