Holding over at the end of a lease
Pastina Pty Ltd v Hosanna Excelsis One Universal Inc – Holding Over Periods and the Retail & Commercial Leases Act 1995
On 22 February 2019 the Supreme Court of South Australia delivered its decision in the case of Pastina Pty Ltd v Hosanna Excelsis One Universal Inc (“Pastina”).
This case considered the provisions of section 20B of the Retail and Commercial Leases Act 1995 (“RCLA”). This section provides that a retail lease must have a term (including extensions) of a minimum of 5 years in length. The section also provides for a number of exceptions that will serve to remove the 5 year minimum term.
In a very unique set of circumstances, the Pastina case specifically considered the exceptions contained in section 20B(3)(b) - regarding tenants who have been holding over after the initial termination of a lease for greater than 6 months, and 20B(3)(d) – regarding tenants who have already been in occupation of premises for 5 years.
In Pastina, the tenant had entered into a 5 year lease of the premises. Four months into this term, the landlord and tenant varied the terms of the lease by substantially changing the leased area. The tenant carried on in occupation of the enlarged premises until their 5 year term expired and then continued to remain in occupation by holding over for a further period of over 2 years.
The landlord argued that the term of the holding over period was automatically extended to a further 5 year term by virtue of the following:
- the enlarged premises (following the variation) had not been occupied by the tenant for 5 years at the time the holding over period commenced; and
- the holding over period exceeded 6 months.
The landlord was initially unsuccessful in the Magistrates Court. However, on appeal, the Supreme Court overturned the Magistrates Court’s decision and found in favour of the landlord. The Supreme Court held that:
- the common law position is that in most circumstances, a new lease is created once a holding over period starts (albeit a new lease on the same terms as the old lease);
- in this instance, the tenant had only been in possession of the enlarged premises for approximately 4 years and 7 months at the time the holding over period commenced. As the tenant had not been in possession of the enlarged premises for 5 years and as the holding over period exceeded 6 months, the exceptions in sections 20B(3)(b) and 20B(3)(d) could not operate to exempt the new lease from the minimum 5 year term provision; and
- in respect of any holding over period, each of the exceptions in section 20B(3) are to be considered at the time of the commencement of the holding over period.
This decision requires landlords and tenants to carefully consider the duration of their leases and any holding over arrangements currently in place. In particular, if the initial term of a lease is less than 5 years and a tenant then holds over after the expiration of that initial term for a period of greater than 6 months, the parties will need to carefully consider whether a new 5 year term has been created.
Should you have any queries regarding leasing matters, please contact the experienced team at Clelands Lawyers Adelaide consisting of Rinaldo D'Aloia, Philip Foreman, Patrick Connelly and Tim von Eimen
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