VCAT rules retail landlords cannot claw back fit-out costs from defaulting tenants

A recent decision of the Victorian Civil and Administrative Tribunal (VCAT) has clarified the legal position in Victoria with respect to a landlord's ability to claw back a fit-out contribution paid to a tenant upon the early termination of a tenant's lease.

In 2014 in GWC Property Group Pty Ltd v Higginson & Ors [2014] QSC 264 (Higginson), the Queensland Supreme Court held that repayment clauses contained in a fit-out incentive deed were "wholly penal in their operation: providing for significant sums to be paid over and above damages which would be payable to the landlord at common law".

The Higginson decision has now been applied in Victoria.

In Finetea Pty Ltd v Block Arcade Melbourne Pty Ltd (Building and Property) [2019] VCAT 1529 (Finetea), VCAT considered a number of issues, including relevantly whether the landlord was able to recover the value of incentives totalling $555,000 given to Finetea Pty Ltd under the terms of a lease which had been terminated.