Claw-back Provisions in Incentive Deeds

October, 2014

Written by Sarah Bird, Senior Associate, Property and Commercial

Landlords beware! The Supreme Court of Queensland has last week ruled that provisions requiring tenants to repay incentives if a lease is terminated (including on the basis of a tenant’s default) are not enforceable.

It has been common practice for many years for landlords to require the tenant (and/or guarantors) to repay all or part of any incentive given under a lease if the lease is terminated due to the default of the tenant.

In this regard, the facts in the case of GWC Property Group Pty Ltd v Higginson and others is unremarkable. The tenant had been granted a fitout incentive, rental abatement and signage fee abatement pursuant to an incentive deed entered into contemporaneously with a grant of a lease of premises. The tenant subsequently abandoned the premises and the landlord terminated the lease. Under the incentive deed the tenant was required to repay a proportion of the fitout contribution (calculated on a pro-rata basis) and all of the rental and signage fee abatements that had been applied at the date of termination. The tenant was in liquidation and so the landlord was pursuing the guarantors, who had signed both the lease and incentive deed, for the amounts owing under the claw-back provisions of the incentive deed.

The Court held that the claw-back provisions were penalties and not enforceable.

The reasoning of the Court was that:

We can assist you to minimise the risk that you will not be entitled to receive a payback of an incentive.

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