Discuss about the Business Law and Legal Due Diligence.
A contract is a promise or a set of promises between two or more parties to carry out some work in exchange for a consideration having an economic value. There are certain essential elements to a contract. These include an offer, an acceptance, a consideration, intent, capacity, and a certainty to the terms of the contract. A contract can be either written or oral. An oral contract is where the terms of the arrangement or promise are formed by mere exchange of words. A written contract is formed when all the terms of the promise are written down on a document and signed by the parties (Frey & Frey, 2005).
When a promise made in the contract is breached, it is the case of a breach of contract and relief is provided to the aggrieved parties on the basis of the loss incurred (Carter, 2007). The Laws of Tort are applicable as a result of a civil wrong done which results in harm or loss to the aggrieved party and includes harm or injury caused by a negligence or defamation (Barnett & Harder, 2014).
Some of the examples where a contract is formed include a contract for sale of business, a lease and a contract for professional services between a lawyer and clients.
Emile & Laila bought a Café in a shopping centre for $250,000. They acquired the name Prima Café from the seller, along with the equipments required for operation of the café. The Contract for the Sale of Business was prepared by the lawyer and was in a standard form document. As part of the purchase of the Café, they were assigned the lease from Dentro who was the owner of the Shopping Centre.
This lease was a standard Shopping Centre type lease governed by the Retail Leases Act, 1994. After three months of operating the Café, Emile & Laila received a Demolition Notice from Dentro. This notice stated that the part of the shopping centre occupied by the café was set to be demolished. The lease contained a demolition clause which allowed Dentro to demolish parts of the Shopping Centre under certain conditions. This demolition would result in a loss to Emile and Laila, as they will lose their business and will have no place to operate the business.
The issues in this case include the eligibility of Emile & Laila to claim compensation for the loss of business. Further, the eligible to sue their lawyer, for not warning them, regarding the demolition clause contained in the lease. The question here is also present regarding the categorization of the potential action against the lawyer, as the tort of negligence or breach of contract or both.
Section 35 of the Retail Leases Act, 1994, states the provisions regarding demolition. As per this section, a demolition clause mentioned in a lease agreement cannot be enforced against a tenant unless the landlord has provided the details of the proposed demolition to the tenants and the landlord has given a notice of six months to the tenant regarding the proposed demolition. In case a lease of retail shop contains the proposed demolition as the grounds for termination of the lease, the landlord has to provide the tenant the details of the proposed demolition to indicate that a genuine proposal is present for the demolition of the said shop. Such demolition has to be made within a reasonable practicable time (Claughton, 2016).
This section also contains that if a retail shop lease is terminated and the demolition activity is not carried within the reasonable time, the landlord is liable to pay a reasonable compensation to the tenant for the damages suffered by the tenant as a result of termination of the lease before its due course (New South Wales Government, 2014). However, if the landlord can show that at the time of issuing the notice of termination, a genuine proposal for demolition was present, the landlord is not liable to pay the compensation to the tenant. This section also states that when a lease regarding the retail shop is terminated, the landlord is liable to pay the lessee compensation for the fit-out of the retail shop irrespective of the fact that the building is demolished or not.
Fit-out are the fittings and fixtures that are installed in the leased shop. These form a large part of expenses in a business and the cost of removing such fit-out is quite high. Hence, the landlords are required to pay the cost of fit-out in the case of termination of a lease agreement (Small Business NSW Commissioner, 2016).
Outgoings are such expenses which relate to the retail shop which the tenant agrees to pay to the landlord in addition to the rent. The notification regarding the outgoings is given to the tenant in the lease agreement and the Disclosure statement of the landlord. As per the Retail Lease Act, these outgoings have to be directly and reasonably related to the shop and have to attribute to the maintenance, repair or operation of the shopping centre where such retail shop is located.
In the case of Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169, Skiwing Pty Ltd appealed that the contribution to the outgoings were not payable as per its lease from the Trust Company (Australasian Legal Information Institute, 2004). Further, Skiwing Pty Ltd claimed for a refund of such amount. In a cross application by Trust Company, they claimed for the unpaid amount of outgoings. The judge in this case dismissed the application of Skiwing Pty Ltd and held that the applicant was liable to pay the unpaid amount of outgoings to Trust Company. Various appeals were made by Skiwing Pty Ltd on numerous instances regarding the same case and each application was rejected by the Court (Australasian Legal Information Institute, 2010). So, it can be inferred from this case that a tenant is not eligible for a refund of outgoings.
Implied terms refer to such terms in a contract which are implied by the law in a contract (Legal Services Commission of South Australia, 2016). Such terms are implied notwithstanding the fact that they have been discussed between the parties or not. Common law implies some standard terms in a contract, as these terms are considered to be normal incident, to such type of contracts. In a contract for professional services, the implied terms include that the necessary disclosures would be made and that the service would be rendered with due care and with necessary diligence.
The other implied terms in a contract for services include the term that none of the parties to the contract would try to attain any undue benefit over the other, where the consideration is in control of a third party; the contract for services would be terminated after giving a reasonable notice in absence of express term in this regard; and where a breach has occurred, the breaching party has to inform the non-breaching party about such a breach (Richard, 2012).
A breach of contract, as the name suggests, is the failure to fulfill the terms of the contract which forms the base of such a contract (Clarke & Clarke, 2016). In a contract of service, apart the express terms, there are certain implied terms. In case such implied terms are breached by a party, the contract of service is considered to have been breached. The Court awards remedies to the aggrieved party depending upon the severity of the breach of the contract. Such remedies are in the form of monetary damages and equitable damages (Treitel & Peel, 2015).
Negligence is a civil wrong done on part of a person, which results in an injury or a harm to the other party. When a person fails to take the necessary care which a reasonable person would take in similar circumstances, it gives rise to negligence. When a real estate agent should have had the knowledge about certain facts, but did not, and failed to take the necessary action, it is the case of negligence on part of the real estate agent (Ellis, 2015). The remedies available with the aggrieved party in case of negligence are in form of monetary damages.
On January 01, 2014, an administrative law tribunal was established by the statute in New South Wales known as the New South Wales Civil and Administrative Tribunal (NCAT). When a person wishes to stop a demolition activity, he may apply for an interim order (NCAT, 2016). Such order is made by an Adjudicator without any mediation and is considered to be an urgent order. Generally, an application for such an interim order is made in order to prohibit or stop some action of the other party. Such an application is mostly made in cases where the chances of damages to a person or a property are present.
The Office of the Small Business Commissioner contains a Dispute Resolution Unit (Small Business NSW Commissioner, 2016). This unit provides strategic advice and information about the disputes of small businesses. Such disputes can relate to a commercial or retail leasing, business to Government, or business to business.
When a dispute remains unsettled by formal negotiations, a person can apply to the Office of the Small Business Commissioner for mediation. The mediation officer communicates with all the parties and understands the perspective of each of the parties involved. Face to face meetings are organized when the problem is complex in nature. By mutually compromising, such mediation results in the resolution of a dispute. In case the dispute remains unsettled, the parties can, depending upon the value of such dispute, approach the NSW Civil and Administrative Tribunal for the retail lease dispute (Small Business NSW Commissioner, 2016).
In the present case, the lease agreement contained the clause of demolition. So as per the sections of Retail Leases Act, Emile and Laila are eligible to receive a compensation for the fit-out of the retail shop from Dentro. But, they cannot ask for a refund of outgoings as was held in the case of Skiwing Pty Ltd v Trust Company of Australia Limited.
Emile and Laila had hired a lawyer who failed to discuss the implied term of a retail lease agreement, i.e., the demolition clause. Here, the lawyer is liable for a breach of contract as he failed to make the necessary disclosures which he was liable to make as per the implied terms of a contract of service. Further, the lawyer committed the tort of negligence by failing to disclose the demolition clause. A reasonable lawyer would have ensured to disclose such a clause to his client. So, Emile and Laila can sue their lawyer for monetary for the loss of business on basis of a breach of contract as well as negligence.
It is partly the fault of Emile and Laila and partly the fault of the lawyer that Emile and Laila would lose their business. It was the duty of the lawyer to disclose all the facts but it was also the responsibility of Emile and Laila to read the lease document thoroughly and understand the terms of the lease.
Emile and Laila can approach the NCAT to get an interim order against the demolition of the retail shop as a part of the Shopping Center. Such interim order has the power to stop Dentro from continuing or beginning the demolition activity. Further, Emile and Laila can apply to the Office of the Small Business Commissioner to resolve the dispute of demolition through mediation. Lastly, if Emile and Laila are not satisfied with the mediation process, they can approach the NSW Civil and Administrative Tribunal for resolving the demolition dispute.
Conclusion
From the analysis of this case study, it can be summarized that the parties to a retail lease have to take care of the terms of the lease. Further, a lawyer also has to ensure that the implied and express terms of the contract of service are fulfilled. In case a party suffers a loss due to the breach of service contract or as a result of negligence, the party is eligible to remedies in form of monetary damages. Further, the parties to the contract can seek the help of various authorities to solve the disputes relating to the retail lease.
References
Australasian Legal Information Institute. (2004). Skiwing Pty Ltd v Trust Company of Australia Limited [2004] NSWADT 169 (17 August 2004). Retrieved on 16/09/16 from: https://www.austlii.edu.au/au/cases/nsw/NSWADT/2004/169.html
Australasian Legal Information Institute. (2010). Skiwing Pty Ltd v Trust Company of Australia Limited [2010] NSWADT 64 (9 March 2010). Retrieved on 16/09/16 from: https://www.austlii.edu.au/au/cases/nsw/NSWADT/2010/64.html
Barnett, K., & Harder, S. (2014). Remedies in Australian Private Law. UK: Cambridge University Press
Carter, J W. (2007). Contract law in Australia (5th ed.). Sydney: LexisNexis Butterworths.
Clarke, P., & Clarke, J (2016). Contract Law: Commentaries, Cases and Perspectives. (3rd ed.). South Melbourne: Oxford University Press.
Claughton, D. (2016). Relocation & Demolition Clauses: How to minimise the risk for your business. Retrieved on 16/09/16 from: https://www.colemangreig.com.au/News-536-Relocation-Demolition-Clauses-How-to-minimise-the-risk-for-your-business.aspx
Ellis, R. (2015). 10 most common ways real estate agents get sued. Retrieved on 16/09/16 from: https://www.inman.com/2015/08/25/10-most-common-ways-real-estate-agents-get-sued/
Frey, H.P., & Frey, M.A. (2005). Essentials of Contract Law (3rd ed.). Portland: Delmar Cengage Learning.
Legal Services Commission of South Australia. (2016). Express and implied terms of the contract. Retrieved on 16/09/16 from: https://www.lawhandbook.sa.gov.au/ch18s02s01.php
NCAT. (2016). Interim orders. Retrieved on 16/09/16 from: https://www.ncat.nsw.gov.au/Pages/cc/Divisions/Strata_and_community_schemes/Adjudication/interim_orders.aspx
New South Wales Government. (2014). Retail Leases Act 1994 No 46. Retrieved on 16/09/16 from: https://legislation.nsw.gov.au/inforce/7d347563-a994-ea88-8513-9bc71598607b/1994-46.pdf
Richard. (2012). Implied terms in contracts for services. Retrieved on 16/09/16 from: https://www.redmans.co.uk/blog/business-law/implied-terms-in-contracts-for-services
Small Business NSW Commissioner. (2016). Avoiding and dealing with disputes. Retrieved on 16/09/16 from: https://www.smallbusiness.nsw.gov.au/__data/assets/pdf_file/0007/41596/12277_SBC-Retail-Tenancies_2-Disputes_v2.pdf
Small Business NSW Commissioner. (2016). Before signing a commercial or retail lease. Retrieved on 16/09/16 from: https://www.smallbusiness.nsw.gov.au/__data/assets/pdf_file/0006/41595/12277_SBC-Retail-Tenancies_1-Before-Signing_v2.pdf
Small Business NSW Commissioner. (2016). Retail and commercial leases. Retrieved on 16/09/16 from: https://www.smallbusiness.nsw.gov.au/solving-problems/retail-tenancy
Treitel, G.H., & Peel, E. (2015). The Law of Contract (14th ed.). London: Sweet & Maxwell.
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