Back in 2014, QBM Lawyers successfully applied to dismiss proceedings claiming the clawback (repayment) of over $1M in leasing incentives which were claimed to be repayable because of the termination of the lease. This was in the matter of GWC Property Group Pty Ltd v Higginson [2014] QSC 264 (“the GWC Decision”). Common kinds of lease incentives are rental discounts, or fitout contributions.
The GWC Decision was and remains significant because clawback provisions in incentive deeds (or in the lease itself) are frequently used by landlords to attempt to recover incentives paid, and the decision made it clear that at least in some circumstances – and depending upon the effect of the clawback provision – the obligation would be void and unenforceable as what is known in legal terms to be a “penalty”.
The GWC Decision has been referred to in a number of subsequent court decisions in courts and Tribunals in Queensland and other states.
In 2023, the Queensland Supreme Court in the matter of BMG SP Pty Ltd v YFG Strathton Pty Ltd [2023] QSC 52 held that the obligation to repay a proportion of the fitout contribution was unenforceable as penalties, with the result that the Plaintiff’s claim in those proceedings of $993,607.29 were not recoverable. The decision relied substantially upon the reasoning of Her Honour Justice Dalton in the GWC Decision.
The fact that an obligation is unenforceable because it is a penalty does not necessarily mean however that the lessor is left without any remedy at all. Even if a lease incentive could not be claimed back because it would be a penalty, the lessor in many cases can still sue the lessee and guarantors for damages for the breach or termination of the lease if that is the event that gave rise to the obligation to pay the incentive.
In the GWC proceedings, the lessor was left with no remedy at all because the lease did not have guarantors (whereas the incentive deed did) and the tenant was in liquidation. Those circumstances however were usual. In most cases, the inability to claim the clawback of lease incentives if they were a penalty would still leave the landlord with remedies against the tenant and any guarantors for its losses consequent upon the breach of the lease.
For advice in relation to leasing and lease disputes, please contact Peter Muller at peterm@qbmlaw.com.au and Jessica Murray at jessicam@qbmlaw.com
