Two retail tenancy
failures expose directors who gave their personal guarantees
to the landlord to ruinous losses
Two NSW Court of Appeal decisions in two months have upheld
orders made against directors of a corporate tenant to pay
$3,537,040.50 in one case, and $602,178.35 in the other, as
damages for the landlord’s loss of rent and make good
expenses, as a result of failed retail tenancies.
The decisions are:
NE2 Pty Ltd v P.T. Ltd  NSWCA 10 (judgment by
Macfarlan JA, Meagher JA and Gleeson JA agreeing) in which
the tenant’s directors had guaranteed the tenant’s
obligations under a lease for a fresh fruit and vegetable
shop (“Panetta Fruits / Panetta Mercato”) in the Westfield
Centre at Miranda. Their defence to the landlords’ claim for
recovery of rent and damages was based on a breach of the
alleged representation that they would be ‘the only fresh
fruit and vegetable retailer in the Fresh Food Precinct of
the Shopping Centre’. It was unsuccessful.
Lin v Solomon  NSWCA 328 (judgment by Payne JA,
Meagher JA and White JA agreeing) in which the tenant’s
director had guaranteed the tenant’s obligations under a
lease for Circa Newsagency in the CircaRetail shopping
centre at Bella Vista. His defence to the landlord’s claim
for recovery of rent and damages was based on breach of the
alleged representations that the centre would have
significant customer traffic and be busier than Norwest
Marketplace. It was unsuccessful.
These decisions illustrate the potentially ruinous financial
risk that company directors take when giving personal
guarantees under a retail lease.
NE2 Pty Ltd v P.T. Ltd –
Tenancy: Panetta Fruits at Westfield Miranda
Background: In early 2009, the tenant’s lease was
coming to an end. At the same time, the business of a
competitor “In Season” failed, and the tenant acquired its
lease. In doing so, it became the only retailer of fresh
fruit and vegetables (FFV) in the Fresh Food Precinct of the
Westfield Centre. It asked the landlords to grant a new 10
year lease to consolidate its business into one shop and
exclusivity to maintain its new monopoly in FFV.
The Negotiations / Representations: From late March
until October, the directors of the tenant had four
significant conversations, and exchanged emails, in which
the subject of exclusivity was discussed. The landlords’
offer included exclusivity if the tenant agreed to an annual
rental of $888,500 plus GST, as opposed to an annual rental
of $788,500 plus GST if there was none. The landlords
commented that at those rents the occupancy cost would be
“good” - 8-9% if $13 million in sales was achieved.
The higher rent was agreed and the landlords agreed to grant
exclusivity in these terms: The Lessor agrees to grant
the Lessee the right to be the sole independent specialty
fruit and vegetable retailer in the Fresh Food Market
located on Level 3 from Shop 2076 to Shop 2090 of Westfield
Miranda as per the attached plan.
How did the dispute arise?: The new lease was
executed on 7 May 2010. On 19 April 2010, Franklins received
landlords’ consent to refurbish its existing supermarket in
the Fresh Food Precinct. It was closed for refurbishment
from September/October 2010 and reopened in March 2011
offering fresh food and vegetables (which it not previously
offered). As a direct result, the tenant’s trade and
turnover diminished and it had trouble paying the rent. It
defaulted in May 2012. Negotiations with the landlords
failed to secure any sufficient rent reduction and the
landlords terminated the lease on 31 July 2014. In 2015,
Coles Ltd took over the tenant’s premises and the Franklins
premises and entered into a new lease which commenced on 11
November 2015, at a lower rent than the tenant had paid.
The Court’s findings: The landlords promised to the
tenant that it would be the “sole independent fruit
and vegetable” retailer, which expression did not apply to
supermarkets such as Franklins which were not specialty
retailers. The landlords had no obligation to disclose their
knowledge that Franklins proposed to offer retail fresh food
and vegetables in the future.
Court Orders: The landlords were entitled to recover
arrears of rent up to termination of the lease of
$1,858,397.50; rent until the Coles lease commenced of
$1,751,198.53; and the cost of removal of the tenant’s
fittings and fixtures of $64,959.50; against the two
directors who had signed personal guarantees.
Lin v Solomon – Tenancy:
Circa Newsagency at CircaRetail Bella Vista
Background: In May 2009, the tenant entered into a 5
year lease of premises at the CircaRetail shopping centre,
Bella Vista, as a newsagency. It was a newly built shopping
The Negotiations / Representations: During the course
of the lease negotiations, the tenant alleged that the
landlord had represented that a nearby building called “The
Works” would employ 1,500 people and would bring significant
consumer traffic; that the centre would be busier than
Norwest Marketplace; and would soon be regularly “filled up”
How did the dispute arise?: The tenant had made no
payments of rent and no payments of any other kind except
the deposit and a recovery under a bank guarantee.
The Court’s findings: In addition to finding that the
alleged representations were not made as alleged, the Court
found that there was no reliance upon the representations
because: the director was an experienced businessperson and
newsagent, who conducted a newsagency located a 5-minute
drive away from the proposed new shopping centre; he knew
the area well and he knew that there was a large workforce
in the Norwest area; he also proposed a floor plan to the
landlord which was the same as in the lease.
Court Orders: The landlord was entitled to recover
$602,178.35 inclusive of $19,437.95 plus GST for changing
the locks, to make good the premises and for a new hoarding.
In their eagerness to enter into a lease, many
businesspeople are prepared to give an unlimited director’s
guarantee in return for a lesser rental bond or bank
guarantee, the aim being to preserve their working capital.
The company directors in these two cases gave unlimited
personal guarantees, exposing themselves to potentially
With the benefit of 20/20 hindsight, offering a higher
rental bond or bank guarantee in exchange for a limited
personal guarantee might have been a better option.
Alternatively, a shorter initial lease term (with options to
renew) would limit their exposure, although it would expose
the tenant to rent reviews to market on exercise of the
options (as opposed to fixed rent reviews).