Retail tenants – can your landlord force you to be open?

A landlord of a retail centre is often concerned with having all tenants of the centre open and trading during specified hours.

The landlord’s view is if all retailers are trading during the specified hours it encourages customers to frequent the centre. A retail centre that is trading well will be attractive to other potential tenants which may increase its capital value. The landlord may also be entitled to percentage rent based on the tenant’s sales from the premises and therefore it may be in the landlord’s interest for the tenant to be trading.

Sometimes there are reasons beyond the tenant’s control which prevent it from trading. For example if there is damage to the premises which renders trade impossible or ineffective. In the ACT and NSW there is legislation which sets out the rights of the parties in circumstances where the premises or the centre have been damaged.

However, a retailer may also decide for business reasons not to open for trade on certain days or for certain hours. Usually the retailer will continue to comply with its other obligations under the lease, including the payment of rent, which then raises some interesting questions as to whether the landlord can force the tenant to trade during specific hours.

What does your lease say?

The first question to ask is whether your lease gives the landlord the right to require you to be open for trade. Some leases may include a clause which imposes an additional charge or penalty for any period of time when the tenant fails to open for trade when it is required to. However, a landlord may have difficulty enforcing such clauses as there is a long history of case law which states that penalties may not be enforceable. Further, if your lease was entered into after 12 November 2016, you may be covered by the new protections for small businesses from unfair contract terms. A clause in a lease that penalises you or has the effect of penalising you for a breach of the lease may be considered unfair and therefore found to be void.

What does the legislation say?

If your shop is located in NSW, the Retail Trading Act 2008 regulates shop opening hours and restricted trading days. Any clause in a lease is void to the extent that it requires a retailer to keep the shop open for trade on any of the restricted days. Further, a landlord that compels a retailer to open on a restricted trading day may be liable for a significant fine.

In NSW and the ACT, there is legislation that restricts a shopping centre landlord from changing the core trading hours of a centre without the written approval of the majority of tenants of the centre.

What do the courts say?

In the recent case of Sentinel Countrywide Retail Ltd v PC Emerald (Qld) Pty Ltd, the court considered whether a landlord could ask the court to force the tenant to open for trade during the trading hours of the shopping centre. In that case a tenant closed its pizza shop because the business was operating at a loss. The tenant continued to pay rent and was attempting to negotiate a surrender with the landlord. The court’s view was that forcing the tenant to continue trading from the premises would be contrary to public policy because it would interfere with the legitimate commercial decision of the tenant. The court generally needs to see some exceptional circumstances in order to enforce an obligation in the lease to trade. The landlord in the case was ultimately unable to convince the court that exceptional circumstances existed.

What should you do?

A decision to close your premises either permanently or periodically when your landlord is asking you to be open for trade should not be made without carefully considering the likely consequences. The team at Meyer Vandenberg can advise you on what your lease says about being open for trade and the effect of relevant legislation. Sometimes it may be in the your best interest to approach the landlord to explore the options available, as some landlords will take a commercial approach to assist a tenant to continue trading through what might only be temporary difficulties.

For more information contact the Property, Commercial and Finance Team:

Christine Murray — Partner — Property, Commercial and Finance
(02) 6279 4402

Jennifer Jaeschke — Associate — Property, Commercial and Finance
(02) 6279 4361