Assignment Task
Strategic Analysis
1- Problem Question
The Seals Rocks Surf House Ltd (the Surf House) is registered under the Registered Clubs Act 1976 (NSW) and holds a license under the provisions of Div 3 of Pt 3 of the Liquor Act 2007 (NSW). The license was for selling or supplying liquor for consumption on its premises. Its premises comprised a building of two floors with a rooftop cocktail hall. The ground floor consisted of the entry to the premises, a storage area, and staff toilets. The first floor contained male and female toilets and a bar where liquor could be purchased. On the first floor, there was also a bistro with a capacity of approximately 40 seats, a kitchen, and an office (the bistro area). Next to the bistro is an area referred to as the event room (the event room) with a capacity of 70 seats with access from the bistro by way of a moveable wall. On 3 July 2020, the Penguins sent a letter to the Surf House offering to run a bistro in the bistro area and organize functions on the premises. The Surf House responded with a counter-proposal in the form of a lengthy document.
The Surf House offered the Penguins to be the exclusive contractor for catering services. In response, the Penguins’ solicitors sent the Surf House a “term sheet” with the terms of a “Lease Agreement” for the bistro area and the downstairs storage area. The terms specified a duration of 2 years with two 2-year options, at a rent of $600 per week payable monthly with an initial rent-free period and four months payable at a reduced rate. The Penguins would not occupy the bar on the first floor but would operate their own cash register at the bar so that the bistro patrons could order drinks in the bar area and take them back to the tables. The Penguins would be entitled to 10% of those takings. The terms of the agreement included that the Penguins were to renovate the bistro. Under the heading “Licence Agreement”, on the same term sheet, it was stated that the Penguins would be entitled to use the event room on Fridays, Saturdays, and Sundays.
The Surf House accepted the terms of the Penguins’ offer, but the resolution was not communicated to the Penguins. The Penguins commenced renovations in November 2020 and completed them in February 2021. On 26 February 2021, the Penguins’ solicitors sent the Surf House a draft “Lease Agreement” in registrable form and a “Licence Agreement” for the event room. On 28 February 2021, the Penguins took possession of the bistro area, held a grand opening party for the bistro, and commenced regular trading. In April 2021, the Surf House engaged solicitors, so negotiations ensued about the terms of the lease, but no written agreement was ever finalized. Although the bistro operated successfully, relations between the Penguins and the Surf House deteriorated.
On 7 June 2022, the Surf House’s solicitors sent the Penguins’ solicitors a letter notifying several grievances, stating the Surf House’s decision to terminate the relationship and requesting that the Penguins vacate the premises. By reply letter, the Penguins denied the Surf House’s allegations and sought a mediated meeting with the president of the Surf House to resolve the differences. The Surf House did not reply to the conciliatory letter.
On 2 July 2022, the Penguins gave the Surf House the notice required by s 6A(4) of the Retail Leases Act 1994 (NSW). The notice fixed the term of the lease by section 16 of the Retail Leases Act as five years from 28 February 2021. On the same day, 2 July 2022, the Surf House’s solicitors wrote to the Penguins’ solicitors, stating that s 92(1) of the Liquor Act overrode any rights the Penguins might have had under the Retail Leases Act; therefore, the Penguins never had a lease over the bistro area. The Surf House contended that the lease, if any, would have been illegal under s 92(1)(d) of the Liquor Act. On 5 July 2022, the Surf House evicted the Penguins from the bistro area
The Penguins argued that Section 92(1)(c) of the Liquor Act did not apply in the circumstances. On the part of the premises leased to the Penguins, no liquor was sold or supplied and no gaming machines were kept, used, or operated on that area. However, the Surf House insisted that the lease contravened 92(1)(d) of the Liquor Act since the Independent Liquor and Gaming Authority had not approved the lease.
The Penguins claimed that they had a leasehold interest in the bistro area for a 5-year period commencing on 28 February 2021 according to sections 8 and 16 of the Retail Leases Act, which extended to the bistro, kitchen, office, storeroom, and toilet. They had exclusive possession of those areas, and the parties involved intended such occupation to operate as a lease. The Surf House contended that the purported 5-year lease predicated on the Penguins’ obtaining the benefit of section 16 of the Retail Leases Act was illegal under the Liquor Act and therefore unenforceable.
The Penguins said that even if there was a breach of s 92(1)(d) of the Liquor Act as the bistro area is “part of the licensed premises”, it did not affect their leasehold interest. Their claim did not depend on any illegality. They simply asserted that a lease arose from the parties’ conduct and the operation of s 16(1) of the Retail Leases Act. As for the event room, they did not suggest they had any rights to a lease that might contravene s 92(1)(d) of the Liquor Act.
To the Penguins, the Retail Leases Act created the lease by parties’ conduct and sections 8 and 16, so section 92(1)(d) of the Liquor Act did not apply to a lease created by that statute. The Surf House added that, in that case, the Retail Leases Act merely regulated the terms of a lease created by an agreement between the parties. This does not for itself create a new lease under the statute.
Advise the Penguins whether the 5-year Lease Agreement is illegal and unenforceable, preventing the Penguins from recovering damages for the Surf House’s breach of the purported agreement.
After your conclusion on illegality and public policy, succinctly consider whether the Penguins could have been third-party beneficiaries or assignees of the Liquor Act licence.
2- Instructions
To complete this task, you will identify the relevant legal issues and sub-issues by clearly stating them using titles and subtitles corresponding to these issues and sub-issues across your answer. Your titles and subtitles should signpost the internal structure of your response as you strategically identify legal questions and critically apply the appropriate legal principles to achieve reasonable and alternative solutions to the question posed in the problem.
