Cairns City Supermarkets Pty Ltd v Lightbrake Pty Ltd
[2010] QCAT 598
•16 November 2010
| CITATION: | Cairns City Supermarkets Pty Ltd v Lightbrake Pty Ltd [2010] QCAT 598 |
| PARTIES: | Cairns City Supermarkets Pty Ltd |
| v | |
| Lightbrake Pty Ltd |
| APPLICATION NUMBER: | RSL004-10 |
| MATTER TYPE: | Retail shop leases matters |
| HEARING DATE: | 16 November 2010 |
| HEARD AT: | Brisbane |
| DECISION OF: | Ms Anne Forbes |
| DELIVERED ON: | 16 November 2010 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | 1. The Respondent lessor shall provide WHK Greenwoods with sufficient of its financial records, including where necessary its profit and loss statements, to enable the auditor to prepare annual audited statements of the Respondent’s lessor outgoings for the financial years ending 30 June 2008, 30 June 2009, and 30 June 2010 respectively, as required by sections 37 and 37(A) of the Retail Shop Leases Act 1994.
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| CATCHWORDS : | <Retail shop lease- –lessor’s annual audited statement- > Retail Shop Leases Act 1994 sec 7, 37,37A-lessor not complying with Act-failing to provide itemised statements |
APPEARANCES and REPRESENTATION (if any):
Decision was made without the appearance of both parties.
REASONS FOR DECISION
- Cairns City Supermarkets Pty Ltd [“CCC”] is the tenant of the Respondent, Lightbrake Pty Ltd [“Lightbrake”] under a retail shop lease. CCC filed an application in January 2010 claiming that the Respondent had failed to provide audited statements of its lessor’s outgoings or estimates for certain past years, as required by section 37 of the Retail Shop Leases Act 1994 [“the Act”].
- At a compulsory conference on 24 June 2010 a Member directed the Respondent to retain an independent auditor to produce annual audited statements for the fiscal years 2007-8 and 2008-9, and estimates for those years by 16 August 2010, and an estimate for the current year by 2 September 2010.[1] The parties were to advise QCAT when those orders were fulfilled, and then the application would be dismissed.
[1] The directions made on 24 June were issued and are dated 16 July 2010.
- CCC claims that the statements provided by the Respondent in purported compliance with those directions are not in accordance with section 37. On 28 September 2010 this further direction was made:
“The Applicant must file in the Tribunal and serve on the Respondent any submissions in support [sic] its argument that direction 2 of the Tribunal’s direction dated 16 July 2010 has not been complied [sic] because the audited annual statement of outgoings provided is not in accordance with section 37 of the Retail Shop Leases Act 1994 by 4:00pm on 12 October 2010.
The Respondent must file in the Tribunal and serve on the Applicant any submissions in response by 4:00pm on 26 October 2010.
The issue of whether or not paragraph 2 of the direction made 16 July 2010 has been complied with will be determined on the papers. ”
- The parties have filed and exchanged their submissions. Paragraph 2 of the directions made/issued on 16 July 2010 reads as follows:
“2. The respondent is to appoint WHK Greenwoods to prepare the audited annual statement of outgoings required in accordance with section 37 of the Act.”
- The present question is whether the audited statements satisfy the Act.
Background
- CCC leases part of Lot 1 in a seven lot commercial strata scheme owned by Lightbrake, situated at 280 Sheridan Street Cairns. The first lease between the parties for a term of five years from 17 December 2007 to 16 December 2012 was for premises described as “Shop 3, Aplin Street Retail Centre”. That lease was surrendered by agreement and replaced by the current lease for “Shop 2, Part of Lot 1” in the same centre. The current 5-year lease commenced on 1 January 2009. The rent, the description of the premises and the new term, and the introduction of a special condition regarding the Lessor’s right to terminate excepted, the terms of the first lease and the current lease are identical.
- The lessor’s outgoings are comprehensively listed in part B of the Schedule Dictionary of the lease. CCC’s liability for outgoings is stated in general terms in Clause 6, without a list of specific items.
- Lightbrake purchases electricity from the supplier (Ergon), and CCC is individually metered for the amount that it uses.
- In 2009 Lightbrake served CCC with a Notice to Remedy Breach of Covenant alleging non-payment of rent and outgoings and re-entered. CCC countered with a claim for relief against forfeiture. The matter came before the Supreme Court on three occasions between May 2010 (when interim injunctions were issued) and December 2010. At length payment of outstanding arrears was ordered.
Legislation
- The Act relevantly provides:
Section 37
(1)A lessor’s outgoings for a retail shopping centre or a leased building are-
(a)the lessor’s reasonable expenses directly attributable to the operation, maintenance or repair of-
(i)the centre or building; and …
(b)charges, levies, premiums, rates or taxes payable by the lessor because the lessor is the owner or occupier of…
(i)the centre or building…or…(ii) land
(2) (a)…
(b) ... the lessor must give to the lessee an annual estimate in the approvedform of the lessor’s outgoings...(i) at least one month before the start of the period to which the estimate relates; or (ii) ...within one month before...the lessee enters into the lease and
... an audited annual statement in the approved form of the outgoings within three months after the end of the period to which the outgoings relate.
(3) The outgoings shown in the annual estimate and statement must be itemised so that the amount shown for each item is not more than 5% of the total outgoings shown in the estimate or statement.
(4) However the amount shown for an item may be more than 5% of the total outgoings if the item relates to –
(a) a charge, levy, rate or tax payable under an Act; or
(b) a particular outgoing that cannot be broken up to comply with the subsection (3).
(5) The audited annual statement must-
(a) be prepared by a registered auditor in accordance with auditing standards generally accepted in the Australian accounting profession : and
(b) contain the auditor’s opinion on whether the statement presents fairly the lessor’s outgoings for the accounting period to which it relates in accordance with the lessor’s financial records and this act; and
(c) compare the annual estimates of the lessor’s outgoings with the amount actually spent by the lessor for the outgoings during the period ;and
(d) compare the amount actually spent by the lessor for outgoings during the period with the total amounts actually paid by the lessees to the lessor during the period. [Emphases added]
The statements
- The directions made on 16 July 2010 required the provision of audited statements for the fiscal years 2008-9 and 2009-10. Auditor Mr Jason Taylor of WHK Greenwoods has prepared half-yearly audited statements for the following periods: Dec 2007 - 30 June 2008; 1 July 2008 - 31 Dec 2008; 1 January 2009 - 30 June 2009; and a full year statement for the year ended 30 June 2010.
- These statements were delivered to CCC on 16 September 2010. On 29 September 2010 the auditor revised the latter statement and provided additional documents stamped “Draft”.[2]
[2] One document relates to “Shop 3, Part of Lot 4”. Those premises are not included in the subject lease and not subject to the directions in question.
- The audited statements are in identical form. There are only three line items for each statement, namely : (i) Management, (ii) Local Authority Rates: General, and (iii) Body Corporate Levy.
- The revised draft divides these items into separate amounts for each quarter of that year.
The Applicant’s Claim
- Ms J Blackwell-Spencer director of, and spokesperson for, CCC says that:
(a) Lightbrake has “failed to consider all outgoings” and has not included payments made by CCC for electricity and capital expenditure. She asks for further directions that the statements be amended to “include/consider electricity and capital expenditure”;
(b) Section 37A of the Act incorporates section 20J of the Electricity Act 1994 which provides that, where a lessor obtains electricity from a supplier and then on-supplies it to a lessee, the lessor may charge the lessee no more than the lessee would pay if it dealt directly with the supplier.
Lightbrake’s Response
- Lightbrake contends that:
(a) CCC’s submission does not comply with the tribunal’s direction to set out its reasons for claiming that the audited statements are inadequate;
(b) on the true construction of the Supreme Court’s order of 18 December 2009 it is not required to include in its estimates or audited statements electricity supplied to the retail centre of building or to CCC. That order to pay amounts outstanding refers to “outgoings” and “electricity” separately, and this suffices to remove electricity from the statutory category of “outgoings”;
(c) it is not required to include capital expenditure in the statements because it is explicitly excluded from the category of a lessor’s “outgoings” by section 7(3) of the Act;
(d) while it has no duty to supply audited statements for any part of the term of the first lease, it has in fact done so.
Consideration
- CCC’s contention that capital expenditure must be included in estimates or statements of outgoings may be shortly disposed of. Section 7(3) of the Act explicitly excludes “expenditure of a capital nature, including the amortisation of capital costs” from the concept of “outgoings”.
- Section 37 of the Act was inserted in 1994 to implement the policy of mutual and comprehensive disclosure of obligations of parties to a retail lease.
- A lessor is required to give the tenant an annual estimate of the lessor’s outgoings for each new year of the term, and an audited statement of the lessor’s outgoings for a retail shopping centre or leased building in the form, and within the time stated in section 37. The statements so far produced by Lightbrake appear to disclose only its outgoings in relation to CCC’s tenancy. That fails to appreciate the extent of the statutory obligation. The outgoings required to be disclosed are those of Lightbrake as lessor of the retail centre or building, not merely those for which CCC is liable.
- Section 37(3) provides that the auditor of a statement shall itemise each item of expenditure (for example, “management/administration”) so that it does not exceed 5% of the total outgoings. The management category must then be split into its components and no single component must exceed the 5% rule without an appropriate explanation.
- There is an exception for charges, levies, rates or taxes payable under an Act: s 37(4), or if an outgoing is incapable of subdivision as envisaged in s 37(3).
- In the circumstances of this lease the only outgoing within the first exception is the local authority rates, although they should still be itemised as charges for, sewage, water, cleansing etc. Lightbrake must provide the auditor with sufficient information to enable him to divide the Body Corporate Levy and the Administration/Management outgoings as distinct components. These would typically include for example, accountancy fees, insurances, pest control, repair and maintenance of building and common areas, security, manager’s wage, secretarial fees.
- Lightbrake’s contention that it is not required to include electricity as a component of its outgoings is rejected. Electricity is a lessor’s outgoing under the Act and must be a line item in the statement. Lightbrake purchases electricity from the utility company and then supplies it to its tenants. Accordingly it is an “on-supplier” within the meaning of the Electricity Act 1994. The fact that CCC’s supply is separately metered is immaterial. CCC is entitled to sufficient information to assure it that Lightbrake is complying with section 37A of the Act.
- The Annual Estimate of Outgoings for the year ending 30 June 2008 (under the first lease)[3] in the relevant Lessor Disclosure Statement has no fewer than 15 line items, including electricity and the body corporate levy. There is no apparent reason why most or all of these line items should not appear in the audited statements as well in as the estimates. Nor is there any good reason why Lightbrake has not complied, and cannot in future comply with the 5% rule in s 37(3).
[3] Notice of Dispute: Annexure B dated 10 August 2007.
- I find that the audited statements for the years 2007-8, 2008-9 and 2009-10 do not comply with section 37 of the Act. It follows that they fail to comply with paragraph 2 of the direction of 16 July 2010 in several respects:
They do not comply with section 37(3), namely the 5% rule, and they offer no explanation for exceptional treatment;
(ii)The statements prior to 2009-2010 merely list the outgoings charged to CCC. The latest draft offers slightly more information, but still falls well short of a statement of all the lessor’s outgoings for the retail centre or building before apportionment; and
(iii) Lightbrake’s outgoings on electricity supplied to the centre or building are not included.
- I propose to vary and amplify paragraph 2 of the directions of 16 July 2010 so as to dispel any misapprehension of the disclosure requirements of the Act regarding lessor outgoings:
ORDERS:
The Respondent lessor shall provide WHK Greenwoods with sufficient of its financial records, including where necessary its profit and loss statements, to enable the auditor to prepare annual audited statements of the Respondent’s outgoings for the financial years ending 30 June 2008, 30 June 2009, and 30 June 2010 respectively, as required by sections 37 and 37(A) of the Retail Shop Leases Act 1994.
- In compliance with section 37(4) of the Act the audited annual statements shall itemise and state each component of the lessor’s outgoings as separate line items so that they are not more than 5% of the total outgoings shown therein.
- If any component of the lessor’s outgoings exceeds 5% of the total outgoings or is not able to be dissected so as to comply with s 37(4) the Respondent shall file and serve a sworn statement setting out the reasons for non-compliance. The Respondent shall provide a copy of that statement to the Applicant with the audited annual statements, amended as these orders require.
- The audited annual statements, as amended, shall include as a lessor’s outgoing item the total cost to the lessor of electricity supplied to the centre or building in which the subject tenancy is situated.
- The annual audited statements referred to in Order 1 shall be provided to the Applicant by 4pm on 13 January 2011.
- By 27 January 2011 the parties shall advise the Tribunal in writing that the terms of this order have been complied with, whereupon the Application shall be withdrawn.
- Should either party not comply with these orders the Application shall be listed, within 14 days of alleged non-compliance, for a further directions hearing.
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