A & J Verdi Pty Ltd v Uckan (RLD)
[2010] NSWADTAP 83
•17 December 2010
Appeal Panel - Internal
CITATION: A & J Verdi Pty Ltd v Uckan (RLD) [2010] NSWADTAP 83 PARTIES: FIRST APPELLANT
A & J Verdi Pty LtdSECOND APPELLANT
Alexander VerdiTHIRD APPELLANT
Julianne VerdiFIRST RESPONDENT
SECOND RESPONDENT
Metin Uckan
Cetin UckanFILE NUMBER: 109057 HEARING DATES: 30 November 2010 SUBMISSIONS CLOSED: 30 November 2010
DATE OF DECISION:
17 December 2010BEFORE: Chesterman M - Deputy President CATCHWORDS: Retail shop lease – leave to appeal – responsibility for obtaining council approval for use of premises DECISION UNDER APPEAL: Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223 FILE NUMBER UNDER APPEAL: 105113 LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Environmental Planning and Assessment Act 1979
Retail Leases Act 1994CASES CITED: Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial Sporting Club Ltd [1999] NSWSC 264
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296
Harrem Pty Ltd trading as CTH Transport & Services v Toyo Tyre Rubber Australia Ltd [2008] NSWSC 776
Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207
R & J Lyons Family Settlement v 155 Macquarie Street Pty Ltd [2008] NSWSC 310
Steel & Stuff Pty Ltd v Fallon Street Properties Pty Ltd [2005] NSWSC 1148
Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223REPRESENTATION: APPELLANT
RESPONDENT
R Horsley, barrister
G Rich, barristerORDERS: 1. The appeal is dismissed
2. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 15 working days. In such event, the opposing party or parties must file and serve submissions in response within a further 15 working days. The question of costs will then be determined ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.
REASONS FOR DECISION
Introduction
1 This is an appeal against a decision of the Tribunal delivered on 10 September 2010 (Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223), in which the Tribunal declared that the lessee under a lease governed by the Retail Leases Act 1994 (‘the Lease’) was responsible for obtaining all necessary development approval for the use of the premises that was stipulated in the Lease.
2 This declaration resolved one of two preliminary questions that had been set down for a separate hearing. Further matters of dispute between the parties remain to be determined.
3 The Notice of Appeal was filed on 14 October 2010. The appeal was heard by me on 30 November 2010.
Relevant facts
4 The lessors are the Respondents to this appeal, Metin Uckan and Cetin Uckan (hereafter ‘Uckan’). The lessee named in the Lease was Renato Vasquez. By a Deed of Consent and Assignment of Lease dated 1 July 2005, Mr Vasquez assigned his interest under the Lease to the First Appellant, A & J Verdi Pty Ltd (‘Verdi’), with the consent of Uckan. Pursuant to this Deed, the Second and Third Appellants were guarantors of Verdi’s obligations as lessee.
5 The Lease was for a term of five years commencing on 23 August 2003. On the expiry of this term, Verdi exercised an option to renew it for a further five years.
6 The leased premises are a commercial strata unit known as Lot 16, 54-58 Cliff Road, Wollongong. The permitted use is stated in the Lease to be ‘light meals and coffee shop’. In May 2006, Verdi obtained a liquor licence for the premises, with the consent of Uckan.
7 The building in which Lot 16 is situated consists of two eight storey residential towers containing 30 residential units and two ground floor food retail premises. Construction of the building took place following the issue by Wollongong City Council of a Notice of Determination of an Application to Modify Development Consent number D822-00. Clause 8 of this Notice, which was dated 6 October 2001, provided:-
8. Approval is granted for the construction only of 2 cafes. No approval is expressed or implied for the intended use of those cafes.
8 Clause 9 provided:-
9. A new development application must be submitted to and approved by Council, for the use of the cafes prior to their occupation:
b. Consideration will not be given to any live or amplified music and/or entertainment in the cafes.a. Access and facilities for people with disabilities must be provided…
9 It was not until a date shortly before the hearing of this appeal that an application was made to the Council, pursuant to these clauses, for use of Lot 16 as a café. That application was lodged by Verdi. Yet Mr Vasquez, initially, and Verdi, following the assignment of the Lease, have carried on a business of that nature in the premises since the Lease commenced.
10 The Council’s forms of application for development consent contain a page headed ‘lodgement checklist’. This page indicates that in an application relating to the use of a building – as distinct from one relating to the use of land – the matters on which information is required include the ‘use description’. Under that subheading, the following items are listed: working hours, number of staff, materials, wastes and process description. In addition, the forms of application include a section in which the owner of the relevant property may be required to give consent to the application.
11 The Lease contains the following clauses that are of relevance to this appeal:-
1.16 HEADINGS Any headings and indices have been included for ease of reference and none of the Lease is to be construed or interpreted by reference to them.
5.01 PERMISSIBLE USE The Tenant shall not use the demised premises for any purpose other than the purpose specified at Item 1…
5.03 TRADING HOURS The Tenant shall cause the demised premises to be open for business for not less than the times and days specified at Item 2 (except the times and days when the business is closed and such other times and days as the Landlord may from time to time nominate) PROVIDED ALWAYS that the Tenant shall not be obliged to trade at any time when trading would be unlawful.
5.04 LICENSES AND PERMITS The Tenant shall maintain and renew from time to time all licenses permits and registrations required for the carrying on of the business of the Tenant in the demised premises.
5.05 REGULATIONS ORDINANCES AND BY-LAWS The Tenant shall observe perform and fulfil all the requirements of any statutes regulations or by-laws… so far as they may apply to the demised premises or to any business being conducted therein…
8.01 NO ALTERATIONS WITHOUT CONSENT The Tenant shall not make or cause or permit to be made any structural or other alterations or additions to or redecorate or paint the demised premises… without first submitting to the Landlord full detailed drawings and other specifications … and without obtaining the Landlord’s consent in writing…
8.02 ALTERATIONS REQUIRED FOR TENANT’S BUSINESS Any alterations or additions which may be required to the demised premises… to make or keep the demised premises suitable for use by the Tenant in its business… shall be effected by and at the expense of the Tenant PROVIDED ALWAYS that the Tenant shall first submit to the Landlord full detailed drawings and other specifications … and obtain the Landlord’s consent in writing and the consent of any relevant authority, government or semi-government authority…
12.06 WARRANTIES NEGATIVED The Tenant acknowledges that no representations inducements or warranties of any kind have been made by the Landlord or its agents or representatives relating to the demised premises or the Building or any part thereof…12.01 SUITABILITY OF PREMISES The Landlord does not warrant that the structure design shape size or finishes of the demised premises or the facilities therein are or will remain fir suitable or adequate for all or any of the purposes of the Tenant and all warranties (if any) implied by law as to the suitability fitness or adequacy of the demised premises are hereby negatived.
12 The Deed of Consent and Assignment of Lease states in clause 8.1:-
This deed contains the entire agreement of the parties with respect to its subject matter and sets out the only conduct relied on by the parties and supersede ( sic ) all earlier conduct by the parties with respect to its subject matter.
13 In the decision under appeal (Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223) at [8], the Tribunal described as follows the circumstances whereby two preliminary questions came before it for determination:-
Both the Application filed in these proceedings and the Respondents’ “Points of Defence and Cross Claim” raise a number of issues which remain to be resolved. Following a directions hearing on 26 August 2010 before Judicial Member Fox, the issues to be determined at hearing on 30 August 2010 were confined to the question of whether the present use of the premises by the Respondents was compliant with the terms of the lease agreement between the parties, and to determination of which party bore the obligation to obtain development consent or approval for the use permitted by the terms of the lease.
The Tribunal’s decision
14 The Tribunal determined the first of these two questions in favour of Verdi. The correctness of that decision is not in dispute in this appeal.
15 In deciding that the second question should be resolved in favour of Uckan, the Tribunal commenced by outlining (at [21]) a contention put to it by Verdi:-
21 The Respondents [i.e., the Appellants in these appeal proceedings] submit that the combined effect of clauses 5.01 and 5.03 of the memorandum to the lease expressly requires [Verdi] not to use the premises otherwise than in accordance with the agreed use and to have the premises open and operating at least six days per week between the hours of 9.00 am and 5.00 pm. It is contended that because there is this contractual obligation pursuant to the lease agreement to only carry on the agreed use, it would be an impossible position if the tenant was contractually obliged to continue with this agreed use if it was not permitted by Council, and that this situation thereby creates an implied term within the lease for reasons of business efficacy that the landlord is obliged to ensure that the agreed use is also approved by the Council.
16 The Tribunal then referred to and quoted from the Court of Appeal’s decision in Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296. This decision, which is of prime importance in this appeal, is outlined and discussed below.
17 At [24 – 25], the Tribunal said:-
25 There is no evidence that the premises cannot be lawfully used as a coffee shop, or for the service of light meals, or for the sale of liquor. No application has been made for approval of such use by Wollongong Council, but this does not therefore mean that the premises cannot lawfully be used for these purposes.24 There is no evidence in the present matter to indicate that the premises at any time have not been fit for use as retail premises providing meals, coffee and other refreshments including the sale of liquor. The [Appellants’] argument that because the lease agreement required [Verdi] to only use the premises for a particular purpose, a term is therefore implied into the lease agreement which requires the landlord to obtain from the Council the necessary development approval for the agreed use of the premises, is not accepted.
18 At [26], the Tribunal, having stated that ‘the fitness of premises for any lawful use, and the obligation of a party to obtain such permits or approvals as are required for that lawful use, are two separate issues’, expressed the opinion that Fallon was concerned with the first of these issues and therefore did not govern the present case. It expressed the same opinion regarding another decision that is also outlined and discussed below, namely, Harrem Pty Ltd trading as CTH Transport & Services v Toyo Tyre Rubber Australia Ltd [2008] NSWSC 776.
19 At [27 – 28], the Tribunal’s reasons concluded as follows:-
28 [Verdi] accordingly bears the responsibility to obtain approval from Wollongong Council for the use of the premises.27 There is no evidence to show that the premises were not constructed in compliance with the original development approval or that they were unfit for the use as agreed between the parties. There is an implied obligation upon [Uckan] to ensure that the premises are fit for the agreed use, but there is no obligation implied by reasons of business efficacy or created by the terms of the lease agreement for [Uckan] to obtain approval from Wollongong Council for such use. In addition, clause 5.04 of the memorandum to the lease expressly requires [Verdi] as the tenant to “maintain and renew all licences permits and registrations required for the carrying on of the business of the tenant in the premises”.
20 The declaration granted by the Tribunal was in the following terms: ‘The First Respondent [i.e., Verdi] is declared to be responsible for obtaining all necessary development approval for the use of the premises.’
The question of leave to appeal
21 In its Notice of Reply to Appeal and at the appeal hearing, Uckan (for whom Mr Rich of counsel appeared) submitted (a) that the decision under appeal was against the exercise of an ‘interlocutory function’ as defined in section 24A of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’), (b) that leave to appeal was accordingly required under section 113(2A) of that Act and (c) that leave should not be granted.
22 Mr Rich argued that if leave were granted for appeals on preliminary questions, the proceedings would become ‘duplicated and unreasonably expensive’, prejudice and delay would arise and the efficiency of the Tribunal would be impaired.
23 The primary submission on this matter by Mr Horsley, counsel for Verdi, was that the Tribunal’s decision was ‘a final decision on the separate questions determined’ and therefore did not relate to an ‘interlocutory function’ within the scope of section 24A. He further submitted that if this view was incorrect, leave should be granted, because (a) the decision declared ‘the parties’ rights and obligations authoritatively’ and (b) it significantly affected both the determination of remaining matters in the proceedings and the legal relations of the parties to a lease that was still on foot.
24 In my judgment, the Tribunal’s decision was interlocutory only and fell within the scope of section 24A. But leave to appeal should be granted for the reasons advanced by Mr Horsley. An additional reason is that the parties’ written submissions and their oral arguments on the day of the hearing were sufficient to persuade me that the appeal had merit.
25 I should add that because I have formed the view that the decision under appeal was against the exercise of an ‘interlocutory function’, it is appropriate for me, sitting alone, to deal with its merits as well as with the question of leave: see the ADT Act, section 113(2B).
26 In the Notice of Reply to Appeal, Uckan also claimed that the Notice of Appeal was filed by Verdi outside the time-limit of 28 days stipulated in section 113(3)(a) of the ADT Act and that leave to file out of time should not be granted. At the hearing, however, Mr Rich stated that this claim was no longer pressed.
Relevant case law
27 As stated earlier, the Court of Appeal’s decision in Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296 is of prime importance. This case came to the Court on appeal from the judgment of Palmer J in Steel & Stuff Pty Ltd v Fallon Street Properties Pty Ltd [2005] NSWSC 1148.
28 In the headnote to the judgment as reported on the Court of Appeal’s web-site, the facts are summarised as follows:-
In September 2004 the Appellant demanded possession of the premises on the basis that the Respondent had, without justification, set off moneys owing to it in respect of the premises against the rent and was in breach of the lease. The Respondent cross-claimed to prevent the Appellant disturbing its right of quiet possession of the premises and sought damages for breach of the lease. Judgement was given in favour of Respondent in its proceedings. The present proceeding was an appeal against that judgment and orders.In May 2003, the Respondent leased premises from the Appellant for the manufacture, storage and sale of steel products. The building on the land was uncompleted, but the consent authority under the Environmental Planning and Assessment Act 1979 (NSW) had issued an “interim occupation certificate”. At the time the lease was negotiated the building, being incomplete, was unsuitable for use as a sale room. Accordingly, pursuant to an oral agreement, the Respondent occupied the premises on the understanding that only half the monthly rental would be payable until the building and its curtilage were completed. The Appellant did not complete the building and the Respondent suffered losses. After further disputes, the Respondent secured alternative premises.
29 The headnote set out four issues that arose for determination by the Court. The first of these, which is the only one of relevance for this appeal, was as follows: ‘whether the lease was subject to an implied term that the Appellant would carry out the building work identified in the interim occupation certificate within a reasonable time’.
30 In the course of describing the reasoning of the trial judge, Basten JA (with whom Santow JA and Hunt AJA agreed, on the matters relevant to this appeal) said at [7 – 8]:-
7 The trial judge, Palmer J, found that “the lease was subject to an oral term that the full rent stipulated would not be payable until the building work was completed”: at [18]. He was satisfied that the building work had never been completed and that, accordingly, the plaintiff had never been obliged to pay more than one-half of the rent stipulated in the lease: at [20]. Neither of those findings is challenged.
8 The trial judge also found that there was “a term implied in the lease that the defendant would carry out the building work required to complete the building to the extent stipulated in the Development Consent and in the Interim Occupation Certificate”: at [30]. His Honour concluded that the Appellant was in breach of that term, by the beginning of June 2004. The Appellant challenges the existence of any such implied term. It contends that the Respondent was not only aware of the state of the premises at the time it took up occupation, but negotiated a 50% reduction in rent, without seeking any written undertaking or express oral agreement to the effect that the Appellant would complete the construction works. In those circumstances, it says that there can be no additional implied obligation in the form his Honour found.
31 At [13 – 18], Basten JA explained that Palmer J, in ruling that this implied term existed, relied on two matters. The first and most important was the content of the pre-contractual negotiations between the parties, giving rise to findings by his Honour that (a) the Respondent had made known to the Appellant that it ‘required the Premises not only for the manufacture and storage of goods and materials, but also for the sale of goods to the public’ and (b) that ‘in order that the Premises be suitable for the sale of goods for the public, clearly they had to be of a sufficient standard of completeness, safe and convenient for access by the public’. The second was the effect of Clause 6.1 of the lease and Item 17 of the Schedule.
32 Clause 6.1 provided as follows:-
USE
6.1 The tenant must -How must the property be used?
6.1.2 open for business at times usual for a business of the kind conducted by the tenant.”
6.1.1 use the property for the purpose stated in item 17 in the schedule and not for any other purpose.
33 Item 17 of the Schedule to the lease provided:-
Permitted use: The manufacture, storage and sale of steel related products and associated activities, including (cl 6.1) the fabrication of buildings and the manufacture of roll forming and associated products.
34 In his judgment at [18] and [20], Basten JA quoted the following passages from the judgment of Palmer J at [25] and [28]:-
25 It is clear from the terms of the lease that the use of the Premises which the [Respondent] intended included not only manufacture and storage of goods, but sale of goods. It seems to me that the positive requirement contained in the lease that the [Respondent] not only use the Premises for the stated purpose but actually keep them open for business at times usual for a business of the kind conducted by the [Respondent], means that the Premises must be in a condition to permit the [Respondent] to do just that and therefore to comply with its contractual obligations in the lease.
28 The positive requirement in the lease that the [Respondent] use the Premises in a specified way mean[s] that a term must necessarily be implied that, insofar as it is within the power of the [Appellant] to do, the [Appellant] is obliged to put the Premises in a state in which that use can be effectuated by the [Respondent].
35 Basten JA then observed, at [21]:-
21 That reasoning was no doubt logically consequent upon the approach adopted his Honour, but the conclusion, which extends well beyond the requirement to undertake works required by the interim occupation certificate, may be said to demonstrate the limitations of the approach adopted. It invites attention to the specific obligations in the lease with respect to repair and maintenance.
36 Basten JA then considered and rejected (at [24]) an argument, raised by the Respondent to the appeal in a notice of contention, that clause 7 of the lease provided ‘an express contractual basis for the obligation of the lessor to complete the construction of the premises’.
37 In the ensuing passage (paragraphs [25] to [35]), Basten JA set out his reasons for concluding that the lease did contain an implied term as claimed by the Respondent. The following extracts sufficiently demonstrate his reasoning:-
25 In terms of legal principle, both parties accepted the need to apply the principles stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337. The Appellant argued that the implied obligation sought to be imposed upon it to complete the construction work might have been a reasonable term to imply, but it was not “necessary to do to give business efficacy to the contract”: ibid at 346. The term may also be capable of clear expression, but its implication is not so obvious that it “goes without saying”: ibid at 347…
28 No case was drawn to the attention of the Court in which the possibility of an implied obligation to complete construction of premises had been discussed. The Appellant argued that the absence of any such authority militated against the conclusion that such an implied term was appropriate, particularly in circumstances where the parties had negotiated with respect to the anticipated failure to complete before the commencement of the lease…
31 Although the Court should be slow to imply a term into a contract such as a lease, in the circumstances set out above, and especially where the result might be seen as inconsistent with general law principles as to the extent of the obligations imposed on lessors and lessees, this is not a case involving the maintenance of existing facilities, nor the extent of obligations to repair such facilities. Those obligations are dealt with in express terms in the lease, particularly in clauses 6 and 7. It is for that reason that clauses 6 and 7 do not, in their terms, cover the present dispute: as a result, the Respondent’s reliance by way of a notice of contention, on the express terms of cl 7.4 should not succeed.
32 On the other hand, the terms of cl 7.4 and the matters relied upon by the trial judge, as set out above, are relevant factors to be weighed in the balance in determining whether a term should be implied and what its content should be. However, the critical factor in favour of an implied term, with the content identified by the trial judge, lies in the express oral agreement with respect to rent. There was no dispute at trial as to the fact of an agreement, allowing the Respondent to pay a reduced rent; the dispute at trial related to the period and purpose of the indulgence. Significantly, neither party contended that it was to be permanent… Thus, both parties expected that the construction work would be completed. Nor was there any doubt as to which party was expected to complete it…
34 Support for an implied legal obligation may be found not only in the express oral agreement, and the factors identified above, but also in the statutory context of the development of the premises. Thus, pursuant to s 109M(1) of the Environmental Planning and Assessment Act 1979 (NSW) (“the EP&A Act”) a person must not “commence occupation or use of the whole or any part of a new building … unless an occupation certificate has been issued”. A penalty is imposed for contravention of that prohibition…33 There is other material consistent with the Appellant’s acceptance of its responsibility for the cost of construction work carried out during the course of the lease, including its agreement to pay for the replacement of the roller doors. Thus the only question is whether there was an implied obligation upon the Appellant to carry out the construction works as identified in the interim occupation certificate, within a reasonable time, or whether the Appellant was undertaking works from time to time to that end for its own purposes and without legal obligation to the Respondent. The terms of the oral agreement as to the temporary rent reduction, until the building works were completed, provides powerful support for the implied term.
35 The effect of the implied term was to require the Appellant to take steps necessary to ensure that occupation of the building under the lease was lawful and in accordance with the conditions of the development consent under which the building had been constructed, prior to the negotiation of the lease. A term in that form was not merely reasonable and equitable, but necessary to give business efficacy to the lease and was a term of which it could properly be said that its inclusion “goes without saying”. Such a term is not inconsistent with the express terms of the lease, but rather is necessary to allow them their proper scope of operation. The principles explained in Codelfa Construction are satisfied. It follows that the challenge to his Honour’s conclusion with respect to the implied term should be rejected.
38 As mentioned above, the Tribunal also referred to the case of Harrem Pty Ltd trading as CTH Transport & Services v Toyo Tyre Rubber Australia Ltd [2008] NSWSC 776. Here the plaintiff, CTH, leased premises from the defendant, Toyo, for use only as ‘warehousing, storage and distribution’. CTH alleged that Toyo was in breach of a warranty in the lease as to the condition of the premises. It pleaded that there was both an express warranty and an implied term as follows: ‘that the Premises were fit for the purpose of loading and unloading containers in the hardstand yard area.’
39 In upholding this claim that an implied term existed, Hall J said (at [483 – 493]):-
484 In [ R & J Lyons Family Settlement v 155 Macquarie Street Pty Ltd [2008] NSWSC 310], Bryson AJA observed at [63]:-
483 The implication of the alleged implied term must, of course, pass the tests stated in Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 per Mason J at 346 and 347. Additionally, where there is an express covenant in a lease dealing with a particular matter as to the leased premises, there is no room for an implied covenant covering the same ground or any part of it: Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207, 218.
- “The contractual character of the relationship under a lease… and the application to leases (as to other contracts) of the implication of terms… do not render leases, or other written contracts, open to ready implications; the primary source of rights is the express provisions in the document, and established principles on the relationship of lessor and lessee are important for understanding their documents. The implication of terms in accordance with Codelfa is a process very sensitive to the facts of each particular case and to the circumstances and contractual provisions which give rise to the perception that the implication is necessary for the contract actually to be effective.”
486 However, in Advance Fitness (supra), it was also observed at [93] that a commercial lease being not merely a demise of a propriety interest in land may, as a matter of contract, modify or override the bare principles of the law of landlord and tenant.485 In [ Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial Sporting Club Ltd [1999] NSWSC 264], Austin J at [90] observed that traditionally the law of landlord and tenant was reasonably clear, and also quite restrictive, on the question of implied covenants by a landlord, observing that courts had held that there was no implied covenant that demised premises were fit for any particular use. Austin J further observed that this was so, even if the lease contemplated use of the demised premises for a particular purpose, and contained a covenant by the tenant not to use the demised premises for any purpose other than the one stated…
“93. … Thus, if the lease contains a promise by the tenant that it will use the demised premises in a particular way, which necessarily involves the use of heavy machinery (for example, a promise that the premises be used as a printery in which rolls of paper must be moved by fork lift), the lease may well contain an implied warranty that the floor of the premises is sufficiently strong to permit the normal conduct of the business and the use of heavy machinery for that purpose. Here the commercial relationship between the parties goes beyond a mere covenant by the tenant not to use the premises other than for the stated use…”
487 In Land Law , 5th ed (2006), Lawbook Co (at 1573), Professor Butt stated:-
“There is no landlords’ implied covenant that leased premises are suitable for the purposes for which they are let, or that they can lawfully be used for the purposes for which they are let. Nor does the express inclusion of a covenant for quiet enjoyment require otherwise.
On these bases, it is conceivable that a term may be implied that (for example) the landlord will do whatever work is necessary to render the premises fit for the purpose for which they are let and will maintain them in that condition (although in practice such an implication will be difficulty to establish); or (more easily perhaps) a term may be implied that the landlord will not undertake work that would render the premises unfit for their intended purpose (there seems less difficulty in applying these principles to imply a term into a licence that the premises are fit for the purposes of the licence) …”However, it may be possible to imply such a covenant in the particular case under general contract law principles governing the implication of terms into contracts. These principles fall into two categories: implication as a matter of business efficacy, an implication as a legal incident of the particular class of contract concerned …
488 The term that was implied in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148 arose in very particular circumstances and, as Bryson AJA in R & J Lyons Family Settlement (supra) observed, Palmer J upheld:-
- “… a strong case of fact which supported the view that the premises were unusable. An important element in support of the implication was [28]:-
- 28. The positive requirement in the lease that the plaintiff used the premises in the specified way …’”
489 On appeal, Basten JA upheld the finding that the term was implied as necessary to give business efficacy, following reference (at [26], [27]) to the general principle that it is the business of the tenant to satisfy himself that the premises are fit for the purpose for which he wants to use them. Accordingly, the basis on which the case was disposed of and the need for the implication for business efficacy was founded on facts which provided a very clear foundation for the implication.
490 In the present case, the facts and circumstances do disclose in the evidence a proper basis for the implication of the term relied upon by the plaintiff. The position on the evidence in the present case is not unlike that in the example provided by Austin J in Advance Fitness (supra). The hardstand area was to be used in a particular way that necessarily involved heavy containers, both loaded and unloaded, and the use of substantial container handling machinery. The use of such machinery for that purpose would, under special condition 6, be carried out in a relatively confined area of the yard. That necessarily would mean a high level of repetitive loading to that particular part of the premises.
491 As observed by Jordan CJ in Heinmann v Commonwealth of Australia (1938) 38 SR (NSW) 691 at 694, in certain circumstances the parties to a contract are bound not only by the express terms of their contract but also by additional terms which are implied by law by reason of the nature of the contract or of the nature of the terms of the contract, or of the circumstances in which the contract was entered into.
493 Accordingly, I find that there was an implied term that the hardstand area would be fit for the purpose of loading and unloading containers.492 In the present case, on the findings earlier made, the parties contemplated that the premises would, in part, be used by CTH for containerised operations and so much is reflected in the words of special condition 6 itself. In that context, the hardstand area had to be suitable for the conduct of that part of the plaintiff’s business and it may readily be implied that that area would be of sufficient strength to support accepted methods of loading and unloading containers in the conduct of CTH’s business. The implication would be both consistent with the other terms of the lease and necessary to give it business efficacy as well as satisfying the other grounds necessary to support the implication: Codelfa (supra) at 347.
Verdi’s submissions
40 Mr Horsley argued that the Court of Appeal’s decision in Fallon was directly applicable to the particular question at issue in these proceedings and that the Tribunal erred in treating this decision as distinguishable.
41 In elaborating on this argument, he pointed out that clause 5.01 of the Lease limited the tenant’s use of Lot 16 to the use stated in Item 1 (initially ‘light meals and coffee shop’; later enlarged to permit the sale of liquor) and clause 5.03 required the tenant to cause the premises to be open for business for not less than the times and days specified at Item 2 (amounting to 48 hours per week).
42 With reference to the concluding words of clause 5.03, he argued that they referred back to the phrase ‘times and days’ earlier in the clause and were concerned only with trading at such hours as would be unlawful. They did not purport to exempt the tenant from the obligation to trade when for any reason at all trading would be unlawful. He drew attention to the fact that these words ‘mirrored’ the concluding words of section 46 of the Retail Leases Act 1994. Under the heading ‘Trading hours’, this section states: ‘A provision in a retail shop lease is void to the extent that it would operate to require the lessee to trade at a time when trading would be unlawful.’
43 Mr Horsley also pointed out that the use of Lot 16 as a cafe (and also of another commercial unit within the building) had been intended by Uckan at the time when application had been made to Wollongong Council for approval of the construction of the building. For this reason, he claimed, the business carried on in Lot 16 was as much a purpose of the landlord as it was of the two successive tenants. It could indeed be said that the tenants had been ‘recruited’ to operate a café in premises that had always been intended to be a café.
44 For these reasons, Mr Horsley maintained that, as was the case in Fallon, the use defined in the Lease was ‘mandated’. It followed that the Tribunal should have held that the Lease contained an implied term such as was confirmed by the Court of Appeal: namely, an obligation on the landlord to do what was necessary to render lawful the occupation and use of the premises, as mandated by the Lease.
45 The Tribunal erred, according to Mr Horsley, in ruling that the implied obligation on the landlord that was held to have arisen in Fallon was confined to doing the ‘physical work’ required to make the premises fit for a lawful use. The Tribunal should, he said, have held that this obligation extended to obtaining the necessary permits for the use that the landlord had always intended. In so contending, he relied in particular on the opening sentence of paragraph [35] of Basten JA’s judgment, which was as follows:-
The effect of the implied term was to require the Appellant to take steps necessary to ensure that occupation of the building under the lease was lawful and in accordance with the conditions of the development consent under which the building had been constructed, prior to the negotiation of the lease.
46 On these grounds, Mr Horsley argued that the imposition on Cetin of an implied obligation phrased in these terms was ‘reasonable and necessary’ for reasons of ‘business efficacy’, to the extent that, as required by authorities such as Codelfa, its inclusion ‘went without saying’.
47 Mr Horsley also challenged the correctness of the Tribunal’s observation, in paragraph [27] of the decision under appeal, that ‘clause 5.04 of the memorandum to the lease expressly requires [Verdi] as the tenant to “maintain and renew all licences permits and registrations required for the carrying on of the business of the tenant in the premises”’.
48 He argued that this clause did not bear on the question at issue in this case for the following four reasons: (a) since it referred to licences and permits that were ‘renewed’ and ‘maintained’, as opposed (for example) to being ‘obtained’, it did not extend to ‘one-off’ permissions such as development consents; (b) the terms ‘licences’ and ‘permits’ were commonly applied to ‘minor, renewable permissions’; (c) the clause was situated among clauses dealing generally with the tenant’s day-to-day conduct of business in the premises, as opposed to major matters arising at the initial stages; and (d) in so far as the clause was ambiguous, it should be construed contra preferentem; i.e., against the interests of the landlord.
49 Finally, Mr Horsley made brief submissions in reply relating to each of three clauses in the Lease to which Mr Rich had drawn attention. These submissions were as follows: (a) clause 8.02 did not undermine Verdi’s position because it related only to alterations made to the premises for the purposes of the tenant’s business; (b) clause 12.01 should be treated with some caution because it was at odds with the Tribunal’s ruling (at [27]) that there was ‘an implied obligation upon [Uckan] to ensure that the premises are fit for the agreed use’; and (c) clause 12.06 related only to representations, inducements and warranties arising ‘outside’ the Lease, whereas the implied obligation for which Verdi contended was a term of the Lease.
Discussion and conclusions
50 I have given careful consideration to these arguments advanced by Mr Horsley. But my conclusion is that the Tribunal’s decision was correct and that the appeal should therefore be dismissed. My reasons are drawn to a significant extent from the submissions made by Mr Rich.
51 In my opinion, the Court of Appeal’s decision in Fallon does not govern the question to be resolved in this appeal, for four reasons.
52 First, as Mr Rich argued, the ‘critical factor’ underlying the Court’s decision was, as Basten JA said at [32], the existence of ‘the express oral agreement with respect to rent’. As his Honour also said in that paragraph, ‘there was no dispute at trial as to the fact of an agreement, allowing the Respondent to pay a reduced rent; the dispute at trial related to the period and purpose of the indulgence.’ There was however no comparable agreement, oral or in writing, in the present case.
53 My second reason, closely linked to the first, is that the question to be determined in Fallon was not as to which of the two parties to the lease – the landlord or the tenant – was required to take ‘the steps necessary to ensure that occupation of the building under the lease was lawful and in accordance with the conditions of the development consent under which the building had been constructed’. (The passage just quoted forms part of the sentence in paragraph [35] of Basten JA’s judgment on which Mr Horsley placed particular emphasis.) Instead, as his Honour said at [33], ‘the only question’ was ‘whether there was an implied obligation upon the [landlord] to carry out the construction works as identified in the interim occupation certificate, within a reasonable time, or whether the [landlord] was undertaking works from time to time to that end for its own purposes and without legal obligation to the [tenant].’ In the preceding paragraph, he stated that ‘both parties expected that the construction work would be completed’ and that there was no doubt ‘as to which party was expected to complete it’.
54 In other words, the choice in Fallon lay between deciding (a) that there was an expectation that the landlord would complete the necessary works and (b) that the landlord was under an implied obligation to do so. By contrast, the choice in this case is between deciding (a) that Verdi or its predecessor as tenant, Mr Vasquez, was under an implied obligation to apply for development consent for the use of Lot 16 as a café and (b) that Cetin, as landlord, was under such an obligation.
55 Thirdly, a matter on which Mr Horsley placed considerable emphasis – namely that both in Fallon and in the present case the tenant was obliged by the lease to conduct the stipulated business within specified opening hours – was not given great weight in the Court of Appeal’s decision. At [21], Basten JA made the somewhat guarded observations that ‘the conclusion’ to be drawn from this line of reasoning ‘extends well beyond the requirement to undertake works required by the interim occupation certificate’ and ‘may be said to demonstrate the limitations of the approach adopted’. Clearly, in his Honour’s opinion, a common-form ‘trading hours’ clause was not enough in itself to support the implication of a term that the landlord, rather than the tenant, was obliged to take the steps necessary to render trading in accordance with the permitted use lawful in all respects.
56 I do not, however, accede to a submission by Mr Rich that the concluding words of clause 5.03 of the Lease has the effect of exempting the tenant from the obligation to trade when for any reason at all trading would be unlawful. Even though, as Mr Rich pointed out, clause 1.16 states that the Lease is not to be construed or interpreted by reference to the headings of the clauses, I prefer Mr Horsley’s submissions on this matter. It is in my view significant, as he pointed out, that the concluding words of clause 5.03 ‘mirror’ the terms of section 46 of the Retail Leases Act 1994 (these are quoted at [42] above). In that short section, headed ‘Trading hours’, the phrase ‘at a time’ could only mean ‘during a period within the day’.
57 Fourthly, both in Fallon and in the extracts quoted above (at [39]) from Harrem, it was made clear that only in special and unusual cases should a term such as Verdi argues for be implied in a lease. As Bryson AJA said, for instance, in R & J Lyons Family Settlement v 155 Macquarie Street Pty Ltd [2008] NSWSC 310, ‘the implication of terms… is a process very sensitive to the facts of each particular case and to the circumstances and contractual provisions which give rise to the perception that the implication is necessary for the contract actually to be effective’.
58 A quite different reason for ruling that the Tribunal reached the correct conclusion arises from a submission by Mr Rich, based in part on the content of the forms of application for development consent used by Wollongong City Council. What these forms illustrate is that an application for ‘operational’ approval of a business such as a café calls for information that the owner of the relevant premises may not be suitably placed to furnish. It calls for information, for instance, on matters such as the working hours, the number of staff, the materials used, the wastes created and a ‘process description’. It therefore does not ‘go without saying’ that the owner should be regarded as the appropriate person to lodge the application. The natural inference, from a practical point of view, is that the person who will operate the café, not the owner of the premises, will wish to determine these matters. I do not think that in the present case this inference is displaced by the fact that when the earlier application was lodged for development approval for the building as a whole, the owner intended that two of the commercial strata units in it, including Lot 16, were to be used as cafes.
59 Mr Rich briefly contended in his written submissions that clause 5.04 of the Lease is unambiguous and that the interpretation of it suggested by the Tribunal at paragraph [27] was ‘reasonable and open’. I do not agree. The obligation imposed on the tenant by that clause is to ‘maintain and renew from time to time all licenses permits and registrations’. But the obtaining of development consent from the Council for the use of Lot 16 as a cafe clearly does not fall within the term ‘renew’. Similarly, dictionary definitions of ‘maintain’ show, as Mr Horsley argued, that it does not embrace the notion of ‘obtaining’ something. In the Macquarie Dictionary, the relevant parts of the definition are:-
1. to keep in existence or continuance; preserve; retain:….
3. to keep in a specified state, position, etc….2. to keep in due condition, operation, or force; keep unimpaired:...
60 Mr Rich relied also on clause 5.05 of the Lease. So far as relevant here, this clause requires the tenant to ‘observe perform and fulfil all the requirements of any statutes regulations or by-laws… so far as they may apply to the demised premises or to any business being conducted therein’. Perhaps surprisingly, it was not mentioned in the decision under appeal or in Mr Horsley’s submissions.
61 In my view, the terms of this clause may well have been sufficient to impose on the tenant for the time being under the Lease the obligation to obtain the approval for ‘the use of the cafes prior to their occupation’ on which the Council insisted in clause 9 of its Notice of Determination issued on 6 October 2001.
62 Independently of this clause, however, I consider that the obligation to do this was incumbent on the tenant because (a) it was an obligation relating to the business that the tenant, not the landlord, was to carry on in the leased premises and (b) according to the criteria explained and applied in cases such as Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 and Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296, the facts of this case do not justify the imposition of such an obligation on the landlord by way of an implied term of the Lease.
63 The current tenant, Verdi, may well have grounds to believe that at the time of the assignment of the Lease the preceding tenant, Mr Vasquez, or indeed Uckan, as landlord, should have drawn to its attention the terms of clause 9 of the Council’s Notice. But the question whether it could claim that their apparent failure to do so provides grounds for some form of legal recourse is not before me, and I express no opinion about it.
64 For the foregoing reasons, the appeal is dismissed.
65 I was advised at the hearing of the appeal that the proceedings at first instance are listed for a directions hearing in the near future. The decision that I am now giving should clear the way for those proceedings to go ahead in accordance with the directions given at that hearing.
66 I turn finally to the question of costs. Under section 77A of the Retail Leases Act 1994, this falls to be determined under section 88 of the ADT Act. That section provides that unless it is ‘fair’ to award costs having regard to matters listed in subsection (1A), the parties should each pay their own costs.
67 I said earlier in this decision that in my opinion this appeal had merit. The issues raised in it have not been easy to resolve. In many appeals, that is sufficient to suggest that no costs order should be made. But there may be other factors of which I am unaware.
68 I accordingly direct as follows. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 15 working days. In such event, the opposing party or parties must file and serve submissions in response within a further 15 working days. The question of costs will then be determined ‘on the papers’, pursuant to section 76 of the ADT Act.
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