Cautionary tale to landlords: Don’t take your tenant’s stuff and start using it as your own

In ACN 116 746 859 (formerly Palermo Seafoods Pty Ltd) (Palermo) v Lunapas Pty Ltd & Anor (Lunapas) [2017]1, Lunapas leased to Palermo certain retail premises in Tweed Heads from which Palermo operated a seafood shop and restaurant. The tenancy was a tenancy at will. Lunapas gave a notice to Palermo giving it 14 days’ notice of termination in contravention of section 127 of the Conveyancing Act 1919 (NSW). Lunapas wrongfully terminated the lease and re-entered the premises.

Palermo sought damages against Lunapas and the sole director of Lunapas for the alleged wrongful conversion of the stock, plant and equipment which remained on the premises.
After the lockout, Lunapas re-opened the premises as a new seafood restaurant and used the tenant’s plant left in the shop (including the EFTPOS machine, refrigerators and kitchen fittings) for their own use to run the business.

Lunapas argued that Palermo had either abandoned its stock, plant and equipment left in the shop or that it disclaimed the right to immediate possession of its stock, plant and equipment.
The Court did not allow an inference of abandonment to be drawn. The Court accepted in substance that Palermo had never been given the opportunity to collect their goods, plant and equipment from the premises. This is despite a written offer to Palermo to collect its stock, plant and equipment within 24 hours of receiving the said offer and despite Palermo’s refusal to accept delivery of the goods packed up by Lunapas in a hired truck and driven to Palermo’s house the Sunday morning after lock-out. The Court accepted Palermo’s position that Palermo’s company director’s refusal to accept the goods was reasonable: he thought the goods being delivered included perishable stock, he thought the truck was not refrigerated, he had nowhere to store perishable stock that was required to be refrigerated and the terms of the delivery were not agreed in advance.

The Court held that conversion was made out at the time of the lockout and in the period thereafter in respect of all of the goods: the stock, plant and equipment. The Court awarded Palermo $200,000 (plus interest up to judgment) representing the market value of the plant and equipment and the stock was assessed separately at $50,000.

This case serves as a reminder to commercial and retail landlords that there is a procedure that must be followed when terminating a lease including giving a tenant the opportunity to collect their goods, even when there has been a breach of the covenant to pay rent.

You’ll find that the team at Conditsis Lawyers have the experience you need to obtain the best possible outcome for your leasing needs.

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1 NSWSC 1583

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