A recent decision by the Supreme Court of NSW highlights the importance of ensuring your outgoings provisions are drafted to maximise your recovery of outgoings and charges.
It is not uncommon for landlords and tenants to disagree over whether a particular outgoing is payable under the terms of a lease.
In the recent case, Fitness First Australia Pty Limited v Fenshaw Pty Limited [2016] NSWSC 47, the Supreme Court of NSW was required to interpret an outgoings provision in a lease to determine if the tenant had in fact overpaid outgoings as claimed.
The dispute was in relation to the true construction of the outgoings and charges provisions of leases. Fitness First claimed that it had overpaid an amount of $188,284 of outgoings and charges under their lease.
The tenant (Fitness First), contended that the provisions should be construed so that the amounts of outgoings and charges were calculated by reference to the proportion that the area of leased floor space beared to the total floor space in the building.
The defendant landlord disputed this and claimed the outgoings and charges should be constituted by all amounts of rates and land tax levied against the whole property.
In determining the dispute, the Court noted that the meaning of the terms of a commercial contract is to be determined objectively by what a reasonable person would have understood those terms to have meant.
The decision reached by the Court following this method of determination was that the Fitness First’s outgoings provisions position was not accepted and subsequently they had not overpaid outgoings as claimed.
A landlord should ensure its outgoings provisions are drafted in such a way that it maximises its intended recovery of outgoings and charges.
Please contact us should you have any queries in relation to outgoings provisions or their drafting.
