Implications of Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc

 

A recent Supreme Court judgment involving Hosanna Excelsis One Universal Church Inc’s head office in Adelaide and its landlord, Pastina Pty Ltd could have wide reaching consequences for commercial property owners and tenants in South Australia. The matter addresses what happens between renewal dates where a new lease or extension has not yet been entered into.

 

Facts of the case

  • The tenant entered into a lease for five years over a premises on South Terrace, Adelaide in 2010, expiring in 2015;
  • Four months into the lease, the parties amended the lease increasing the size of the leased premises and the rent through an Addendum to Lease;
  • The tenant continued to occupy the premises after the five year lease expired, and held over for another two years;
  • The landlord claimed that a new lease for another five years came into effect from the commencing day of the holding over period as the expanded premises were not occupied for a minimum five years before the holding over period commenced and also the period of holding over exceeded six months;
  • The tenant relied upon section 20B(3)(d) of the Retail and Commercial Leases Act 1995 (SA), argued that it had been in possession of the premises for at least five years, and denied that another five year lease came into effect;[1]
  • The Magistrate Court dismissed the landlord’s claim;
  • The Supreme Court allowed the appeal and set aside the orders made by the Magistrate.
  • The Supreme Court held that a new lease for another five years comes into operation once the tenant holds over more than six months.[2]

 

Findings of the Supreme Court

The expansion of the leased premises through the Addendum to Lease, although material, did not create a new lease.

The tenant’s argument that they had been in possession of the premises for more than five years when the holding over period commenced was not accepted. The Court ruled that the tenant had only been in possession of the expanded premises for 4 years and 8 months, not the required 5 years. This meant that, in conjunction with the extended hold over period, a new lease was created at the commencement of the hold over period.

 

Implication of the Case

Where a landlord and a tenant enter into a lease for three years, together with the right to renew the lease for a further two years, the lease will have an aggregate term of five years. If the tenant does not exercise the right to renew for the further two years but instead holds over on a monthly period tenancy and that continues for more than six months, then the monthly periodic tenancy will be extended to a five year term.

 

What this means for commercial property owners

A landlord might be forced to grant the tenant another five year lease when the tenant was allowed to hold over on a monthly period tenancy for more than six months. This may be a double-edged sword. While the rule secures payments to the landlord for another period of time, if the landlord had other intentions for their property during that new lease period, they now have secure tenant to contend with. Landlords need to be aware of notice periods so to avoid an undesirable situation.

 

What this means for commercial property tenants

A tenant may have previously held over for a period of time to avoid renewing their lease. This is no longer an option for an extended period of time, as they may lock themselves into another lease term which they had not intended.

Summary

In circumstances where a landlord or tenant does not wish to be caught out by the effect of this new rule, the parties should always be aware of notice periods relevant to their lease renewal terms. An option for landlords is to include a term in their lease restricting extended holding over periods to prevent the situation occurring.

 

If you have any questions about your commercial tenancy lease and how this could affect you please do not hesitate to contact our commercial lawyer Shavin Silva or call him on 08 8410 9294.

[1] Retail and Commercial Leases Act 1995 (SA) s20B(3)(d).

[2] Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc [2019] SASC 18.