ASSIGNMENT HOLDINGS PTY LTD and PERRON INVESTMENTS PTY LTD
[2005] WASAT 288
•4 NOVEMBER 2005
ASSIGNMENT HOLDINGS PTY LTD and PERRON INVESTMENTS PTY LTD [2005] WASAT 288
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2005] WASAT 288 | |
| COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) | |||
| Case No: | CML:1306/2002 | DETERMINED ON THE PAPERS | |
| Coram: | MR C RAYMOND (SENIOR MEMBER) | 4/11/05 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | ASSIGNMENT HOLDINGS PTY LTD PERRON INVESTMENTS PTY LTD |
Catchwords: | Commercial tenancy – Rent review – Reliance on events subsequent to rent review date – Whether appropriate – Determination of rent payable |
Legislation: | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) State Administrative Tribunal Act 2004 (WA), s 87, s 167(4)(c), s 168(13) State Administrative Tribunal Regulations 2004 (WA), reg 28, reg 29(2) State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) |
Case References: | BHP v Valuer-General (NSW) (unreported, NSWLEC, 1 May 1991) Commonwealth v Milledge (1953) 90 CLR 15 Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 Perron Investments Pty Ltd v Assignment Holdings Pty Ltd [2005] WASCA 2 re Commercial Registrar of the Commercial Tribunal of Western Australia ex parte Perron Investments Pty Ltd [2003] WASCA 198 Nil |
Orders | 1. The annual gross rent to be paid by the applicant to the respondent in respect of the premises for the year 12 June 2002 to 11 June 2003 is $209 802 per annum inclusive of all outgoings, but exclusive of goods and services tax.,2. If either party wishes to apply for costs, they have liberty to do so provided that:, (a) such application is made within 21 days of the date of this order and that the application, the affidavit and submission referred to in (b) below, are served within such 21 day period; and, (b) the application is supported by an affidavit establishing the amount and basis upon which costs are claimed, together with an outline of written submissions; and in that event if the other party opposes the costs application that party may within 10 days of service upon it of the application, affidavit and submission, file and serve an outline of written submissions and/or any opposing affidavit. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) CITATION : ASSIGNMENT HOLDINGS PTY LTD and PERRON INVESTMENTS PTY LTD [2005] WASAT 288 MEMBER : MR C RAYMOND (SENIOR MEMBER) HEARD : DETERMINED ON THE PAPERS DELIVERED : 4 NOVEMBER 2005 FILE NO/S : CML 1306 of 2002 BETWEEN : ASSIGNMENT HOLDINGS PTY LTD
- Applicant
AND
PERRON INVESTMENTS PTY LTD
Respondent
Catchwords:
Commercial tenancy – Rent review – Reliance on events subsequent to rent review date – Whether appropriate – Determination of rent payable
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA)
State Administrative Tribunal Act 2004 (WA), s 87, s 167(4)(c), s 168(13)
State Administrative Tribunal Regulations 2004 (WA), reg 28, reg 29(2)
State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA)
(Page 2)
Result:
Application granted
Category: B
Representation:
Counsel:
Applicant : Mr AM Prime
Respondent : Mr AR MacPherson
Solicitors:
Applicant : McCallum Donovan Sweeney
Respondent : Hotchkin Hanley
Case(s) referred to in decision(s):
BHP v Valuer-General (NSW) (unreported, NSWLEC, 1 May 1991)
Commonwealth v Milledge (1953) 90 CLR 15
Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299
McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1
Perron Investments Pty Ltd v Assignment Holdings Pty Ltd [2005] WASCA 2
re Commercial Registrar of the Commercial Tribunal of Western Australia ex parte Perron Investments Pty Ltd [2003] WASCA 198
Case(s) also cited:
Nil
(Page 3)
Summary of Tribunal's decision
1 The applicant applied to the Registrar of the Commercial Tribunal for determination of the rent payable upon a review falling due under the commercial tenancy lease between the parties.
2 The Registrar's determination was ultimately quashed by the Supreme Court on the grounds the Registrar had failed to comply with the rules of natural justice. As at that date, the Commercial Tribunal had ceased to exist, the matter was transferred to the State Administrative Tribunal.
3 In accordance with the transitional provisions of the State Administrative Tribunal Act 2004 (WA) (the SAT Act) and the State Administrative Tribunal Regulations 2004 (WA) (the Regulations), the Tribunal proceeded to determine the matter in accordance with the practice and procedure followed by the Commercial Registrar.
4 After consideration of the parties' respective valuation reports and supplementary reports, the Tribunal preferred, in part, the comparable evidence relied upon by the respondent, but was critical of the methodology followed in averaging rental and the respondent's unqualified reliance for their assessment on knowledge acquired after the review date of the re-letting of the major adjoining premises. Conversely, the Tribunal considered that the applicant's valuers had erred in not taking into account the possibility of such premises being leased.
5 Taking into account all relevant factors, the Tribunal determined the rent payable upon the review in the sum of $209 820, inclusive of all outgoings but exclusive of goods and services tax.
Nature of application and background
6 The applicant is the tenant under a retail shop lease entered into with the respondent in respect of premises, known as shop 100, Mirrabooka Square Shopping Centre.
7 The lease commenced on 12 June 1999, and is for a term of 11 years expiring on 11 June 2010. The lease provides for the rental to be reviewed to the Current Market Rental value on 12 June 2002, 12 June 2005 and 12 June 2008. On each other anniversary of the commencement of the lease, the rent is reviewed in accordance with a formula based on the Consumer Price Index.
(Page 4)
8 The Current Market Rental is defined under the lease as the best annual rent that can be reasonably obtained for the leased premises on various stated bases, unless the Commercial Tenancy Retail (Retail Shops) Agreements Act 1985 (WA) (the CTRS Act) applies to the lease, in which event current market rental will have the meaning given to market rent in that Act and the procedure for review set out in cl 2.3(b) of the lease applies subject to the terms of the CTRS Act but any provision of the subclause is not overridden thereby continues to apply.
9 It is common cause that the CTRS Act does apply, and that the statutory prescription requires that the market rent shall be taken to be the rent obtainable at the time of the review in a free and open market as if all the relevant factors, matters or variables used in proper land valuation practice having been taken into account, the retail shop were vacant and to let on similar terms as are contained in the current retail shop lease.
10 On 14 October 2002, the applicant applied to the Registrar of the Commercial Tribunal to determine the rental payable upon the review due to take effect from 12 June 2002. A determination was duly made, but on 11 January 2005, the Full Court of the Supreme Court of Western Australia handed down a decision in Perron Investments Pty Ltd v Assignment Holdings Pty Ltd [2005] WASCA 2 quashed the decision by reason of various breaches of rules of natural justice relating to the parties not having been given the opportunity to comment on each other's expert reports, nor on any conclusions reached, and of the possible basis for them, following an inspection of various properties by the Registrar.
11 With effect from 1 January 2005, the Office of the Registrar and the Commercial Tribunal ceased to exist consequent upon the repeal of the Commercial Tribunal Act 1984 (WA) by the State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) (the Conferral of Jurisdiction Act). Pursuant to s 167(4)(c) of the SAT Act the proceedings were transferred to this Tribunal. By virtue of s 168(13) of the SAT Act read with the SAT reg 29(2), the practice and procedure, applicable when it was being dealt with by the Commercial Registrar continues to apply to the matter when being dealt with by the Tribunal.
12 The procedure before the Commercial Registrar in determining rent reviews differed from that which operated when other questions under the lease were referred to the Commercial Tribunal for determination. The distinction in that procedure is examined in the Full Court decision to which reference has been made above, and in the decision at first instance
(Page 5)
- in the Supreme Court in those proceedings Re Commercial Registrar of the Commercial Tribunal of Western Australia: ex parte Perron Investments Pty Ltd [2003] WASCA 198. It suffices to say that the legislation as it then stood, did not contemplate a full hearing with witnesses called to give oral evidence and being subjected to cross-examination. The procedure followed, was that expert reports were provided by the parties. If the Registrar elected to do so, he would hold an inspection of the various premises alleged to be comparable premises by the parties. The Full Court made it plain that in order to ensure procedural fairness, the Registrar should give the parties an opportunity to respond to the other side's expert reports, and that if the Registrar informed himself by way of a unilateral inspection, that the parties be advised of any possible conclusions which he might form, the basis for them, and be provided an opportunity to comment thereon.
13 In this matter, the Tribunal has accordingly adopted the same procedures, save that it has not been necessary for any inspection to be conducted because the Tribunal is satisfied that the matter can be properly determined without that course being followed. Pursuant to the Regulations' reg 28, the matter is to be taken to have been commenced in the Tribunal and the Tribunal may have regard to any record of the proceedings of the former adjudicator. I have accordingly had regard to the contents of the Commercial Registrar's file, which contents were, as I understand it, surrendered to the Supreme Court during the conduct of the above mentioned litigation. There were two handwritten post-it-notes attached to an expert report dated 19 November 2002, provided to the Registrar on behalf of the respondent. There are also some handwritten notes on the report. The notes appear to have been written by the Registrar and reflect some limited observations in relation to parts of the report. There are no observations on record relating to the inspection held by the Registrar. Similarly, I have sighted the rent determination, which was made by the Registrar on 12 December 2002. It contains no reasons, but records in the ultimate paragraph the determination made fixing the annual gross rent inclusive of all outgoings and exclusive of goods and services tax in an amount of $195 000. I have ignored the above notes and the determination in order to arrive at an independent determination.
14 Also included in the Registrar's file was a copy of the lease and a valuation report prepared by the applicant's valuers, dated 9 October 2002.
15 A series of directions hearings were held after the matter had been transferred to the Tribunal in order to ensure that the matter was dealt with in the most appropriate way. Pursuant to those directions, the parties have
(Page 6)
- filed the following further expert reports commenting on the other's original valuations and additional reports.
1. The applicant's valuers report, dated 3 May 2005, responding to the applicant's expert report, dated 19 November 2002.
2. The respondent's expert valuer provided a report, dated 30 May 2005, responding to the applicant's valuers original report dated 9 May 2002.
3. A report from the applicant's valuers dated 29 June 2005, filed 8 July 2005 critiquing the respondent's report of 30 May 2005.
4. A report from the respondent's valuers dated 10 July 2005 critiquing the applicant's report of 30 May 2005.
16 At the request of the respondent, the directions made also encompassed the parties filing any expert witness statement on which either wished to rely, addressing the appropriate valuing methodology. Thereafter, subject to the discretion of the Tribunal, it was directed that the matter be determined on the papers.
17 The applicant filed an outline of submissions addressing the general principles which it contended should be applied to the determination. The respondent's lawyers advised the Tribunal, by letters dated 21 July 2005 and 19 August 2005, firstly that it did not intend to file any expert valuers' statement, and secondly that it did not intend to file further written submissions, but replied upon the various valuations and expert reports filed on behalf of the respondent.
Considerations
18 I have given careful consideration to all of the expert reports and submissions filed on behalf of the parties.
19 I make the following findings as to the general framework within which I have arrived at the final determination.
1. I find that the Mirrabooka Square Shopping Centre draws from a lower than average Perth socio-economic population and that its catchment area will be affected by the relative proximity of the Northlands Plaza, Stirling Central, Dianella Plaza, Morley Galleria and Noranda Parks Shopping Centres. The location of these shopping centres is shown in the location plan, Annexure 1, to the applicant's expert report, dated 9 October 2002. The lower than average socio-economic nature of the area is established by the
(Page 7)
- Australian Bureau of Statistics 2001 census of population table set out in the applicant's valuers' responsive report, dated 29 June 2005.
- 2. I find that the subject premises are in a competitive trading environment with three nearby pharmacies.
3. The subject premises are located in what would currently be considered to be a prime position in the Mirrabooka Square Shopping Centre being centrally positioned within the east-west specialty shop mall and immediately opposite the Action Supermarket.
4. On the review date, the Action premises, which had previously been occupied by Harris Scarfe was vacant. The premises had been vacant since December 2001 and it was not known when the premises would be reoccupied.
5. Although the subject premises have the benefit of dual access, with one access being direct to the exterior of the shopping centre, which permitted the applicant to operate the pharmacy on Sundays and outside normal shopping hours, it had proved uneconomic to do so. The pharmacy had not been open on Sundays or outside normal hours for approximately two years prior to the review date.
6. I accept the respondent's valuers' contention that the best comparable evidence will be derived from the other regional centres of similar size to Mirrabooka Square, rather than the smaller sub-regional centres.
7. I also accept the respondent's valuers' assertion that it is more appropriate to rely on the statistics of specialty store turn over per square metre as published in the Shopping Centre News, volume 20, number 1, of 2002, rather than the Moving Annual Turnover (MAT) published by the Property Council of Australia, which relates to the shopping centres as a whole. The effect of this is to demonstrate that the specialty stores within Mirrabooka Square Shopping Centre compare favourably with other Perth regional shopping centres such as Belmont Forum, Lakeside Joondalup, Rockingham City and Whitfords City Shopping Centres.
8. I also accept the respondent's valuers' contention that for the purposes of comparison, it is preferable to work off gross rental evidence on the basis that an incoming tenant would be more concerned with the total occupancy cost, rather than how that cost is broken up into outgoings and net rental.
(Page 8)
- 9. The MAT statistics for the Mirrabooka Shopping Centre for the period from December 1999 to June 2002 shows a relatively strong growth up to December 2001, but thereafter and for the six months to the review date in June 2002, there was very little growth.
10. Tenants in the shopping centre were advised in August 2002 that Action would occupy the Harris Scarfe premises. The Action Supermarket opened in December 2002.
20 I have not placed any great weight on the findings made in paragraphs 1 and 2 above. In the absence of detailed evidence of the other shopping centres and competition faced by other pharmacies to which reference has been made. The MAT comparisons will take into account differences in catchment areas and socio-economic levels.
21 In relation to the findings made in paragraphs 7 and 9 above, I note that the MAT per square metre in specialty stores is more specific than the MAT per square metre for shopping centres as a whole.
Specific issues
22 As appears from the above, I agree with the emphasis which the respondent's valuers' have placed upon the consideration of rental evidence relating to suburban regional centres, rather than the subregional centres. Further, as will appear below, I have favoured aspects of the comparable evidence put forward by the respondent. There are, however, two aspects of the valuation approach taken by the respondent's valuers which I consider to be wrong.
23 The respondent's valuers, at page 8 of the report dated 19 November 2002, have adopted an approach whereby they appear to have averaged the rentals reflected in 10 out of the 14 tenancies set out in their schedule of comparable evidence. In my view, that is an incorrect approach which has been criticised in a number of cases considering the practice of averaging sales and values although in a different context: see McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 at 15; BHP v Valuer-General (NSW) (unreported, NSWLEC, 1 May 1991); Commonwealth v Milledge (1953) 90 CLR 15 at 160/161; Hyam, A "The Law Effecting Valuation of Land in Australia" 3rd ed The Federation Press, Sydney, 2004, at page 91.
24 Nevertheless, I do not read the respondent's report as being dependant on the averaging approach. It may have influenced the conclusion reached to some extent and therefore, I have approached the
(Page 9)
- conclusions reached with caution. I have looked to a weighing of the comparisons without any regard to the argument that ten out of the 14 of the respondent's comparables fall within a range in excess of $800 per square metre, which most paying in excess of $850 per square metre (being the period between reviews to market rent).
25 The respondent's valuers have also relied upon the benefit attaching to the subject premises from the operation of the Action Supermarket from December 2002. The point was stressed that the Action Supermarket will have traded for 83% of the three-year review period from June 2002 to June 2005.
26 The applicant's valuers by contrast, have taken the position, supported by the submissions filed by the applicant's solicitors, that no account should be taken at all of the Action Supermarket tenancy and that the rental should be assessed on the basis that as at the date of review, the subject premises were faced with a large vacant store immediately opposite.
27 In my view, neither of the above approaches is correct. I accept that the rental value must be determined on the review date in light of the circumstances which then exist. But that cannot mean it must be assumed that the premises would remain vacant for the duration of the review period. One of the factors to be taken into account must be the expectation as to when the premises were likely to be occupied.
28 The authorities in relation to land valuation have grappled with this issue, and I refer to the principles discussed in "The Law Effecting Valuation of Land in Australia" at page 371. I consider those principles are of equal application to rental valuation. As there expressed, the principle that all circumstances subsequently arising (to the date on which compensation is to be ascertained) are to be ignored, does not entirely preclude from consideration subsequent facts and events on the basis that subsequent facts are to be preferred to prophecies.
29 As was stated in Daandine Pastoral CoPty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304:
"Values must be calculated in the light of circumstances which existed on the material date … but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances. Subsequent sales are just as admissible as evidence, as prior sales, provided that in all the circumstances they are comparable."
(Page 10)
30 As at the review date on 12 June 2002, the former Harris Scarfe premises had been vacant for some six months and there was no knowledge as to when they would be re-let. That, together with the marked reduction in growth of MAT for the shopping centre during that period, would have been very real factors which a prospective tenant of the subject premises would have taken into account.
31 Without the respondent having put forward any evidence of the state of the market and the interest shown, if any, in leasing the Harris Scarfe premises as at the review date, which could have been made available to a prospective tenant, I must infer that very little, if any, interest had been shown.
32 In this situation, a tenant would have had to have made an assessment based on the prospective tenants views of the market as a whole. I consider it is appropriate to infer, based on the fact that an announcement was made to the tenants of the Mirrabooka Shopping Centre in August 2002 of the re-letting to Action Supermarkets, that such an assessment would have resulted in a conclusion that the Harris Scarfe premises were unlikely to remain vacant for the full three-year period between market reviews. Nevertheless, it is likely that a prospective tenant would have taken a cautious approach and would have assumed that it would still take a reasonable period of time to find a tenant, with a lead time of some additional months before that tenant could take occupation.
Rental evidence
33 In my view all of the applicant's rental evidence identified as being the most applicable evidence is subject to criticism on the basis set out in the applicant valuers' responsive report dated 30 May 2005, but excluding unsupported comments as in the last sentence of the discussion of the Terry White Belmont Forum premises asserting terms more favourable than market were negotiated. Statements of that nature cannot be accepted without supporting evidence.
34 The respondent's valuer has relied partly on an averaging process, as referred to above and I have had no regard to that approach.
35 The respondent's valuer has then focused, in my view correctly, on the most recent market rent reviews. It was acknowledged in the responsive report, dated 10 July 2005, that the Whitfords City Shopping Centre was a superior centre but that the adopted rent, for the applicant, of $840 per square metre was well below the $963 per square metre gross for
(Page 11)
- the Whitfords City Pharmacy in question. The reduction was said to take into account that the Whitfords City Pharmacy was significantly larger and in superior centre.
36 The applicant's valuers criticise the respondent's valuers reliance on the Floreat Forum tenancy, for which a gross rental of $862 per square metre had been agreed as a new lease on 9 September 2002, on the basis that this related to a superior socio-economic locality and reflected the redevelopment nature of the centre. This was not disputed by the respondent's valuer who countered in the report of 10 July 2005, that the rent set supported the adopted figure of $840 per square metre.
37 In my view, the best comparable, in all the circumstances, and on which the respondent's valuer relied is the Terry White Pharmacy in Rockingham City which was subject to a market review in January 2002, with the rental set at $830 per square metre per annum gross, on a larger area of 442.2 square metres compared to the subject premises 269 square metres. This comparable was criticised by the applicant's valuer on the grounds of the shopping centre MAT and visitor numbers to Rockingham City and the high level of outgoings resulting in a lower effective net rental. For the reasons given, I do not consider that those are issues of any force. The specialty store MAT for Mirrabooka Shopping Centre exceeded that for Rockingham City Shopping Centre.
38 In my view, but for the vacancy of the Harris Scarfe store and the very reduced growth in the centre during the following six month period with the consequent uncertainties that introduced, $830 per square metre would be the appropriate rent to be determined effective from the rent review date. It would result in some adjustment to counter the averaging approach adopted by the respondent's valuer and would still be consistent with the rental adopted by the respondent's valuer of $840 per square metre based on the preferred comparable evidence relied on by the respondent's valuer. Taking into account the declining growth of the centre in the six months preceding the review date and the uncertainty concerning the occupancy of the Harris Scarfe premises, I consider and determine that the annual gross rent to be paid by the applicant to the respondent in respect of the premises for the year 12 June 2002 to 11 June 2003 is $209 820 per annum inclusive of all outgoings but exclusive of goods and services tax, based on a gross rent of $780 per square metre per annum.
39 Neither party has raised the question of legal costs. As outlined above, the Tribunal is obliged to follow the practice which would have
(Page 12)
- been followed before the Commercial Registrar who determined rent reviews in his own capacity, not as the Commercial Tribunal. It therefore appears doubtful that there previously existed any basis upon which the Commercial Registrar could award costs. Under s 87 of the SAT Act, the starting point is that each party should bear its own costs. If either party intends to apply for costs, the Tribunal will need to be persuaded therefore that costs should be awarded.
Orders
40 The Tribunal orders as follows.
1. The annual gross rent to be paid by the applicant to the respondent in respect of the premises for the year 12 June 2002 to 11 June 2003 is $209 802 per annum inclusive of all outgoings, but exclusive of goods and services tax.
2. If either party wishes to apply for costs, they have liberty to do so provided that:
(a) such application is made within 21 days of the date of this order and that the application, the affidavit and submission referred to in (b) below, are served within such 21 day period; and
(b) the application is supported by an affidavit establishing the amount and basis upon which costs are claimed, together with an outline of written submissions; and in that event if the other party opposes the costs application that party may within 10 days of service upon it of the application, affidavit and submission, file and serve an outline of written submissions and/or any opposing affidavit.
I certify that this and the preceding [40] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MR C RAYMOND, SENIOR MEMBER
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