Fitness junkie and world-renowned professional cyclist

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Reference no: EM132212774

Jack Spinner is a fitness junkie and a world-renowned professional cyclist. Last year Jack competed on the Australian cycling team at a number of international events and was the winner of three highly coveted golden jerseys.

On returning from a recent international competition, Jack decided to leave behind the world of professional cycling and embark on a new challenge by opening a state of the art indoor cycling studio where Jack will run “spin classes” for members. He will run this himself and handle all the classes. He will limit the membership to 200 members as this is the maximum he fells he can handle and he wants to have some air of exclusivity about the studio.

In September 2017, Jack explains his business plan and proposed asset acquisitions to Gunther Cutthroat. Gunther owns a property in Subiaco that he is looking to rent.

In November 2017, Jack enters into a lease agreement with Gunther Cutthroat for the property. The lease provides that:

1. The lease will commence on 1 January 2018.

2. Gunther will pay $20,000 as a sign-on payment to Jack to assist in the fit out of the new studio payable on 1 January 2018 (the property has been vacant for quite some time and Gunther is keen to get a tenant).

3. Jack will pay lease payments of $120,000 per annum to Gunther in equal monthly instalments.

4. The term of the lease is for 3 years with an option for Jack to renew the lease for a further 3-year term if he wishes to do so.

As Jack has secured a space for the gym, he enters into a contract with Warrior Bikes Pty Ltd for the supply of 50 indoor spin bikes at a cost of $3,000 each. The delivery of the bikes and payment will take place on 5 January 2018.

Jack also sets about doing the fit out of the studio and marketing it. Jack manages to sell all 200 oneyear memberships at $1,000 each that are paid by the members upfront.

At the end of December 2017, the demand for rental properties in Subiaco skyrockets due to the construction of new apartments and a supermarket in the area. Gunther Cutthroat realises that he is now able to secure a tenant who is willing to pay $170,000 per annum for the property with no sign-on payment and for a period of 6 years. On 25 December 2017, Gunther signs a lease with Interloper Ltd who promptly moves into the premises the next day. Gunther writes to Jack on 26 December and informs him that the lease is off as he has secured a tenant who is willing to pay more.

Jack is devastated when he receives the letter from Gunther and immediately calls him. Jack says: “This is not acceptable, we had a signed contract and now you are not willing to honour it five days before I am due to move in? I have taken money from customers, purchased equipment and I have spent $20,000 fitting out the premises. I also have an advertising contract with Giant who will pay me $25,000 per year to advertise their products” Gunther laughs and says: “So what if I have breached the contract. Welcome to the world of business, I’ll pay you $500,000 and that will be that!”

Jack scrambles to find another rental property at an affordable price. Unfortunately, he is unable to do so because of the skyrocketing rents in Subiaco. The prospects of any decent rentals in the next few years are bleak.

Given Jack’s high profile in the Australian cycling community, the collapse of his studio venture makes headline news and his reputation is in tatters. The advertising contract does not eventuate. The members that Jack signed up are chasing him to get their money back and Warrior Bikes are demanding payment for the spin bikes. They claim that if Jack cannot purchase the bikes, they can only now sell them for $2,000 each as the economy is bad and they will seek the difference from Jack.

Jack develops depression because of the situation. Fortunately, Jack seeks treatment from Dr Janet Parker. Dr Parker tells Jack that his symptoms are a direct result from the collapse of the business. Dr Parker prescribes Jack medication costing $5,000 and tells him to take some time to relax and go on an overseas holiday. Jack books a cruise with Rest Relax Cruises costing $10,000.

You are Jack’s lawyer. Advise Jack on what losses he will be able to recover from Gunther.

Reference no: EM132212774

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