Complicated "breaking lease" question

[Howitzer]

I've a friend who's in a somewhat unusual postion.

25 years ago her, then, 17 year old sister signed a 35 year on a retail unit. 5 years ago the sister moved into another unit in the same retail park, owned by the same developer, and my friend incorporated a new company and moved into the old unit.

The lease was never changed and still contains the personal, not company, information of the sister.

The unit is no longer commercially viable, primarily due to the high rental costs. My friends has attempted on numerous occaisions to engage with the developement company but they refuse to negotitate over the rent.

My opinion is that my friend can walk away from the unit without any recourse to her or her company. That her sister, or her company, has no liability for the remaining 10 years of the lease as the developer effectively nullified the original lease once payment was accepted from my friends company - and certainly after 5 years has no liability.

Ulitmately I think my friend and her sister can simply shut the doors, hand back the keys and not look back. Opinions?

 

[mf1]

Can't have it both ways!

Either:

A. Original Tenant is still responsible for their obligations ( - notwithstanding the 17 year old bit! Which I think is more than a trifle dubious! ) because they did not make sure that they did a proper Assignment of their obligations.

or

B. New tenant is responsible because, by tacit agreement, they assumed the responsibilities of the original tenant and paid the rent which was accepted by the landlord.

And if I was the landlord , and the unit is left empty and no rent is paid, I would sue both.

mf

 

[Howitzer]

I completely accept the logic of that but from a legal point of view at what point is a contract no longer valid? That the tenant isn't solely handcuffed by the original terms - both parties have a responsibility.

By the same token my friend could have been evicted at any time and neither herself or her sister would have had recourse as they no longer had a valid contract. Ultimately both parties were trading under a nod and wink arrangement for the last 5 years which has no position in law.

There was a judgement last year (forgive the sketchy details) where the Master of the High Court threw out a case where a landlord was pursuing a tenant from around the grafton st area for vacating their unit. They had been served with a rent increase of some crazy number and had an upward only rental agreement. The judgement was that irrespective of the original contract there had to be some element of fairness and under the circumstances the tenants had no liability.

 

[Howitzer]

[broken link removed]

He said that as a general principle, the bargain between lessor and lessee is one of long-term mutuality, and rent review clauses must be viewed in that light. There is no presumption in favour of constructing a clause so as to make it upwards only. A court will not be easily persuaded to accept an interpretation which will give the lessor a windfall in a time of recession. And the courts will surely never rubber-stamp any interpretation which clearly has the effect of unjustly enriching either party.

 

[mf1]

That was simply an expression of his view of the law by the Master of The High Court. That case has not been finalised and his comments cannot be relied on.

"Ultimately both parties were trading under a nod and wink arrangement for the last 5 years which has no position in law."

I agree that they were trading under a nod and a wink - but that does not mean that it has no position in law. It would be for a Court to adjudicate as to who is responsible for what.

I would take the (legal) view that the original tenant, by not actively resolving their own legal position under their own lease, entered into a side agreement with a sub tenant which, while facilitated by the Landlord, did not relieve them of their own legal obligations. And that the sub tenant, while not formally bound by the Lease and therefore cannot be held responsible into the future, would have an obligation to pay the rent up to the day they vacate.


As a by the way, and just to explain how a lawyer looks at issues like this, from both sides, you ask yourself:

1. What were the parties' intentions?
2. Why did they not deal with it properly?
3. What will a Court likely say?
4. How do you best advise your client on what course of action to now follow, to prevent them making a complete eejit of themselves in Court?

Too often, a client wants you to find a reason why they are right in their way of thinking despite that having no basis in fact or reality! Its a sort of "make it legal after the event" scenario.

mf

 

[Howitzer]

I would take the (legal) view that the original tenant, by not actively resolving their own legal position under their own lease, entered into a side agreement with a sub tenant which, while facilitated by the Landlord, did not relieve them of their own legal obligations. And that the sub tenant, while not formally bound by the Lease and therefore cannot be held responsible into the future, would have an obligation to pay the rent up to the day they vacate.
...
Too often, a client wants you to find a reason why they are right in their way of thinking despite that having no basis in fact or reality! Its a sort of "make it legal after the event" scenario.

mf

Thanks for the feedback. I'm very consicous of not wanting to find an answer that simply suits what I want to hear.

My friend is fully complaint with the financial obligations of the existing lease.

I had always been of the opinion that whilst she could just walk away she would just be leaving her sister in it.

I started thinking more from the obligations of her sister to the contract recently when I heard some discussions around sub-letting. To my eyes both sides were party and complicit in the breaking of the original lease. It suited both parties and both gained. Now there is no valid lease and neither can be bound by the terms of the original.

 

[mf1]

"I started thinking more from the obligations of her sister to the contract recently when I heard some discussions around sub-letting. To my eyes both sides were party and complicit in the breaking of the original lease. It suited both parties and both gained. Now there is no valid lease and neither can be bound by the terms of the original."

Not so. Just as a legal view.

If, as a tenant, you formally assign your entire interest, you are relieved of your obligations as a lessee.

If, however, you sub-lease, you remain primarily liable for the terms of your lease. So, if sub-tenant defaults, you pay.

mf

mf

 

[Howitzer]

Sounds similar ro the situation O'Briens sandwiches found themselves in.

What if the original contract expressly forbids sub-letting? (I don't know if it does) Where does the landlord have a responsibility for maintaining the terms of the original contract? Can the landlords actions in facilitating an irregular arrangement be deemed to be in breach of the original terms.

 

[Neg Covenant]

Howitzer

First of all, don't give any advice without seeing the documents. It sounds like a very dangerous situation.

A solicitor would probably want to take a close look at what happened when the sister moved to the new unit. Was a new lease granted? Was a new rent agreed? Or was the lease moved to a different unit. These are critical questions.

The facts surronding the handover would be crucial too. Did the original tenant return her keys to the landlord? Were new locks put in? Did the landlord subsequently serve notices on the new tenant qua tenant? Were any notices of dilapidations served?

The best thing would obviously be to get a solicitor to look over it. If he thought the tenant had a cast iron case he could tell them so. If he thought there was an arguable case he could put it up to the landlord and possible force a settlement.

Like mf1, I reckon it doesn't look good at first glance. However, the devil is in the detail and the history. These people need a good solicitor who knows his/her landlord and tenant law.

 

[csirl]

Apart from the 17 year old issue, the Landlord is in a strong position - someone is going to be responsible for the lease. The question is whether its the friend or the friend's sister - as they say, the devil is in the detail, so it is difficult to say which without knowing the full circumstances of the handover and the lease agreement.