Demolition clauses in commercial leases – is yours legally enforceable?
A recent VCAT decision has highlighted the importance for Victorian landlords / developers of understanding their rights under a demolition clause contained in a commercial lease that is governed by the Retail Leases Act 2003 (Vic) (RLA).
In the case of Zen Holistic Health Group Pty Ltd v Bacchus Marsh Centre Pty Ltd [2022] VCAT 716, VCAT granted an injunction preventing the landlord from terminating a lease pursuant to a demolition clause contained in the lease.
The landlord had served a demolition notice seeking to terminate the tenant's lease in order to redevelop a shopping centre, including subdividing the tenant's premises into two separate leaseholds. The tenant challenged the validity of the notice, arguing that the proposed redevelopment did not fall within the meaning of "demolition" under the RLA and that the landlord's motivations were not in good faith.
VCAT found that the landlord's proposed redevelopment did not meet the definition of "demolition" under the Act, which contemplates “substantial repair, renovation or reconstruction of the building that cannot practicably be carried out without vacant possession of the premises”. VCAT also found that the notice failed to provide any evidence that the proposed works could not be carried out without vacant possession of the premises. VCAT noted, however, that a landlord's underlying motivations for proposed building works are largely irrelevant.
Landlords should ensure that their demolition notices include sufficient details of the proposed demolition works and evidence that those works fall within the definition of demolition under the RLA.
This case provides a useful reminder for landlords of how the RLA can override the terms of the lease and highlights the importance of complying with the requirements of the RLA.
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