By James Atkinson

A "most unusual" pub lease entered into by ALH Group and its landlord ALE Property Group was headed for the courts on day one, said a Victorian Court as it handed down its ruling on the long-running dispute.

Australian Leisure & Hospitality Group (ALH) has lost its legal battle with ALE over the development rights to land attached to the Vale Hotel in the Melbourne suburb of Mulgrave. The dispute began in the courts in February 2008.

The Supreme Court of Victoria in May last year found in favour of ALE's position that ALH should be required to provide details of any development on the property as this could affect the pub's valuation and the amount of rent it could charge.

ALH subsequently appealed the Supreme Court decision, but its legal challenge was last week dismissed by the Court of Appeal, which awarded costs to ALE.

Justices Frank Redlich, Philip Mandie and Ross Robson agreed that any development proposed by ALH for the property must make ALE "whole" (i.e. in no worse position after the development is implemented). 

In handing down his decision, Justice Mandie said that both ALH and ALE were very critical of the drafting of the lease.

"While it must be acknowledged that the drafting of a document designed to apply for up to 65 years is not without difficulty, the criticism by the parties was in my opinion fully justified," he said.

"The lease is a tangle of confusing verbiage such that litigation of the kind now before the Court was inevitable."

Justice Redlich agreed with Justice Mandie's decision, commenting that it was a "most unusual" lease entered into by the publican and its landlord.

Pub lease ruling sets precedent for all ALH pubs, says landlord 

Welcoming the decision, ALE said in a statement to the ASX that if approved, any development proposal put forward by ALE would trigger a market rent review, and the rent increases for ALH could be substantial.

"ALE understands that the subsequent growth in the majority of the ALH pub portfolio's earnings has materially exceeded the annual CPI increases in the portfolio's rent," it said.

"As market rentals for pubs are currently assessed on a percentage of earnings basis, this positive difference in growth has the potential to give rise to significant increases in rent at any future market rent review dates."

ALE said the Court of Appeal decision was potentially relevant to all of ALH's leases with ALE, almost all of which had similar terms to the Vale Hotel lease.

ALE managing director Andrew Wilkinson said that throughout the process the company had "continued to enjoy a constructive operational relationship with ALH's management".

"ALE is pleased that the Courts have now clarified the interpretation of the lease and ALE looks forward to being able to continue its support of ALH's development of ALE's properties," he said.

"It is expected that this will further enhance ALH's already very profitable operations".

ALH spokesman David Curry told TheShout the company will not be making any comment on the decision.

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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