Spruiking a New Development – What Not to Do
Posted on September 02, 2013
If you lease commercial properties, this is a reminder that any representations made to a tenant about a premises must be able to be substantiated. If not, you could find yourself in hot water, as this case reveals.
The Facts
In 2006, a Victorian mother and son decided to abandon their respective careers as a teacher and a plasterer and open a café. They incorporated a company and began to scout sites, eventually finding one in central Melbourne. A meeting with the site owner and the leasing agent was set up.
At the meeting, mother and son were shown all manner of promotional material, including videos, glossy brochures, plans and a scale model.
During the meeting, the site owner and leasing agent made a number of representations about the types of businesses that would occupy the site. They also took the mother and son on a walk through tour of the site and pointed out what particular part of the site would be occupied by particular businesses.
The mother and son were also given a disclosure statement by the leasing agent that stated 40 premises would be available for lease. The disclosure statement also stated:
“The Centre … is not fully leased”.
Whilst true, it was misleading – no part of it was leased.
Mother and son subsequently finalised their arrangements and signed a lease.
When they opened in August 2007, they found that:
- the site was unfinished;
- only a handful of shops were open;
- large parts of the site were unlit;
- the building access was impeded;
- toilet facilities were lacking;
- travelators did not work; and
- the site was dusty and generally unclean.
Sadly, the café closed only two months later in October 2007.
The Law
Upset, mother and son commenced action against the owner and the leasing agent for misleading and deceptive conduct.
Australian consumer law provides that a person cannot engage in misleading or deceptive conduct in trade or commerce. It also provides that where representations are made about future matters (as was the case here), there must be reasonable grounds for making them.
The Outcome
The Court found that certain representations made by the owner and the agent were misleading. The Court also found that there were no reasonable grounds for the statements about future representations.
As such, the owner was found liable for nearly $400,000. The leasing agent privately settled with the mother and son during the trial.
The Lesson
When marketing new developments, agents must be certain that there are reasonable grounds for distributing promotional material and making representations about future matters, such as the number of tenants, the tenancy mix, expected foot traffic and similar. Failure to have reasonable grounds when making these representations can land owners and agents in breach of the consumer law.