Equity Prevails: Injunction Granted Despite Lease Terms in Landmark VCAT Decision

Disputes between landlords and tenants frequently arise when repairs are required on leased premises. Depending on the nature and urgency of the issue, such repairs may significantly affect the tenant’s business operations, potentially resulting in financial loss. In response, tenants may withhold rent payments in an effort to offset their losses through equitable means.

To prevent this, landlords often include clauses in lease agreements that prohibit deductions from rent, these are referred to as no deduction clauses. These provisions are intended to preclude tenants from applying equitable set-offs. However, the recent decision in AMTB Pty Ltd v Chan (Building and Property) [2025] VCAT 236 explores whether such clauses can override statutory obligations and as a result potential remedies imposed by the Retail Leases Act 2003 (Vic).

Case Overview: AMTB Pty Ltd v Chan

The tenant operated a nightclub on the leased premises, which required patrons to access the venue via a lift or staircase from the ground floor. At the commencement of the lease in 2010, the lift functioned reliably. Issues began to emerge in 2011, and by mid 2024, the lift had ceased functioning entirely. This failure led to a substantial decline in trade and a reduction in the goodwill value of the tenant’s business. The tenant ceased paying rent in October 2024, and the landlord completed repairs in December 2024.

On 23 December 2024, the landlord issued a notice of default to the tenant, claiming $79,269.96 in rent arrears. The tenant subsequently applied to VCAT for an interlocutory injunction to restrain the landlord from terminating the lease.

To determine whether the injunction should be granted, VCAT considered two key questions:

1. Whether there was a serious issue to be tried regarding the tenant’s entitlement to relief; and
2. Whether the balance of convenience favoured granting the injunction.

Serious Issue to Be Tried

The tenant argued that the losses suffered exceeded the claimed arrears and that the default notice should be invalid under section 54 of the Retail Leases Act. Accordingly, the landlord should not be permitted to terminate the lease if the notice is found to be invalid.

In contrast, the landlord relied on the no deductions clause in the lease agreement. Counsel submitted that this clause barred the tenant from offsetting losses against rent, thereby validating the default notice.

VCAT referred to Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd, which held that a clause prohibiting deductions prevents tenants from asserting equitable set-offs, even where statutory claims under section 54 are involved. VCAT concluded that the tenant’s challenge to the default notice did not raise a serious issue for trial.

However, the tenant also argued that section 52 of the Retail Leases Act imposes a non-negotiable obligation on landlords to maintain premises in the condition they were in at the commencement of the lease. Section 94 reinforces that the Retail Leases Act prevails over lease terms, meaning landlords cannot contract out of these statutory duties and thus their obligations. VCAT accepted that there was a serious issue to be tried regarding whether remedies under section 52 could be excluded through lease provisions.

Balance of Convenience

VCAT considered Sudjalim Pty Ltd v Homle Pty Ltd, which noted that a strong claim may justify the granting of an injunction where the balance of convenience is otherwise evenly weighted.

Although the tenant had not clearly quantified their losses, VCAT acknowledged that the retail nature of the business was closely tied to the leasehold interest. On this basis, the balance of convenience favoured granting the injunction.

VCAT ultimately granted the injunction, subject to the condition that rent and outgoings payable under the lease would resume from 1 February 2025 and continue until final orders were made.

Key Implications

This decision confirms that no/without deduction clauses from rent in retail leases do not operate as blanket exclusions in all circumstances. Where statutory obligations under the Retail Leases Act are involved, tenants may retain the right to remain in possession of the leased premises until the matter receives final orders. This case further strengthens the rights of tenants in retail leases. The case underscores the importance of understanding the interplay between contractual terms and statutory protections in retail leasing disputes.