480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd
[2020] WASC 59
•28 FEBRUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: 480 HAY STREET PTY LTD -v- IRWIN ST LOWER PTY LTD [2020] WASC 59
CORAM: CURTHOYS J
HEARD: 25 JUNE 2019
DELIVERED : 28 FEBRUARY 2020
FILE NO/S: GDA 19 of 2018
BETWEEN: 480 HAY STREET PTY LTD
Appellant
AND
IRWIN ST LOWER PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : STATE ADMINISTRATIVE TRIBUNAL
Coram: SENIOR SESSIONAL MEMBER BALES
File Number : CC 2474 of 2018
Catchwords:
Retail shop lease - early termination - special circumstances
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985
Retail and Commercial Tenancies Act (SA), s 39
Result:
Appeal allowed
Category: B
Representation:
Counsel:
| Appellant | : | M Hotchkin |
| Respondent | : |
Solicitors:
| Appellant | : | Hotchkin Hanly |
| Respondent | : |
Case(s) referred to in decision(s):
Paridis v Settlement Agents Supervisory Board [2007] WASCA 97; (2007) 33 WAR 361
Yang v Hapisun Pty Ltd [2018] SASC 17
CURTHOYS J:
Introduction
By this appeal the appellant (480 Hay St) in effect seeks approval for certain conditions in a lease which would permit the termination of the lease sooner than 5 years.
The respondent (Irwin St Lower) did not take part in the appeal and accordingly there was no contradictor to the appellant's submissions.
The Commercial Tenancy (Retail Shops) Agreements Act 1985 (the Act) provides:
retail shop means —
(a)any premises situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a business; or
(b)any premises not situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a retail business,
but does not include any premises excluded by regulation;
retail shop lease means a lease that provides for the occupation of a retail shop, unless —
(a)the retail shop —
(i)has a lettable area that exceeds 1 000 square metres; and
(ii)is not of a kind prescribed by the regulations for the purposes of this definition;
In about April 2018, 480 Hay St and Irwin St Lower executed two retail shop leases. The first was for premises identified as tenancy 1A, 480 Hay Street, Perth (the Tenancy 1A Lease), the second for the adjacent tenancy identified as tenancy 1B 480 Hay Street, Perth (the Tenancy 1B Lease).
The Tenancy 1A Lease and Tenancy 1B Lease form part of a broader development of 480 Hay Street, Perth which includes the Westin Hotel, the Hibernian Place food and entertainment precinct and a proposed 24 storey office building fronting Hay Street. The area, the subject of the Tenancy 1B Lease, falls within the footprint of the proposed office building. It was agreed that tenancy 1A (of 210.6 m2) and the smaller tenancy 1B of (86 m2) would be used as a nightclub/whisky bar. Importantly, the smaller Tenancy 1B Lease is not accessible other than via the Tenancy 1A Lease. The consequence of this is that if the Tenancy 1A Lease were terminated for whatever reason and Tenancy B were not the lessee of Tenancy 1B would not have a right of access to Tenancy 1B.
The relevant terms of the leases
Clause 2.1 of the Tenancy 1A Lease provides that the lease was for the term specified in item 2 of the Reference Table. Item 2 of the Reference Table specified a period of 7 years from the Commencement Date.
The Tenancy 1A Lease commenced on or about 15 October 2018.
Clause 2.1 of the Tenancy 1B Lease provided that the lease was for the term, specified in item 2 of the Reference Table. Item 2 of the Reference Table specified a period of 7 years (subject to special condition 14 of Schedule 2).
The Tenancy 1B Lease commenced on or about 15 October 2018.
Clause 14 of Schedule 2 of the Tenancy 1B Lease provided:
14Redevelopment
14.1The Landlord intends to build an office tower on the Land in the future. If the Landlord builds an office tower, the Landlord will have the right to terminate this Lease by giving the Tenant at least 6 months' written notice, and retake possession of the Premises.
14.2The Landlord and the Tenant agree that in consideration of the Landlord's right to terminate this Lease, the Landlord:
14.2.1has agreed to charge the Rent, which is one half of the market rent for the Premises at the Commencement Date;
14.2.2agrees that the discounted Rent will also apply during any period of extension specified in Item 10, meaning that the Rent payable on and from the commencement date of each period of extension (each commencement date being a 'Market Review Date' under Schedule 1) until again reviewed in accordance with this Lease will be 50% of the amount of the market rent determined in accordance with Schedule 1 on the relevant Market Review Date (thereafter, the Rent (being half of the market rent) will be reviewed to CPI. on each CPI Adjustment Date under Schedule 1 ); and
14.2.3provide a contribution to the Tenant's fitout of $250,000.00 plus GST as set out in the financial assistance deed entered into between the parties contemporaneously with this Lease.
14.3The concessions provided in respect of the Rent and the Landlord's contribution to the Tenant's fitout constitute compensation to the Tenant if the Landlord exercises its right to terminate this Lease during the Term to build an office tower on the Land. As a result, if the Landlord terminates this Lease in accordance with this special condition, neither party will be liable to the other except in respect of any prior breach of this Lease.
14.4If the Landlord terminates this Lease under special condition 14.1, then:
14.4.1as part of vacating the Premises, the Tenant may (but is not required to) remove any of the Tenant's Property from the Premises;
14.4.2the Tenant is not required to Make Good the Premises; and
14.4.3clause 15.2.4 does not apply.
Clause 15 of Schedule 2 of the Tenancy 1B Lease provided:
15Termination and assignment
15.1In this special condition:
15.1.1"1A Lease'' means the document entitled "Lease - Tenancy 1A (basement), 40 Irwin Street, Perth, Western Australia" entered into between the Landlord as landlord and the Tenant as tenant at the same time as this Lease; and
15.1.2"1A Premises" means the premises under the 1A Lease.
15.2If the Landlord consents to the Tenant assigning the Tenant's interest in the 1A Lease, or subletting the 1A Premises, to a person in accordance with the 1A Lease, then the Landlord must permit the Tenant to assign this Lease, or sublet the Premises, to the same person.
15.3If the 1A Lease terminates for any reason, then this Lease automatically terminates at the same time.
The State Administrative Tribunal Application
On 12 November 2018, 480 Hay Street applied to the State Administrative Tribunal (SAT) pursuant to s 13(7) of the Act for approval of clause 14 and clause 15 of Schedule 2 of the Tenancy 1B Lease. Clause 11 of the lease provided for SAT approval.
Section 13(1) of the Act provides:
(1)Subject to this section, where under a retail shop lease —
(a)the term of the lease (in this section called the current term) is more than 6 months but less than 5 years; and
(b)the current term plus any term (in this section called the option term) that may be obtained by the tenant by way of an option to renew the lease totals more than 6 months but less than 5 years,
the lease shall be taken to give the tenant an option to renew the lease for a term commencing immediately after the expiry of the current term and the option term, if any, and ending on a day specified by the tenant that is not later than 5 years after the day of commencement of the current term.
Section 13(7) of the Act provides:
The Tribunal may, upon application made to it by the landlord notice of which has been given to the tenant, approve of the inclusion in a retail shop lease of a provision under which the landlord may determine the lease (other than under subsection (6)(a), (b) or (da)) before the day set out in subsection (6)(aa) or (ab), as is relevant, if it is satisfied that special circumstances exist by reason of which such approval ought to be given.
On 14 November 2018 SAT refused the Appellant's application as follows:
1.Special Condition 15 is not approved for the following reasons:
(a)The term of a lease may only be terminated:
(i)by expiry; in which case the leasehold estate is extinguished, and the right of occupation of the premises reverts to the holder of the superior estate by operation of law; or
(ii)by notice or by re-entry; in each case under the provisions of the lease, and in each of which cases the leasehold estate is transferred to the holder of the superior estate, in whose hands the leasehold estate merges with the superior estate unless the holder of that estate opts otherwise.
(b)It is therefore not possible for the happening of an external event to result in the "automatic" termination of the term of a lease.
(2)The Tribunal has now power to consider Special Condition 14 in an application under s 13(7) of the Act, as a redevelopment or relocation clause falls exclusively within the provisions of s 14A of the Act, and a separate application is required under s 14A(3).
The reasons were effectively contained in the sealed order of SAT.
Grounds of Appeal
480 Hay Street's grounds of appeal were:
1.The Tribunal erred in law in:
1.1Finding that special condition 14 of schedule 2 of the lease was in the nature of a relocation clause for the purposes of section 14A(3) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (the Act).
1.2Failing to consider whether, for the purposes of section 13 (7) of the Act, special circumstances exist such as to justify approval of special condition 14 of schedule 2 of the lease.
2.The Tribunal ought to have found that:
2.1Special condition 14 of schedule 2 of the lease is in the nature of a provision for early determination of a 5 year lease.
2.2Special condition 14 of schedule 2 of the lease is not subject to section 14A of the Act, as it does not provide for the relocation of the tenant's business.
2.3For the purposes of section 13(7) of the Act, special circumstances exist such as to justify approval of special condition 14 of schedule 2 of the lease.
3.The Tribunal erred in law:
3.1In finding that special condition 15 of schedule 2 of the lease provided for some 'automatic' termination of the lease over tenancy 1B.
3.2In failing to consider whether, for the purposes of section 13(7) of the Act, special circumstances exist such as to justify approval of special condition 15 of schedule 2 of the lease.
4.The Tribunal ought to have found that:
4.1Special condition 15 of schedule 2 of the lease provides for the early determination of the lease over tenancy 1B, at the election of the tenant, in the event that lease over tenancy 1A is terminated.
4.2For the purposes of section 13(7) of the Act special circumstances exist such as to justify approval of special condition 15 of schedule 2 of the lease.
Leave to Appeal
As 480 Hay Street's submissions note leave is required to appeal against a decision of SAT to this Court.
Section 105 of the State Administrative Appeal Tribunal provides:
(1)A party to a proceeding may appeal from a decision of the Tribunal in the proceeding, but only if the court to which the appeal lies gives leave to appeal.
(2)The appeal can only be brought on a question of law.
(3)The appeal lies to —
(a)the Court of Appeal, if the decision was made by —
(i)a judicial member; or
(ii)the Tribunal constituted by members who include a judicial member;
(b)the Supreme Court exercising its other jurisdiction, in any other case.
In Paridis v Settlement Agents Supervisory Board [2007] WASCA 97; (2007) 33 WAR 361 Buss JA set out relevant considerations as to whether leave ought:
(a)the importance of the question of law;
(b)the merit of the argument to be put on the question of law;
(c)that the Appellant would suffer a substantial injustice if leave is not granted because an error of law would remain uncorrected.
480 Hay Street submits that, for the reasons outlined below, each of those relevant considerations would justify the exercise of discretion to grant leave to appeal to the Appellant in that:
(a)the question of law raises an important issue of statutory construction as to the proper use and purpose of approving a clause which permits early termination of a retail shop lease;
(b)the arguments of the Appellant have merit; and
(c)if leave is not granted, the Appellant will suffer a substantial injustice because settlement of the sale of its prope1ty would be at risk.
I am satisfied that the grounds of appeal do raise a question of law and that leave should be granted.
Ground 1
This ground is directed to the proper construction of the Tenancy 1B Lease combined with a question of statutory construction, both questions of law.
In Yang v Hapisun Pty Ltd [2018] SASC 17 Parker J of the South Australian Supreme Court considered the application of the s 39 of the South Australian equivalent of the Act. Section 39 related to the demolition of premises.
I note that there is no equivalent section to s 39 of the South Australian Act. The Act speaks of relocation.
Section 39 of the Retail and Commercial Tenancies Act (SA) provided:
(1)If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:
(a)the lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated;
(b)the lease cannot be terminated by the lessor on that ground without at least six months written notice of termination;
(c)if notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than seven days written notice of termination at any time within six months before the termination date notified by the lessor.
(2)If the lease is for a term of 12 months or less, the period of six months in subsection (1)(b) and (c) is shortened in each case to three months.
(3)If a retail shop lease is terminated on such a ground and demolition of the building is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish the premises within that time.
Paragraphs 33 and 34 of his Honour's reasons set out the respondent's submissions:
[33]The respondents note that there are a number of different ways whereby a lease can be brought to an early end before the expiry of the minimum five year term. These include breach of a covenant by the lessee even if the act which caused the breach was not within the direct control of the lessee e.g. an insolvency event occurring because of the appointment of a receiver over the lessee. Other examples where a lease may be brought to an early end include an exercise of the right to terminate the lease for repudiation, mutual surrender, frustration (e.g. where a planning authority prohibits a proposed use that was a condition of the lessee entering the lease), rescission of the lease due to a common mistake as to its term, resumption or acquisition of the land by the Crown, a force majeure event and at the election of either the lessor or lessee where the lessor considers that repair of the premises following damage is impracticable or undesirable under s 40 of the Act.
[34]The respondents submit that the initial term of a lease which contains a right to terminate for demolition will be five years, whether by operation of Pt 4A or by its express terms. Such a clause does not modify the right to an initial five year term. A demolition clause is conceptually different to a clause which allows a lessor to terminate a lease for any reason upon the giving of six months' notice. A clause of the latter type would be regarded as simply a device to avoid the minimum statutory term. The true effect of such a clause is that the minimum five year term would never have been granted. It is unnecessary for the Act to specifically prohibit leases that operate in that fashion
His Honour further stated:
[52]The parties acknowledge that the Act does not codify the law relating to termination of retail shop leases. For that reason, general tenancy law applies to a retail shop lease to the extent that it is consistent with the Act. Thus, a lease may be brought to an early end for a number of reasons that are not referred to in the Act notwithstanding the requirement in s 20B that a lease be entered for a minimum term of five years.
[53]A lease may be brought to an early end where the parties mutually agree to do so before the term expires. While s 20K(1) provides that the rights conferred by Pt 4A cannot be excluded or modified by contract, I consider that clearer words are required to prohibit parties from agreeing to end a lease. Mutual termination of a lease does not involve an exclusion or modification of the rights conferred by Pt 4A, but rather an agreement between the parties that they will no longer be bound by the initial term of the lease.
[54]The respondents refer to a number of situations (see paragraph [33] above) where a lease may be brought to an early end without being the subject of a certified exclusionary clause. Of the examples referred to by the respondents, a mutually agreed termination can be disregarded because of its consensual nature. Termination under s 40 of the Act can also be disregarded for present purposes as it involves the exercise of a right specifically conferred by statute.
[55]None of the other examples of early termination referred to by the respondents are founded entirely upon the unilateral action or decision of a party although, in some instances, the lease will only be terminated if a party elects to exercise the right to terminate after the relevant event, e.g. termination for breach following a failure to pay rent.
[56]In the situations referred to by the respondents (at paragraph [33] above) the lease may be terminated before the five year term has expired without the particular ground for termination being authorised by a clause in the lease. The fact that a lease may be terminated on these other grounds is not inconsistent with the requirement that the lease be for a minimum initial term of five years. The fact that an event, which is not brought about by either party, may entitle a party to bring the lease to an early end does not mean that the lease was not entered for a term of five years.
[57]A decision to give notice of termination because of a proposed demolition of the premises will occur solely at the behest of the lessor. That situation is very different to a decision by a public authority to acquire the land compulsorily or the destruction of the premises by fire. It is also quite different to a termination following any of the other external causes referred to by the respondents at paragraph [33] above. In those situations the event that triggers the right to terminate is not the result of an action by the lessor or the lessee, nor is it necessary for the event to be the subject of a clause in the lease.
[58]The respondents have correctly identified that a lease expressed to operate for five years but which permits termination without cause upon the giving of a specified period of notice cannot properly be regarded as having an initial term of five years. In that situation the only certainty is that the lease must operate for a period at least equal to the specified period of notice. The ostensible period of five years would merely be the maximum potential duration of the lease. Section 20K(1) of the Act would render invalid a clause permitting unilateral termination without cause. However, s 20K(2) would permit such a clause to be included if it was the subject of a certified exclusionary clause.
His Honour further stated:
[59]The essence of the two competing interpretations advanced in this appeal is as follows. One view is that adopted by the Magistrate and by Bryson J in Blackler v Felpure to the effect that the inclusion of a demolition clause in a lease does not derogate from the statutory minimum term of five years. On this view a demolition clause is no different to other express or implied terms which may operate to provide for the early termination of the lease. The operation of both a clause of the latter type and a demolition clause is not dependent on the presence of a certified exclusionary clause.
[60]The essence of the alternative argument advanced by the appellants is that a demolition clause will only be brought into operation by the decision of the lessor to demolish the premises. As the operation of a demolition clause is contingent upon a unilateral decision by the lessor it is fundamentally different to a clause which provides for early termination of a lease on the grounds of default by the lessee or an event which is independent of a decision by either lessor or lessee, e.g. an event which frustrates the lease, compulsory acquisition of the land, a force majeure event or the like.
[61]The key question is whether a clause which permits termination upon the giving of notice because the lessor proposes to demolish the premises would result in the lease being for a period less than the statutory five year minimum. For the reasons that follow, I consider that, for the purposes of the Act, a demolition clause is distinguishable from a clause which authorises the lessor to unilaterally terminate the lease without cause upon the giving of specified notice.
[62]Although a demolition clause permits the lease to be brought to an early end as a result of a decision by the lessor, s 39(1) of the Act imposes significant restrictions upon the use of such a clause to terminate a lease. The lease cannot be terminated unless and until the lessor has provided the lessee with sufficient details of the proposed demolition to indicate that the proposal is genuine and will occur within a reasonably practicable time after termination of the lease. Six months' notice must also be provided. The effect of those provisions is that s 39 balances the competing interests of lessor and lessee.
[63]The substantial constraints upon a lessor's use of a demolition clause in s 39 means that demolition clauses are distinguishable from clauses that permit termination without cause on notice. The basis for the distinction is that a demolition clause can only terminate a lease where it is supported by the existence of objective and provable facts, albeit that those facts arise from the action of the lessor. I do not consider that the inclusion of a demolition clause will, of itself, result in a lease being entered into for a period less than the statutory minimum of five years. Subject to compliance with s 39, a lessor may give notice of termination under a demolition clause. That clause is not required to be the subject of a certified exclusionary clause under s 20K of the Act.
Although I am loath to differ from the learned member, given his vast experience, he has stated the grounds on which a lease may be terminated too narrowly. As Parker J has identified above a lease may be terminated on a number of grounds. An external event may result in the termination of a lease. The parties may enter into a lease on such terms as they agree subject to any statutory restrictions.
Unlike the South Australian Act, the Act does not contain constraints on the lessor's right to demolish. However, as a matter of construction, the lessor may only rely on clause 14, where there is an objective intention to redevelop. Whether such an intention exists can be determined by objective and provable facts. The absence of an equivalent to s 39 of the South Australian Act in the Act does not alter the basis basic requirement for the existence of objective and provable facts.
Clause 15 of the 1B Tenancy Lease is effective to terminate the lease. The lease is a lease for a term of not less than 5 years, albeit that it may be terminated earlier.
Ground 2
This ground is directed to the proper construction of the Tenancy 1B Lease, which is a question of law.
Contrary to the finding of SAT, I am also of the view that, clause 14 does not deal with the relocation of Irwin Street Lower upon a redevelopment of 480 Hay Street. The lease provides for the termination of the lease of the premises not for the relocation of Irwin Street Lower.
Section 14A of the Act is concerned with forced relocation and is silent with respect to the issue of redevelopment or demolition. Further it does not deal with the early termination of the Lease.
Special condition 15 provides that upon the termination of the larger Tenancy 1A Lease, for reasons attributable to either party, the smaller Tenancy 1B Lease, which is not accessible other than via the Tenancy 1A Lease, is deemed to be terminated at the same time. For it to be otherwise would be unworkable.
Special circumstances
As 480 Hay Street submitted, s 13(7) of the Act has four jurisdictional facts which are a necessary condition precedent to the SAT's exercise of power, as follows:
(a)the application to the SAT is made by the landlord;
(b)notice of the application is given to the tenant;
(c)the retail shop lease contains a provision empowering the landlord to dete1mine the Lease before the date set out in subsection (6)(aa) or (ab); and
(d)the SAT is satisfied that special circumstances exist by reason of which such approval ought to be given.
I also agree with 480 Hay Street's submissions that there is no issue that the first, second and third jurisdictional facts were established. As to the fourth jurisdictional fact, SAT expressly declined to consider it because it found that the requirement to consider whether special circumstances existed was precluded because special condition 14 was in the nature of a redevelopment or relocation clause which ought to fall for consideration pursuant to s 14A of the Act, and because special condition 15 allows for some form of 'automatic' termination which is not permitted.
480 Hay Street correctly submitted that SAT erred in law because:
(a)Contrary to what was found by SAT, special condition 14 does not deal with the relocation of Irwin Street Lower upon a redevelopment of 480 Hay Street;
(b)To the contrary, special condition 14 provides for the early termination of the Tenancy 1B Lease, upon six months written notice from 480 Hay Street, in the event that it elects to proceed with construction of the office building.
SAT should have considered whether special circumstances exist so as to justify the exercise of it power under s 13(7) of the Act.
480 Hay Street submitted that the unchallenged circumstances which may be regarded as 'special' are as follows:
(a)The Tenancy 1B Lease was marketed on the basis that it would ultimately form part of the future office building. No prospective tenants were informed otherwise;
(b)In return, Irwin Street Lower was compensated by way of significantly reduced rent and other favourable terms;
(c)At 86 m2 the Tenancy 1B Lease is not of sufficient size to be utilised other than in conjunction with the Tenancy 1A Lease; and
(d)Importantly, the area the subject of the Tenancy 1B Lease is not accessible other than via the Tenancy 1A Lease.
480 Hay Street did not cite any authorities as to the meaning of 'special circumstances'. It is potentially a phrase of large ambit although it falls to be considered in the context of the Act. In the context of costs the term 'special circumstances' has been held to mean 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. I have concluded that that is an appropriate manner in which to interpret that term in the Act. This recognises that the term potentially extends to a wide variety of circumstances which may arise under a tenancy.
I have concluded that on the particular facts of this case special circumstances do arise for the reasons set out in paragraphs (a)-(d) of 480 Hay Street's submissions above. In particular, it would be senseless to effectively render the 1B premises inaccessible. In addition, Irwin Street Lower is required to be given 6 months' notice which is consistent with the requirements of a relocation under s 14A of the Act.
I am satisfied that the grounds of appeal do raise questions of law and that the requirements set out in Paradis are otherwise complied with.
The appeal is allowed and conditions 14 and 15 are approved.
Orders
The appellant have leave to appeal.
The appeal be allowed.
Special Conditions 14 and 15 of the Lease between 480 Hay Street Pty Ltd and Irwin Street Lower Pty Ltd of Tenancy 1B, 480 Hay Street, Perth undated but executed in or about April 2018 be approved.
There be no order as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MDM
Associate to the Honourable Justice Curthoys27 FEBRUARY 2020
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