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Court rules against insurtech subsidiary in COVID-19 lease dispute

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The NSW Supreme Court has found against Cover Genius Services in a dispute over office leasing and unpaid rent amid financial impacts from the COVID-19 pandemic.

CG Services, a subsidiary of insurance technology company Cover Genius, argued it legitimately withdrew from an arrangement with NTT Australia Digital for office space in Clarence St Sydney and a Deed of Assignment was not enforceable.

NTT maintained documentation signed in January held sway and Justice Julie Ward decided in its favour.

CG Services initially had an agreement with Society One, which sub-let from NTT, to occupy part of the premises until April 30. The disputed Deed of Assignment with NTT was set to start from May 1.

Justice Ward says from March 24 to April 27 communications were exchanged with landlords Perpetual and Dexus Funds Management about rental or other assistance for CG Services on the May lease due to financial impacts from the pandemic.

Then in an April 30 letter, the firm said it did not intend to go ahead with the lease, noting it only had a contractual licence with Society One until April 30. It argued to the court that the Deed of Assignment had not come into effect as documents hadn’t been completely exchanged, and it was permitted to withdraw.

After CG Services didn’t pay rent, cleaning costs or other charges from May onward, Dexus then advised NTT that CG Services was in breach, had not provided a bank guarantee, and NTT was liable to pick up the amount owed.

By August 25, Perpetual and Dexus were seeking $492,130.19 from NTT, or in the alternative CG Services.

Justice Ward’s decision finds the Deed of Assignment is valid and enforceable against CG Services, noting the firm started to spend large sums of money fitting out the premises and moving in staff.

The decision says “strenuous attempts” to negotiate a rent reduction show the obligation to pay rent from May was “plainly understood” and the firm’s actions and communications are not the conduct of a party that considered itself “anything other than immediately bound” by the Deed of Assignment.

The court also considered CG Services arguments that, if the Deed was found to be valid, its financial situation should be taken into account, as it would likely not be able to obtain a bank guarantee for the amounts sought.

The firm also says NSW COVID-19 lease assistance regulations should be recognised, while NTT argued processes had not been followed, and the regulations didn’t apply in this case. It also noted that CG Services “generates no revenue and is, instead, dependent on funding from other companies within the CG Group”.

Justice Ward says CG Services might have anticipated being able to call upon support from other companies in the group but “whether it has any legal entitlement to such support is another matter”.

“In the exercise of my discretion, I would not permit CGS to rely on the COVID-19 regulations,” she says, while noting a lack of clarity around whether it qualifies as an “impacted lessee”.

Justice Ward declared that the Deed of Assignment is valid and enforceable against CG Services, but rather than ordering “specific performance” says NTT will be “left to a claim in damages”.

“I consider that it would be in the interests of all the parties for them to proceed to a mediation with the aim of reaching some form of arrangement that best accommodates each of their interests, and having the benefit of these reasons,” she says.

The orders say that if CG Services seeks rent relief under the COVID-19 regulations, the parties should attend a mediation within the following 28 days.

Costs were awarded against CG Services.

The decision is available here.