Retail Leases WA: turnover rent and notice of election

I will never understand the administration of the RLA in WA.

In Mistelle Bickley Pty Ltd v Sykes [2024] WASAT 41 the tenants made a number of claims including that they were not obliged to pay turnover rent because they failed to give to the landlord a Form 2 notice of election that the rent could be calculated as a proportion of turnover, before the lease was entered into.

The case was a little unusual in that the tenant took possession and traded, before the lease was prepared and signed, and it was the tenant, not the landlord, who prepared the lease.

At [190], Member Petrucci held:

“It is clear that [the tenant] did not elect for the turnover rent method to be used for the Lease per the prescribed form, that is the Form 2. However, as it was [the tenant] who drafted the Lease, he was well aware, in my view, how the rent was to be calculated and it was he… who failed to complete the Form 2 and attach it to the Lease.

While s 7(1)(a) of the CTRSA Act provides for the tenant to give notice in writing in the prescribed form (Form 2), in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 the majority stated at [91] and [93]:

91 An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition[.]
…
93 … A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid[.]

In my view, the failure to complete Form 2, is a failure to comply with a requirement of the CTRSA Act and Regulations but it is not a precondition to having rent calculated on the turnover rent method. This is because the purpose of the CTRSA Act as set out in the Long title is to regulate commercial tenancy agreements relating to certain shops. In my view, it would not be in accordance with the purpose of the CTRSA Act to invalidate the turnover rent clause in a lease for a retail shop lease if the prescribed Form 2 was not completed and attached to the lease”. (highlight added).

If we distil this part of the judgement, the SAT appears to be saying that if, before the lease is signed, the tenant was aware of how the rent was to be calculated, then a failure to provide a Form 2 is not a bar to the landlord recovering turnover rent, since it is not the purpose of the Act to invalidate the turnover rent clause if the Form 2 is not completed.

This seems to me to be an extraordinary decision, since the express language used in s7(1) appears to have been used with the clear purpose of achieving that invalidating effect, at least from the time at which the tenant serves the notice of objection. It is hard to imagine what purpose s7(1) serves, if it does not have the invalidating effect.

Despite my reservations, the decision on this point is good news for landlords, since it provides an argument in cases where the notice of election is not obtained.

Download PDF here – Retail Leases WA – Turnover Rent and Notice of Election

Disclaimer: This article is a general summary with focus on issues of interest to the authors. It is not intended to be used as legal advice.

Speirs Ryan is a boutique property law firm based in Sydney, Melbourne and Newcastle with national coverage. The firm is uniquely placed with specialist teams in both property transactions, construction and strata law.