t to distrain’ was once available to a landlord when a tenant failed to pay rent. Under this remedy, a landlord could enter the leased premises and take possession of and remove goods belonging to a tenant. Some limitations existed, including that the landlord was only permitted to take possession of the goods if the lease was still on foot. Once a lease was terminated by repossession of the premises, the landlord could not exercise any right to distrain. Further, the value of the goods taken had to be proportional to the rent unpaid and the cost of exercising the remedy. Every jurisdiction in Australia except for Tasmania and South Australia has now abolished distress for rent. In Victoria, the remedy was abolished by s18 of the Landlord and Tenant (Amendment) Act 1948 (Vic). Although that Act and its successor have since been repealed, it is accepted that the repeal of that legislation does not revive the old law of distress for rent. Possessory lien It is clear that a landlord is not permitted to rely on a clause in a contract that amounts to providing a distress for rent remedy, however, some uncertainty exists surrounding the validity of a possessory lien that has been built into a lease. In Van der Velde v Marklyn Enterprises, the tenant leased hotel premises in Queensland. After defaulting on payment of rent, the landlord re-entered the premises and took possession. The lease was terminated and the landlord reopened the hotel for business using various goods that were on the premises to trade. The landlord relied on a clause in the lease that gave it a right to retain possession of the tenant’s goods after termination of the lease until rent was fully paid. Wilson J found that this right was not distress because it was to be exercised after termination of the lease. Distress for rent, on the other hand, can only be exercised during the tenancy. In a Western Australian case, RAC Finance v Fewton (in liq), the tenant had a number of valuable art works and restaurant equipment on the leased premises. The lease had been terminated and the landlord sought to exercise a power under the lease to retain possession of the goods and sell them in order to recover unpaid rent. Nicholson J held that this right was enforceable and was not prohibited by the statutory abolition of distress for rent. In the Victorian case Kiwi Munchies vs Nikolitsis, the tenant leased premises in order to sell products, including food and beverages. The landlord took possession of the tenant’s stock and threatened to sell it if rent was not paid. VCAT took the view that the landlord was attempting to levy distress for rent and had no right to do so since that remedy had been abolished. Notably, the lease did not contain a provision authorising the landlord to retain possession of the goods. Most recently, in GADM Enterprises vs Indigo Cove, the tenant conducted a restaurant business on the leased premises in Melbourne’s St Kilda. The landlord took possession of the premises and the goods on the premises. As in Kiwi Munchies vs Nilokitsis, no clause existed that authorised the landlord to take possession of the goods. VCAT determined that the landlord had wrongly converted the tenant’s goods. Asian Pacific Building Corp v Sharon-Lee Holdings In February 2013, the Victorian Supreme Court held that a landlord’s possessory lien contained in a lease can be enforceable. In Asian Pacific Building Corporation v Sharon-Lee Holdings, the tenant leased a shop on Melbourne’s Collins St where it conducted a beauty therapy business. The premises were fitted out at the tenant’s cost and the tenant had also purchased stock and equipment. In late 2009, the tenant had fallen into arrears under the lease. The landlord re-entered the premises and terminated the lease. The landlord subsequently took possession of the tenant’s goods, relying on a clause under the lease that authorised it to do so. The tenant filed an application with VCAT seeking the return of the goods or alternatively damages for detinue or conversion. VCAT found that the retention of the goods did not constitute distress for rent, however, the possessory lien was unenforceable because the right provided by the lease could not survive the lease’s termination and was extinguished when the lease was forfeited. The landlord had no contractual right to assert the possessory lien after the lease ended. The landlord appealed to the Supreme Court of Victoria. On appeal, Garde J identified that the critical question was whether, by abolishing distress for rent, parliament also intended to invalidate provisions such as the possessory lien concerned. His Honour noted that the old provisions abolishing distress for rent were ‘extremely short sections’. There was no indication that parliament intended to protect tenants from something more than the remedy of distress for rent. Prohibiting possessory liens as well as distress for rent would be a significant disadvantage for landlords. For these reasons, Garde J came to the conclusion that the possessory lien was enforceable. A recommendation for landlords The recent decision in Asian Pacific Building Corporation v Sharon-Lee Holdings has established that landlords in Victoria can exercise a right to take possession of a defaulting tenant’s property in certain circumstances. This is a significant advantage for landlords that will help them recover unpaid rent, especially where the goods on the premises are valuable. In addition, it may help landlords claim priority over goods ahead of a tenant’s financier or liquidator. The lease should include a carefully drafted clause that gives the landlord a right to take possession of goods and possibly a power of sale in the event that the tenant is in arrears. Without such a clause, taking possession of the tenant’s property will almost certainly be unlawful. Further, the lien must take effect after termination of the lease in order to avoid characterisation as distress for rent. Landlords should also consider whether to register the lien (if granted by the terms of the lease) on the Personal Property Securities Register. This story originally appeared in Inside Retail Magazine’s August/September 2013 edition. The October/November issue, featuring Inside Retail Magazine’s annual 50 Most Powerful Retailers List is available now. For more information, click here. * Peter Window is partner at Cornwall Stodart Lawyers, specialising in the retail and not for profit sectors. For more information on possessory liens or leases generally, he can be reached on (03) 9608 2109 or p.window@cornwalls.com.au.