Agora Holdings Pty Limited v Elyas Convenience Market Pty Limited
[2012] NSWADT 182
•20 June 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Agora Holdings Pty Limited v Elyas Convenience Market Pty Limited [2012] NSWADT 182 Hearing dates: 20 June 2012 Decision date: 20 June 2012 Jurisdiction: Retail Leases Division Before: D Bluth Judicial Member Decision: 1. The Lease between the parties came to an end on 30 June 2011.
2. Agora Holdings Pty Limited is entitled to the rental bond paid by Elyas Convenience Market Pty Limited.
3. Elyas Convenience Market Pty Limited must pay to Agora Holdings Pty Limited rent from 1 July 2011 until a new tenant is found for the premises provided Agora Holdings Pty Limited mitigates its loss,
4. Liberty for Agora Holdings Pty Limited to make application to restore the matter to the General List for the purpose of quantifying its loss.
5.. No order as to costs.
Catchwords: Repudiatory conduct of the lessor and lessee Legislation Cited: Retail Leases Act, 1994 Cases Cited: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 63ALJR 372 Texts Cited: Lang's Commercial Leasing in Australia Category: Principal judgment Parties: Agora Holdings Pty Limited (Applicant)
Elyas Convenience Market Pty Limited (Respondent)Representation: Jordan Djundja Lawyers (Applicant)
Y Aous (Agent for Respondent)
File Number(s): 125014
REASONS FOR DECISION
Agora Holdings Pty Limited (Agora) is the Applicant for Original Decision filed on 31 January 2012 against Elyas Convenience Market Pty Limited (Elyas).
The parties entered into a lease of premises 515 Marrickville Road, Dulwich Hill for a term of five years with Agora as the lessor and Elyas as the lessee and Elyas took occupation on or about the 14 June 2010 (Lease).
The use of the premises listed in the lease is fruit shop and convenience store and upon enquiry the Tribunal is satisfied that the occupation of the premises is within the jurisdiction of the Tribunal under the Retail Leases Act 1994 (RLA).
Pursuant to the Application of the Original Decision filed by Agora, Agora seeks the return of the bond and interest and that Elyas pay rent until a new tenant has been found consequent upon the breach of lease by Elyas.
Mr Jordan, solicitor appeared for Agora and Mr Yacine Aous (Aous) director of Elyas appeared for Elyas.
History of relationship between the parties
A brief history of the relationship of the parties can be taken from the Affidavit of Paul Erichiello of Raine & Horne Belfield Real Estate Agent dated 29 March 2012, the Affidavits of Mr Yacine Aous dated 29 May 2012 and 23 April 2012 and the Affidavit of Mr Robert Djundja dated 29 March 2012.
Mr Erichiello listed the premises for lease and subsequently took an application for lease from Aous. The applicant on the application for rent form was listed under the nomination "director/s, detail/sole trader partnership" as Yacine Aous and Tayeb Banza.
Subsequently Raine & Horne Belfield issued a commercial lease instruction sheet to the lawyers for Agora, Jordan Djundja to prepare a lease and the lessee's name within the instruction sheet is shown as "Yacine Abou and Tayeb Benza, ABN to be advised" (there is no doubt that the reference to Yacine Abou was in fact a reference to Yacine Aous).
The solicitors for Agora then issued a draft lease to the solicitors for the lessee nominated on the commercial lease instruction form as Kendal Legal.
Kendal Legal upon receipt of the draft lease then wrote to the lessor's solicitors on 1 June 2010 asking for some small amendments to the lease but in particular asking for the following:
"Lessee to be amended to 'Elyas Convenience Market Pty Limited (ACN 143 406 240), the directors are Yacine Aous and Tayeb Benzarog."
The redrafted lease was then submitted to Kendal Legal showing the lessee as Elyas Convenience Market Pty Limited and Yacine Abou and Tayeb Benzarog as the guarantors.
The subsequent sequence of events is taken from a letter forwarded by the solicitors for Agora to the solicitors for Elyas on 4 August 2011 annexed to the Affidavit of Yacine Aous which states in part:
"4. On 10 June 2010 we received from your office a copy of a company search for Elyas Convenience Market Pty Limited noting its registered status and identifying the directors.
On 11 June 2010 we received from you the signed lease together with other requirements. It is noted that there was no issue or dispute raised by you or your client with regards to our requirement for a director's guarantee at that time or subsequently.
Upon receipt of the signed lease it was immediately forwarded to our client's mortgagee for their approval and consent to have same registered as required under the legislation. Initially, the incorrect execution by the lessees was not picked up...
...
8. ... It was brought to our attention by our client's mortgagee that the directors of your client had failed to sign as personal guarantors under the lease. This was brought to your attention in our letter of 19 October 2010. By 1 November 2010 we had not heard from your office and forwarded you a reminder letter chasing up a response. Various further phone calls were also made with your office and a further letter was again forwarded to you on 13 December 2010.
11. On 11 March 2011 further contact was made with your office at which point you again confirmed that you had not been able to arrange for your client to properly execute the lease but would endeavour to do so.
12. On 9 May 2011 the writer was contacted directly by your client, Mr Ayous Yacine. During that discussion, he indicated that he had been overseas for an extended period of time on other business but he would consult with his solicitor later the following week and get the issue of this lease 'sorted out as soon as possible'. Following that discussion a letter was forwarded directly to your client dated 10 May 2011.
13. On 12 May 2011 further contact was made with Mr Yacine after he failed to respond to our office and it was on that day that we were advised by him that he had spoken with the other director and they had decided that they would not agree to further execute the lease as they believed 'the deal had been done when the keys were handed over to them'.
We confirm that in or about early June 2011 in an attempt to resolve the stalemate reached between the parties, our client had agreed to move forward and indicated that they would not insist on the requirement for directors' personal guarantees in the lease but would still require completion of proper execution without the directors' guarantees. It was at this point that your client indicated that they would not proceed with the lease and would be vacating the premises."
13. In the letter of 10 May 2011 to the directors of Elyas, the solicitors for Agora requested that the directors "attend to full and proper execution of the lease and return to us as a matter of urgency".
There then followed a series of emails between Mr Paul Erichiello and Mr Aous. The first is dated the 8 June and sent by Mr Aous stating the following verbatim:
"Following our phone conversation last Monday the 6 June 2011, here is our position in writing as requested. After recent conversations I had with you.... the owner is not in position to have the lease registered without personal guarantor signed Elyas Convenience directors. And following their clear instructions that if we do not sign the personal guarantor we do not have a valid lease and they will get us evicted from the premises asap. Since we are not in position to sign personal guarantor, which is to us was only requested after we had finalised the lease and given the go ahead and the keys to start operating on the premises, we see it as an addition condition to the original agreement, which we do not agree to have with part of the lease condition even if it was included in the initial negotiations. As per the above and since we are not willing to operate in unstable and uncertain environment, we have stopped all investment and development to grow the business in that premises and we will remain operations and liable for rent until the end of the month (to liquidate stock and make arrangements to remove assets and shop fittings from the premises. After we vacate the site, we will be working with lawyers and accountants to assess business loss caused by this recent development generated from the landlord and you will be contacted on further actions from our end."
Mr Paul Erichiello responded by email to Mr Aous shortly thereafter advising Mr Aous that he had been in touch with the director of Agora who was not aware of the situation and confirmed that he received instructions not to proceed with the legal action in relation to incomplete signing of the lease and to proceed with the registering of the lease (thereby waiving execution by the guarantors).
Mr Aous responded on the 16 June to Mr Erichiello saying the following:
"Regrettably to the company, it's too late now to fall back on our decision since Elyas Convenience has already sold or promised its assets with liquidation prices on half of the shop is already closed to meet the exit date of 30 June 2011."
This series of emails was followed up by a letter from Agora's Lawyers dated 22 June 2011 addressed to Messrs Aous Yacine & Tayeb Benzaroug, Elyas Convenience Marketing Pty Ltd stating in part as follows:
"... we refer to previous correspondence ... (and) the recent email from you to the lessor's agent dated 16 June 2011. It would seem from the contents of your email that you have expressed your intention to repudiate on the lease which you have previously signed on the following basis:
1. Your refusal to have the directors of the lessee company execute the lease as Guarantors; and
2. The fact that you are in the process of vacating the premises which is proposed to be completed by 30 June 2011 in direct breach of the terms of the lease which was for a term of five (5) years commencing 14 June 2010.
Accordingly, in light of your repudiation and/or anticipatory breach in the alternative, we are instructed to advise that the lessor hereby terminates the lease and holds you liable for any losses which it has suffered or may suffer as a result of your repudiation of the lease.
In response, to your recent email, our client denies that it ever stated that there was an invalid lease between the parties. It has at all times advised you, and your solicitor, that the lease which you signed and returned to our office through your solicitor and you intend (sic) was incorrectly executed insofar as:
(a) The names and positions of the signatories of the lessee were not included in the lease; and
(b) There were no signatures by the personal guarantors under the lease.
Furthermore, it is denied that the requirement of the personal guarantees of the directors of the company was an additional requirement raised subsequent to your execution of the lease. The lease as was originally submitted to you which was subsequently executed by the directors of the lessee was at all times prepared on the basis of there being personal guarantees by the Directors required. Such a requirement is standard for all commercial/retail leases entered into by corporate entities and should not take you by surprise.
By letter dated 14 July 2011 Kendal Lawyers on behalf of Elyas made the following assertion regarding repudiation of the lease by the lessor:
"12 May 2011 an SMS was reportedly sent by your office stating the following:
'This is Robert Djundja. I am the solicitor for Agora Holdings regarding the lease between Elyas Convenience Store and Agora. The lease has not been finalized [sic] until it has been properly signed by you which has not yet been done. If you do not agree to properly sign the lease then my client will take steps to have you evicted from the premises as soon as possible. We do not want it to get to this so can you please call me urgently to sort this out before our client decides to take action against you.'
In assessing the events of your letter of 22 June 2011 addressed to the lessee and provided to me, it appears that the intention of the repudiation of the lease lies with the lessor. The threat of eviction on an invalid basis was an anticipatory breach and therefore the action of Elyas of terminating [the lease were in response to the same."
The issues raised by the relationship between the parties
The following issues are raised:
(a) Was the requirement that directors' guarantees be provided to Agora within the original lease negotiations?
(b) Did Mr Aous change the lease agreement when requesting a change of the lessee from the two individuals to a company formed by the two individual lessees as directors of the company and consequently when Agora agreed to the change of lessee was it a condition of that change that directors guarantees be provided?
(c) Did the action of Agora through its solicitor and agent have the effect of Agora repudiating the Lease or result in an anticipatory breach of Lease entitling Elyas to terminate the Lease?.
(d) Was the conduct of the lessor, Agora, conduct which could be viewed as repudiatory entitling Elyas to terminate the Lease?
The first issue raised is whether there was a requirement for directors' guarantees to be provided by the Elyas within the original lease negotiations. Reviewing the circumstances of the lease negotiations and in particular the application for rent form provided by Raine & Horne and the commercial lease instruction sheet sent by Raine & Horne to the lawyers for Agora noting that the lessee were individual names, the Tribunal is of the view that there was no requirement for directors' guarantees at that stage.
However, the next issue raised was whether Mr Aous changed the original lease agreement terms when his lawyer requested a change to the lessee from the individuals named to a company which was formed by the two individual lessees as directors and shareholders. It is not an unusual circumstance where lessees may have taken subsequent commercial advice after originally negotiating a lease and in accordance with that commercial advice from a company and seek to have the lessee be a corporate entity in substitution for the individuals. The comment from the solicitors for Agora in its letter of the 21 June 2011 that it is a common commercial occurrence is in the experience of the Tribunal correct.
When the Lease was submitted by Agora's solicitor to Kendal Legal it was clear on the face of the Lease and the Schedule of items, at item 10 that under Guarantors the names of the two directors were typed. Accordingly they were required to execute the Lease as both directors of Elyas and as guarantors. In submitting the redrafted lease in response to the request for the change of name, the solicitors for Agora followed the usual commercial practice that a corporate lessee be guaranteed by its directors.
Consequent upon the changing of the name of the lessee and inserting the names of the directors as guarantors it was obvious from the presentation of the Lease in that form that the two directors were to be guarantors of the lessee, Elyas. This additional change to the Lease appears to have been ignored by Elyas, Messrs Aous and Benzarog and Kendal Legal other than the fact that the name of the Lessee had been changed in accordance with their request.
The next issue is whether the actions of Agora through its solicitor and agent had the effect of Agora repudiating the Lease or result in an anticipatory breach of the Lease by suggesting that the Lease had not been properly executed in particular referring to the non-execution by the guarantors. The most troubling communication is the purported sms from Robert Djundja sent to Mr Aous on 12 May 2011 referred to by Kendal Legal in its letter of 24 July 2011. Mr Djundja does not refer to the sms in his Affidavit. Mr Aous in his Affidavit did not refer to receiving the sms but says in relation to communications with the lawyer for Agora the following:
Same conversations took place with Robert (Djundja) when he was informed by Aous that we are not in a position to agree on the new condition of the Lease, he did inform me the same thing that then, then you have left us with now choice (sic) rather than to get you our (sic) of the premises asap and find someone that is willing to do so.
In few conversations that I had with Robert, he was mentioning that the owner will be able to register the Lease the way it is and if you don't sign the personal guarantees clause you will be evicted.
The principals regarding repudiation of contracts set out in Lang's Commercial Leasing in Australia CCH Limited at paragraph 30-040 are the following:
"1. Repudiation of a lease involves a party's unwillingness or inability to perform the lease or some significant obligation under the lease;
2. A lease may be repudiated by conduct constituting sufficiently serious breaches of lease obligations. That is ascertained by determining how the conduct, including breaches, viewed objectively, were conveyed to a reasonable person. As pointed out in Laurinda Pty Ltd -v- Capalaba Park Shopping Centre Pty Ltd (1989) 63ALJR 372 by Deane & Dawson JJ:
"Repudiation is ascertained not from the subjective intention of the defaulting party, but how that conduct, including the acts, omissions and uncommunicated intention of that party, viewed objectively, would convey to a reasonable person"
Whilst repudiation is generally an action by the lessee entitling the lessor to terminate usually for acts of non payment of rent or abandonment, there are actions of the lessor which constitute repudiation and entitle the lessee to terminate, for example the lessor's failure to register the lease (Laurinda case) for failure to carry out the lessor's repair obligations Ervin -v- Antill (1991) ANZ ConvR 548 and in the protracted dispute concerning permitted use and exclusivity. Sarkar -v- World Best Holdings Ltd (No 3) (2004) NSWADT119.
A party to a lease faced with repudiatory conduct by the other party may keep the lease on foot and require performance by claiming specific performance and suing for rent or terminating the lease and claiming damages. If a lease is terminated for repudiation then the innocent party can claim damages for loss of bargain, including damages incurred for the balance of the lease term that has been terminated provided that the innocent party mitigates its loss, In the case of a lessor that is to seek another tenant.
Whilst the language of the solicitor for Agora in the purported sms is a little forceful and no doubt showing an element of frustration in endeavouring to have the lease completed to the satisfaction of the lessor and the mortgagee, by the lessee through its directors in not having it properly executed, the Tribunal is of the view that it is not the case that the language suggests that Agora would not be bound by the Lease because of the failure of the directors to guarantee the Lease.
There is nothing incorrect or inappropriate for lawyers to pursue a lessee to have the lease properly executed so as to satisfy the mortgagee and the registration requirements. It appears that Mr Djundja and the agent, Mr Erichiello in their communications with Mr Aous for Elyas were endeavouring to advise Mr Aous of Agora's rights in seeking to have Elyas perfect the Lease.
On the other hand the communication from Mr Aous should also be tested in the same light, that is communicating what he believed to be the rights of Elyas as the Lessee if the actions of Agora the Lessor through its solicitor and agent were to be viewed as repudiatory conduct by imposing a "new term" for the directors to guarantee. The non execution by the directors as guarantors can be viewed as a breach of the Lease, in effect the lessee Elyas repudiating its obligations under the Lease to obtain the guarantor's execution. This repudiatory conduct if viewed as such would provide to Agora an election whether to seek specific performance or terminate the Lease. Agora no doubt was pressing its point through its legal advisor and agent but yet not making an election to take the non execution as repudiatory conduct. It ultimately decided to continue with the Lease and waive the requirement for the directors to guarantee the performance of the lessee, Elyas.
However, communication can be taken by the recipient subjectively, although according to their Honours Deane and Dawson JJ in Capalaba it is to be viewed objectively. Thus it is equivocal as to whether the communications from Mr Djundja and the agent Mr Erichiello can be viewed as presenting that Agora was no longer seeking to be bound by the Lease. The Tribunal is not persuaded that the communications go that far to make that conduct objectively as repudiatory conduct. While again the communications from Elyas about not signing and the requirement for director's guarantees to be a "new term outside the original bargain should be viewed objectively. The resistance to having the directors sign the Lease as guarantors is in the view of the Tribunal very close to repudiatory conduct on behalf of the Lessee Elyas. However the Tribunal is not persuaded that the communications are such that objectively the conduct should be viewed as repudiatory conduct.
There is a saying that actions speak louder than words. Mr Aous on behalf of Elyas in the sms of 16 June 2011 to Mr Erichiello advised that the lessee has decided to vacate the premises. Furthermore Elyas started the process of winding down the business by actually liquidating the business with plans to cease trading on 30 June 2011. Such communication and action is in the opinion of the Tribunal objectively a clear indication that Elyas decided that it was no longer to be bound by the terms of the Lease.
The Tribunal is of the view that objectively by such conduct Elyas clearly indicated that it no longer wished to observe the terms of the Lease and be bound by them. In the view of this Tribunal that conduct to be regarded as repudiatory conduct which was accepted by Agora in the communication from Mr Djundja in its letter dated 22 June 2011 . On 30 June 201 Elyas vacated the premises. In these circumstances Elyas breached the lease and Agora is entitled to damages. The premises have been vacant for a number of months and Agora has endeavoured to re lease them and to mitigate its loss. Agora has requested the return of the bond to offset its loss. Elyas has opposed the return of the bond.
As Elyas has breached its obligations under the Lease and the damages are in excess of the bond amount Agora is entitled to return of the bond. Agora is also entitled to pursue Elyas for the balance of its damages but must prove same as well as prove that it has mitigated its loss.
Accordingly the Tribunal makes the following findings:
(a) The requirement for the directors of Elyas to guarantee the performance of Elyas under the Lease was not a condition under the first lease negotiations but was a condition of Agora when the name of the Lessee changed from Aous and Tayeb to Elyas.
(b) Elyas by its communication and conduct in indicating that it wished to vacate the premises by 30 June 2011 and stop paying rent repudiated its obligations under the Lease with Agora and consequently breached the Lease.
(c) The Lease came to an end on 30 June 2011.
(d) Agora is entitled to receive the rental bond paid by Elyas to be offset against damages for breach of the Lease.
(e) Elyas must pay to Agora rent from 1 July 2011 until a new tenant is found for the premises provide Agora mitigates its loss.
(f) In the circumstances as found by the Tribunal as elaborated above with the varying communications between the parties the Tribunal is firmly of the view that there should be no order as to costs and that the usual provisions should prevail that each party bears its own costs.
Orders
1. The Lease between the parties came to an end on 30 June 2011.
2. Agora Holdings Pty Limited is entitled to the rental bond paid by Elyas Convenience Market Pty Limited.
3. Elyas Convenience Market Pty Limited must pay to Agora Holdings Pty Limited rent from 1 July 2011 until a new tenant is found for the premises provided Agora Holdings Pty Limited mitigates its loss,
4. Liberty for Agora Holdings Pty Limited to make application to restore the matter to the General List for the purpose of quantifying its loss.
5..No order as to costs.
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Decision last updated: 03 September 2012
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