Boulay Pty Ltd v The Trust Company Ltd
[2017] NSWSC 222
•10 March 2017
Supreme Court
New South Wales
Medium Neutral Citation: Boulay Pty Ltd v The Trust Company Ltd [2017] NSWSC 222 Hearing dates: 9 March 2017 Decision date: 10 March 2017 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Declaration refused; proceedings dismissed
Catchwords: CONTRACT – construction – commercial lease – market review of rent – whether lessor’s notice of rent at review date must be served by that review date Cases Cited: Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205 Category: Principal judgment Parties: Boulay Pty Ltd (Plaintiff)
The Trust Company Limited (First Defendant)
IOF Custodian Pty Limited as trustee for AJO Subtrust 2 (Second Defendant)Representation: Counsel:
Solicitors:
I M Jackman SC with V Brigden (Plaintiff)
T G R Parker SC (Defendants)
Landerer & Co (Plaintiff)
Mills Oakley Lawyers (Defendants)
File Number(s): SC 2016/351912
Judgment
-
The plaintiff, Boulay Pty Ltd, and the defendants, the Trust Company Limited and IOF Custodian Pty Limited as trustee for AJO Subtrust 2, are parties to a sublease dated 27 May 2013 in respect of premises in Castlereagh Street, Sydney.
-
For simplicity, I will refer to the parties as the “Lessee” and the “Lessor” and to the governing document as the “Lease”.
-
The Lease is for a period of eight years commencing on 1 February 2014, with an option to renew for five years.
-
The Lease provides for rent reviews.
-
The Lease defines “Review Date” to mean the dates in, relevantly, Item 8 of the Reference Schedule.
-
Item 8 in the Reference Schedule specifies rent review dates as follows:
Review Date
Review Method
1 February 2015
No review
1 February 2016
Market
1 February 2017
No review
1 February 2018
Market
1 February 2019
No review
1 February 2020
Market
-
The rent review date relevant to this dispute is 1 February 2016.
-
On 17 October 2016 the Lessor purported to give the Lessee a rent review notice under cl 3.6 of the Lease with effect from 1 February 2016.
-
The Lessee seeks a declaration that such notice was not valid because, it contends, on the proper construction of cl 3.6 of the Lease, any notice of assessment of the annual market rent to apply from the 1 February 2016 rent review date was required to be served (up to three months) prior to 1 February 2016.
-
Clause 3.6 is in the following terms:
“Where the Rent at any Review Date is to be reviewed to market in accordance with Item 8, the Lessor may give the Lessee a notice of the Lessor’s assessment of the annual market rent for the Premises on and from the relevant Review Date at any time no earlier than three months before the Review Date and at any time before the next Review Date.”
-
The clause uses the expression “Review Date” four times. The clause speaks of “any Review Date”, “the relevant Review Date”, “the Review Date” and “the next Review Date”.
-
The first such reference (“any Review Date”) is introductory and refers to whichever of the six review dates in Item 8 is in question. The clause speaks of a circumstance in which “any” review date “is to be reviewed”. The operative part of the clause follows.
-
The second two references (“the relevant Review Date” and “the Review Date”) can only be to the review date the subject of the notice: here, 1 February 2016.
-
The critical question is the significance of the fourth and last reference to review date: the “next Review Date”.
-
Where parties choose to use different words to describe or denote an event, common sense suggests that they intended those different words to have different effect or meaning.
-
Here, the language used by the parties suggests to me that they intended that “the next Review Date” be something different from “the relevant Review Date” or “the Review Date”. Why else would the parties have used the word “next”?
-
The “next Review Date” after the “relevant Review Date” is, here, 1 February 2017.
-
Item 8 of the Reference Schedule specifies that on that review date, there is to be “no review”. The structure of Item 8 in the Reference Schedule reveals that the parties contemplated there would be three review dates on which there would be “no review” (namely, 1 February 2015, 2017 and 2019) as well as three review dates on which there would be review to “market” (1 February 2016, 2018 and 2020) (see [6] above).
-
That is consistent with a construction of cl 3.6 that “the next Review Date” is the one following “the Review Date” or “the relevant Review Date”. There is to be “no review” of rent on that “next Review Date”. Rather, its function is to mark the end of the period during which the Lessor can give a notice under cl 3.6. Indeed, if cl 3.6 is not read this way, the reference to the “no review” review dates in Item 8 is otiose: there would be no point to them at all.
-
The Lessee made a number of submissions as to why cl 3.6 should not be read that way.
-
First, the Lessee submitted that the words “is to be reviewed” in the first line of cl 3.6 is a “temporal reference” that shows that cl 3.6 “necessary looks at the review date as a future matter”. So much may be accepted. I do not see what light that casts on the question. I read the opening words of cl 3.6 as being merely introductory and to refer generally to the process of rent review.
-
Second, the Lessee referred to cl 3.18 which provides:
“If the Rent to apply on and from a Review Date has not been agreed on or determined by that Review Date, the Lessee must continue paying instalments of Rent at the rate applicable before the relevant Review Date plus, in the case of a market review, 80% of the increase in the Lessor’s notice of assessment under clause 3.6.”
-
The Lessee placed particular emphasis on the word “continue” in this clause and submitted that this clause presupposes that a notice of assessment under cl 3.6 has been issued as at the review date in question under which the Lessee could “continue” to pay 80 per cent of the increase in the Lessor’s notice of assessment.
-
I do not agree.
-
The clause does presuppose that a cl 3.6 notice has been given (so that it is possible to calculate the amount that is 80 per cent of the amount in such a notice). But the clause is capable of operating from the date when the review notice is given, whether that is before or after the review date in question. If the notice was issued after that review date, the Lessee’s obligation to pay 80 per cent of the increase would operate only from that date. The word “continue” connotes a pre-existing obligation and could only have logical application to the Lessee’s existing obligation to pay rent “at the rate applicable before the relevant Review Date”. It could not apply to the Lessee’s obligation to pay 80 per cent of the Lessor’s proposed increase in rent.
-
Third, the Lessee pointed to the detailed provision made in the Lease for the procedure to be followed where the Lessee disputes the Lessor’s assessment of rent under cl 3.6. As the Lessee submitted, the Lease contains strict timeframes for the steps to be taken in relation to any such dispute and provides, in effect, that any such dispute must be resolved within a specified number of days (approximately three months). The Lessee submitted that cl 3.6 must be construed in a way that is consistent with “the intention of speed and efficiency”. I find that factor to be neutral. “Speed and efficiency” in the resolution of any dispute about rent review is called for whether the Lessor has 3 months (as the Lessee contends) or 15 months (as the Lessor contends) to notify a proposed rent increase.
-
Fourth, the Lessee submitted that no great weight should attach to the fact that, on its construction of cl 3.6, the references to “no review” review dates in Item 8 would be otiose (see [19] above), or to the Lessor’s contention that the Lessee’s construction also renders the word “next” in cl 3.6 to be otiose because at least three other clauses (cll 3.1 to 3.5) are also (and very obviously) otiose (as they assume, contrary to fact, that Item 8 refers to CPI and fixed percentile rent increases).
-
I do not see this as a decisive matter. The inclusion of cll 3.1 to 3.5 seems to be a drafting oversight, evidently by reason of a failure to pay close, or any, attention to the content of Item 8. On the other hand, Item 8 is a bespoke provision, evidently moulded to reflect the precise bargain of the parties. It is most unlikely that the parties would have included review dates in Item 8 that were to have no operative effect.
-
Fifth, the Lessee submitted that the Lessor’s construction would have the effect that rent could be reviewed with retrospective effect and that “while the parties are free to agree upon provisions with retrospective effect, it requires clear language to do so” (with reference being made to Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205 at 208-209).
-
However, it is clear from the terms of the Lease that the parties did contemplate that it would have some retrospectivity in operation; for example, during any period following service of notice under cl 3.6 where there was a dispute about the rent proposed.
-
Thus, cl 3.19 of the Lease provides:
“Once the Rent to apply on and from a Review Date is determined, the Lessee will pay any shortfall, and the Lessor will allow any adjustment for overpayment at the next Payment Date.”
-
Finally, the Lessee pointed to the fact that the last review date in Item 8 is 1 February 2020. The Lease terminates on 31 January 2022. Thus, as at 1 February 2020, there is no “next Review Date”, unless the Lessee exercises its option to renew in which event, the effect of the Lease is that the “next Review Date” is 1 February 2022 (being also the commencement date of the renewed lease). The result would be that the Lessor would have from 1 February 2020 to 31 January 2022 (two years) to serve a cl 3.6 notice in respect of the 1 February 2020 review dates and the Lessee would have the concomitant obligations under cll 3.18 and 3.19 during that period.
-
The effect of cl 22.1 of the Lease is that the Lessee must exercise its option to renew the Lease between 31 October 2020 and 31 January 2021, during and after which time, on the Lessor’s construction of cl 3.6, the Lessor could reserve to itself the right to give a cl 3.6 notice.
-
That may mean that, assuming the correctness of the Lessor’s construction of cl 3.6, the Lessee will have to decide whether to exercise the option without knowing whether or not the Lessor proposes to have the rent for the last two years of the Lease reviewed.
-
These may be curious results, but I do not think them so anomalous as to compel the conclusion that cl 3.6 should be construed as the Lessee contends.
-
Overall, the fundamental difficulty I see with the Lessee’s contention is that it gives no sensible meaning to the word “next” when used in the fourth reference to “Review Date” in cl 3.6. The Lessee’s construction of cl 3.6 effectively reads that word out of the clause.
-
In my opinion, the use by the parties of the expression “next Review Date” at the end of cl 3.6 shows that they intended that the Lessor have until the review date after that the subject of its cl 3.6 notice to give notice of its assessment of market rent as at the review date referred to in its notice.
-
It is understandable that the parties would reach such an agreement. Rent was to be reviewed to market as at the review date. The parties must have contemplated that in order for the Lessor to make an assessment of what market rent was on that review date, it would have to have regard to market conditions on that review date; something it may well not be able to assess until sometime after that date.
-
In my opinion, the Lessor’s notice of 17 October 2016 is valid.
-
The proceedings must be dismissed.
**********
Decision last updated: 10 March 2017
0
0
0