Leasing licensed premises: Polish Club Limited v Gnych

The recent New South Wales Court of Appeal case of Polish Club Limited v Gnych [2014] NSWCA 321 deals with interesting issues in relation to leases of licensed premises.

The Polish Club operated licensed premises at Ashfield, Sydney.

In 2011, the Polish Club agreed to allow Gnych to operate a Polish restaurant business in part of the club.

The broad terms of the lease were agreed but a lease document was never signed.  On 31 March 2012, Gnych occupied the premises and commenced trading and paying rent.

The Polish Club and Gnych subsequently had a falling out and the Polish Club purported to terminate the tenancy.

The Supreme Court of New South Wales held that application of the Retail Leases Act 1994 (NSW) (RLA) meant that Gnych had a valid lease for five years.  This was because where a tenant of retail premises is allowed into possession and starts paying rent before a lease is signed, the RLA converts this unwritten arrangement into a lease, and where the tenant has not provided a certificate under section 16 of the RLA as to the minimum term of the lease, the term of the lease is deemed to be five years.

The Polish Club then appealed to the New South Wales Court of Appeal arguing that if there was a lease, the grant of that lease would be a breach of section 92(1)(c) and (d) of the Liquor Act 2007 (NSW) which is as follows:

“92       Control of business conducted on licensed premises

1.   a licensee or a related corporation of the licensee must not:

      (a)   ……

      (b)   ……

      (c)   lease or sublease any part of the licensed premises on which liquor is ordinarily sold or supplied for consumption on the premises or on which approved gaming machines are ordinarily kept, used or operated, or

      (d)   lease or sublease any other part of the licensed premises except with the approval of the Authority.”

The Court of Appeal agreed with the Polish Club and held that:

• the RLA had the effect of converting the unwritten arrangement into lease for five years;
   
• the grant of the lease (even though it only came into force by the operation of the RLA) was a breach of the relevant provisions of the Liquor Act and therefore unenforceable.

Practical implications

• If the arrangement involves a lease of part of licensed premises where liquor is ordinarily sold or supplied for consumption, or where approved gaming machines are ordinarily kept, used or operated, then the arrangement is prohibited.
   
• The arrangement should be carefully worded as licence rather than a lease.  The Court of Appeal in the Polish Club case indicated that an arrangement which did not confer a right of exclusive possession would not infringe the Liquor Act even though the RLA might convert such an arrangement into a lease.  However, because the Court did not have to formally decide this issue, the position in relation to licences is still somewhat uncertain.
   
• Even if the parties agree to call the arrangement a licence it will still be a lease, and will still breach the Liquor Act, if the practical effect of the document is that the licensee has exclusive possession of some or all of the relevant premises.
   
• If the arrangement relates to part of licensed premises where liquor is not ordinarily sold or supplied for consumption, and gaming machines are not ordinarily kept, used or operated, the arrangement will still require the approval of the Authority if it is a lease or sublease.  The parties should ensure that the approval is obtained.  If it is not possible to obtain the approval or the parties prefer not to seek the approval, then the arrangement should be documented as a licence and not a lease for the reasons noted above.
   
• Even if the arrangement is documented as a licence, if the intention is that the term of the arrangement (taking into account any option terms) is to be less than five years, the lessee/licensee could be required to provide a certificate under section 16 of the Retail Leases Act 1994.

Authors: Jack Gordon and Melissa Potter