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Is Mediation in Retail Tenancy Disputes Compulsory?

Caroline Hutchinson ||

A ‘retail tenancy dispute’ is a dispute concerning the liabilities, or obligations of a party (or former party) to a retail shop lease or former lease.  Without limiting the generality of this definition, it may include a dispute surrounding a security bond, unpaid rent, make-good costs and/or a loss arising from early termination or the abandonment of the lease. It is important to note that the definition does not include disputes relating to the value of current market rent payable under a retail shop lease, which is dealt with by section 31 of the Retail Leases Act 1994 (“the Act”).

Unless a retail lease is specifically excluded from the operation of the Act, a dispute arising in relation to the lease is affected by section 68, which stipulates:

  1. A retail tenancy dispute or other dispute or matter referred to in section 65 (1) (a1) may not be the subject of proceedings before any court unless and until the Registrar has certified in writing that mediation under this Part has failed to resolve the dispute or matter or the court is otherwise satisfied that mediation under this Part is unlikely to resolve the dispute or matter.
  2. The Registrar must certify that mediation under this Part has failed to resolve a retail tenancy dispute or other dispute or matter referred to in section 65 (1) (a1) if the Registrar is satisfied that any one or more of the parties to the dispute or matter has refused to take part in or has withdrawn from mediation of the dispute or matter.
  3. This section does not apply to proceedings before a court for an order in the nature of an injunction.
  4. This section does not operate to affect the validity of any decision made by a court.

Whilst, at first glance, section 68 may suggest that mediation is a compulsory step prior to the commencement or continuation of any court proceedings concerning a retail tenancy dispute, the court has determined that it will not necessarily block proceedings.

In determining this issue in Fordham Laboratories Pty Limited v Sor & Anor [2011] NSWSC 706 (8 July 2011), the Supreme Court of NSW said that the requirement to mediate is not a condition precedent to the commencement or continuation of proceedings, but that the court may not proceed to hear and determine the dispute unless satisfied that mediation under section 68 is unlikely to resolve the dispute.

If the court is not satisfied of this fact, then at worst, the claim in the proceedings may be liable to be struck out – or at best, the proceedings may be put on hold whilst the dispute is referred to mediation before the Registrar of Retail Tenancy Disputes (or the Registrar’s delegate).  Either way, it can be a time consuming and costly mistake not to mediate a dispute where mediation is appropriate and does have a reasonable chance of resolving the issue at hand.

Not all commercial leases are retail leases, and not all leases of premises for retail use are governed by the Act. Subject to exclusions set out in sections 566A and 6B of the Act, a ‘retail lease‘ is any agreement under which a person grants to another person for value a right of occupation of premises where the purpose of the use of the premises is as a retail shop:

(a) whether or not the right is a right of exclusive occupation;
(b) whether the agreement is express or implied; and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing.

Some of the differences between commercial leases and retail leases are summarised in our previously published article ‘Key differences between retail and commercial leases‘.
If you are unsure as to whether you have a commercial or retail lease in place, or require further information regarding whether section 68 applies to a dispute, please don’t hesitate to get in touch:

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