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“You’ll be looked after…” A promise or mere puffery?

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By MST Lawyers

On 22 December 2014, the Victorian Court of Appeal handed down a ruling that serves as an important reminder to landlords that representations made to tenants during negotiations may be found to have binding consequences.

Background 

In Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited [2014] VSCA 353, companies associated with Mr Zampelis (“the tenants”) entered into a 5-year agreement to lease premises owned by Crown Casino (“the landlord”). As part of this agreement, the tenants were required to undertake significant refurbishments at the site. Initially, the tenants had indicated they would require the security of a 10-year lease to agree to the costs of the refurbishments. However, over a series of negotiations, the landlord verbally reassured the tenants that if they achieved the refurbishments to a high standard they would be “looked after at the time of renewal”. Despite these assurances, the leases were not renewed.

The tenant brings proceedings

The Victorian Civil and Administrative Tribunal (“VCAT”) found that the landlord’s representations constituted a collateral contract, or alternatively gave rise to promissory estoppel, which meant the landlord’s failure to renew the lease entitled the tenant to compensation. On appeal, the Victorian Supreme Court rejected both these findings.

The trial judge found that the terms of the collateral contract were too uncertain to be enforceable. The promissory estoppel argument was also rejected on the basis the landlord’s representations did not create a reasonable belief that the lease would be renewed. The tenant appealed to the Victorian Court of Appeal arguing the trial judge had erred in both these findings.

The Victorian Court of Appeal

The Court of Appeal agreed with the trial judge’s finding that the statement was too vague to be enforceable as a collateral contract, but upheld the tenant’s appeal on the ground of promissory estoppel. In coming to this conclusion, Whelan JA reaffirmed the following principles concerning estoppel:

  • a representation which is too uncertain to constitute a contractual obligation may still give rise to estoppel;
  • it is essential to show that the representation was of such a nature that it would have misled any reasonable person and the person was in fact misled by it;
  • if there is a ‘grey area’ in what is represented, if it was reasonable for the representee to interpret the representation as extending at least to the lower limit of that ‘grey area’, then the representation will be sufficiently certain to support a claim of estoppel.

Hence, the Court effectively accepted the tenants’ argument that the promise that they would be ‘looked after’ was sufficient to induce them to sign the initial agreements, such that it would be unconscionable for the landlord not to renew the leases. The matter of what equitable relief was to be granted, if any, was remitted to VCAT.

Implications

The decision confirms that oral inducements made before entering a lease, even between commercial parties on even footing, can give rise to equitable estoppel. Thus, while encouragements are often commonplace during negotiations, it is important to note that repeated assurances may give rise to legally binding consequences.

Conversely, for representees making an estoppel claim, the decisions suggests it may well be worth exploring the “lower limit” of the “grey area” in a representation.

On 11 December 2015, the High Court agreed to hear an appeal against a decision of the Victorian Court of Appeal. We are watching the space for you. Stay tuned!

If you need property or leasing assistance, please contact our Property & Leasing team by email property@mst.com.au or by telephone +61 3 8540 0200.

 

Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited [2014] VSCA 353