You Snooze, You Lose! Court agrees prohibiting sleeping at co-working space is not an unfair term

You can’t sleep there! The NSW Supreme Court has dismissed a plaintiff’s claim alleging that a prohibition on sleeping at a co-working space was an unfair contract term (among other causes of action). This may help landlords and property agents to rest (sleep?) assured, but where breaches do occur, the licence or lease agreement should be terminated appropriately and in accordance with its (not unfair) terms.

On 28 November 2024, the NSW Supreme Court summarily dismissed a claim by a plaintiff who had their licence agreement to use a co-working space terminated after they were found to be sleeping on the premises, among other reasons. Pike J summarily dismissed the proceedings finding no reasonable cause of action.

These proceedings are a timely reminder for landlords who lease commercial spaces (or anyone with a standard form contract with a small business or consumer) to ensure that their terms are always tested against the unfair contract terms (UCT) regime to reduce the risk of UCT allegations if the commercial relationship sours.

For counterparties who may want to allege UCT, it is important to identify with precision the term that is said to be unfair, and to clearly address each limb of the test of unfairness – that is:

• by identifying the imbalance that the term (not the circumstances) creates between the parties;
• that the term is not reasonably necessary to project a legitimate business interest (e.g. a less onerous term could have been appropriate); and
• the detriment that would occur if the term was relied on (again, not the detriment that has arisen due to the circumstances).

More recently, the Courts appear to be increasing finding that terms are not unfair, particularly where a party is trying to extricate itself from a contract and looking to allege a variety of causes of action (which might include UCT) to avoid performance.

Background

Mr Tutoveanu is the sole director and employee of Insightbox Pty Ltd (the plaintiff). In mid-August 2023, he licensed use of a desk in a co-working space called the Quantum Terminal (TQT, or the premises) owned by the TAHE (a NSW government entity) and managed by Jones Lang LaSalle as agent. The standard form licence agreement imposed various prohibitions, including on:

• ‘Monopolising the use of private and semi-private areas’ within TQT (clause 2(f)(i));
• Sleeping at TQT (clause 2(g)(i)); and
• Making any ‘physical alterations or repairs’ to the co-working space (clause 2(h)).

Days after signing, Mr Tutoveanu found another desk in an area of TQT he thought better and quieter than the desk he had been assigned. Despite being told that it was not available, Mr Tutoveanu occupied the new desk and set up partitions to minimise disruptions and ensure privacy so he could sleep there. Soon after, Mr Tutoveanu was asked to move back to his allocated workspace, but refused.

Jones Lang LaSalle issued a notice to terminate and requested he vacate the premises pursuant to the termination clause.

Alleged causes of action

The plaintiff sought compensation and damages for the termination of the agreement, claiming:

1. Unconscionable conduct – the termination of the licence agreement and removal of access to the premises constituted unconscionable conduct as it ‘lacked empathy’ and ‘placed him at risk of contracting hypothermia’ for not allowing him to sleep somewhere safe. Mr Tutoveanu also argued that sleeping on the premises should be allowed as it sustained the primary activity which was to support the Insightbox business.
2. Unfair contract term – the term of the licence agreement which prohibited sleeping at TQT (clause 2(g)(i)), was an unfair contract term contrary to s 23 of the Australian Consumer Law (ACL).
3. Force majeure – the ‘inability to afford residential accommodation in Sydney’ enlivened the force majeure term in the license agreement which relieved him from performing his obligations under the agreement, meaning that termination due to sleeping on the premises was unlawful.
4. Discrimination – the anti-discrimination legislation entitled him to the provision of ‘reasonable adjustment to a workspace’ so that he had an equal opportunity to utilise the co-working space.
5. Trust beneficiary obligations – Insightbox had an equitable interest in the co-working space as a beneficiary under a trust.

Decision

Pike J dismissed proceedings as the plaintiff showed no reasonable cause of action. Mr Tutoveanu did not articulate what conduct gave rise to the alleged causes of action, nor put forward any plausible submissions or evidence to support its contentions. His Honour said that Insightbox’s ‘real grievance’ appeared to be that Mr Tutoveanu was not given a place to sleep, which was never provided for in the licence agreement.

In relation to the ACL issues:

• regarding unconscionable conduct, the Judge considered that the relevant agreement was clear and TAHE had simply enforced those provisions. Mr Tutoveanu did not articulate his unconscionable conduct claim.
• as to UCT, the Judge found, ‘Far from being unfair, the clause is a readily understandable one where the Premises provide licensees access to a particular office desk to carry out commercial operations’. It was also relevant that, in any event, there were several other breaches of the relevant agreement.

Key takeaways

• Landlords who lease commercial spaces and include contractual prohibitions on sleeping in their lease/licence agreements can rest (sleep?) assured that such terms are not necessarily unfair.
• However, there must be a legitimate business interest for contractual terms, and the termination rights should themselves be fair (and enforced in accordance with their terms).
• Broadly, contractual provisions that seek to restrict activities unconnected to the permitted used of the space may be fair. TAHE’s argument was that a restriction of sleeping is not a UCT, because it is ‘an understandable and eminently suitable term for a commercial premise to enforce’.
• We are seeing a number of private litigation cases relying on an array of causes of action (including ill-constructed UCT and unconscionability claims) in an attempt to justify a contractual breach, or get out of a contract they no longer wish to be party to.
• A plaintiff looking to allege UCT should be mindful to address each limb of the unfairness test as it relates to a particular term (as it is the term, and not the circumstances generally, that the court must consider).