CHEN and LEASE EQUITY PTY LTD

[2008] WASAT 248

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

STREAM:   COMMERCIAL & CIVIL

ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)

CITATION:   CHEN and LEASE EQUITY PTY LTD [2008] WASAT 248

MEMBER:   DR B DE VILLIERS (MEMBER)

HEARD:   26 SEPTEMBER 2008

DELIVERED          :   30 SEPTEMBER 2008 (EX TEMPORE)

FILE NO/S:   CC 1316 of 2008

BETWEEN:   MICHAEL WEN GUANG CHEN

Applicant

AND

LEASE EQUITY PTY LTD
Respondent

Catchwords:

Forfeiture of lease - Does the Tribunal have jurisdiction to determine a question arising from a lease if the lease has been forfeited - Failure of tenant to comply with material terms of the lease

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 16
Property Law Act 1969 (WA), s 81

Result:

Application struck out

Category:    B

Representation:

Counsel:

Applicant:     No appearance

Respondent:     Mr J Symington (Acting as Agent)

Solicitors:

Applicant:     No appearance

Respondent:     Lease Equity Pty Ltd

Case(s) referred to in decision(s):

Nil

REASONS FOR DECISION OF THE TRIBUNAL: 

Summary of Tribunal's decision

1. Mr Chen brought an application under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) for several questions to be determined by the Tribunal. Mr Symington, for the respondent, raised a preliminary issue; namely, that the lease had been forfeited and as a result the Tribunal does not have jurisdiction to hear the matter. The Tribunal considered the submissions regarding the preliminary issue at a special hearing.

2. Mr Symington contended that Mr Chen had failed to comply with several material provisions of the lease, such as payment of legal fees for preparation of the lease, payment of outgoings and completion of the internal fit‑out of the premises.  He argued that after several oral and written notices to put Mr Chen on notice of the breaches, the lease was forfeited and repossession took place on 8 August 2008.

3. Mr Chen admitted to the purported breaches but raised in defence the failure of the respondent to properly maintain the premises, to fix the leakages in the roof and to provide proper statements for the outgoings.  Mr Chen explained that he had received advice that he could withhold payments and refuse to undertake the fit‑out until the respondent complied with the lease.

4. The Tribunal found that the lease had been forfeited and as a result the Tribunal had no jurisdiction to hear the application.  The application was therefore struck out.

Background

1. The Tribunal handed down oral reasons in these proceedings on 30 September 2008.  It undertook at the time to provide the parties with a transcript of the reasons.  The following is an edited version of the oral reasons.

2. The application was received on 14 August 2008.  The application is made pursuant to the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the Act). There were two directions hearings. The first directions hearing took place on 21 August 2008 and the second directions hearing was held on 4 September 2008.

3. At the directions hearing which was held on 21 August 2008, the Tribunal made several orders.  One of the orders was to give Mr Chen an opportunity to meet with Mr Symington and to discuss possible ways to resolve the issues in dispute.  Mr Symington undertook to prepare a list of all items that were outstanding and indicated that if Mr Chen were in a position to address all of those items, then the lease would be reinstated.

4. At the directions hearing which took place on 4 September 2008, Mr Symington explained that Mr Chen had not complied with any of the conditions that were discussed at the first directions hearing.  The Tribunal made orders for Mr Symington to make submissions why he believed the lease had been forfeited and for Mr Chen to reply thereto.

5. The Tribunal therefore gave at least six weeks for Mr Chen and Mr Symington to engage in further discussions to see if the matters raised in Mr Chen's application could be resolved.

6. The relief sought by Mr Chen are fourfold.  First, he seeks an order for the roof of the premises to be fixed.  Second, he has concerns in regard to the invoice for legal costs.  Third, he demands a proper account for payment of electricity fees and, fourth, he has issues with the removal of advertising signs at the premises.

Preliminary issue:  Has the lease been forfeited?

1. Mr Symington raised a preliminary issue at the first directions hearing, namely, whether the lease had been forfeited.

2. According to Mr Symington there is no lease on foot since the respondent had lawfully repossessed the premises after Mr Chen had failed to comply with material terms of the lease.  The lease had, according to Mr Symington, been forfeited on 8 August 2008 when the respondent repossessed the premises.  As a result, Mr Symington contends that the Act does not apply and as a consequence the Tribunal does not have jurisdiction to determine the questions raised by Mr Chen.  Mr Symington contends that the application must therefore be struck out.

3. The Tribunal explained to Mr Chen that it can only consider the application if indeed there is a lease on foot and there was a question arising under that lease pursuant to s 16 of the Act. If the lease had been terminated or forfeited, Mr Chen would have to seek relief from another court.

4. The hearing to deal with the preliminary issue was set for 26 September 2008.  The Tribunal requested Mr Symington to set out the reasons in writing why he believes the Tribunal does not have jurisdiction.  Mr Chen was given an opportunity to reply to the submission.

5. Mr Symington raised four reasons why he believed the application should be struck out on grounds that the lease had been forfeited:

   a)the outgoings payable by Mr Chen were in arrears and Mr Chen had refused to pay the amount of $988.61;

   b)the invoice for the preparation of the lease remained unpaid.  The amount was $2,376;

   c)the fit‑out that Mr Chen had to undertake within 90 days after the signing of the lease had not been done; and

   d)an assignment of the lease from the original tenants to Mr Chen who is now, according to Mr Symington, the sole tenant, had not been affected.

6. Mr Chen made oral submissions and gave evidence during the hearing.  He replied to the submissions of Mr Symington as follows:

   a)he had paid part of the electricity bill but not all of it since he demanded a more detailed account of cost;

   b)he had not paid any of the invoice for the legal costs for preparing the lease since, according to him, he was contractually obliged only to pay $1,600.  He admitted, however, that even that amount had not been paid;

   c)he admitted that no fit‑out had been undertaken but he explained this was due to the failure of the respondent to repair the leaking roof; and

   d)he confirmed that no assignment of the lease was necessary since his partner was still in the business and he was duly authorised to act on behalf of his partner.

Consideration

1. The Tribunal has taken into account all the written and oral evidence and submissions of the parties.

2. Mr Chen's main defence to the claim that the lease had been forfeited on 8 August 2008 is that due to the leakages in the roof and the excessive bills for outgoings, the obligation on him to pay the outgoings, legal fees, and the fit‑out of the premises within 90 days from the execution of the lease, was suspended.

3. When the Tribunal asked Mr Chen to explain why he had not brought those concerns to the Tribunal sooner, he said that he had not been aware of the existence of the Tribunal.  He also said that he had received advice to withhold all payments until the respondent fixes the roof.  He explained that he had not been aware that he had to comply with his obligations under the lease and, if he were of the view that the landlord failed in its obligations, an application should have been lodged with the Tribunal.

4. The chronological events leading to the purported forfeiture of the lease can be summarised as follows:

   •The offer to lease was signed by the parties on 10 November 2007.  Enclosed to the offer were so‑called 'special conditions'.  Those conditions were set out in paragraphs 16 ‑ 19 of the offer.  Of particular importance are para 16.1 and para 16.2 which provide:

   Par 16.1:  'Subject to the Tenant undertaking an upgrade to the fitout of the tenancy in accordance with the Landlord's and/or Landlord's Consultant's approval.  Such a fitout to be completed within ninety (90) days of execution of the Lease, or the Offer to lease and Lease shall become null and void.'

   Par 16.2:  'Lease preparation cost and Administration Levy estimated at $1600 plus GST shall be borne by the Tenant.'

   •The offer to lease was accompanied by a disclosure statement which is also dated 10 November 2007.  The disclosure statement also contained 'special conditions' and those are similar to the conditions contained in the offer to lease; namely, that the fit‑out had to occur within 90 days of the execution of the lease or the offer to lease and the lease shall become null and void if the fit‑out was not completed in time, and the payment of costs for legal preparation and administrative costs of an estimated $1,600.

   •The lease was executed on 10 January 2008.  There are several provisions of the lease that are relevant to these proceedings.  The Tribunal will summarise the most important provisions.

   Paragraph 3.3 provides that the tenant must pay the charges for services including that of water, gas, and electricity.  If the costs of the services are charged to the tenant by the landlord, the tenant must pay the landlord within 14 days of being notified of the amount due.

   Paragraphs 11.6, 11.7 and 11.8 deal with the landlord's entitlement to end the lease early if the tenant breaches a condition of the lease and the notice that must be given to the tenant before the landlord re‑enters the premises.

   Paragraph 13 recognises the right of the landlord to require from the tenant to correct a breach of the lease within a time specified in the notice.

   Paragraph 13.5 sets out the 'essential terms' of the lease.  Two of the essential terms are the obligation on the tenant to pay base rent and operating costs at a date not later than 14 days after the due date for the payment of such amounts and the obligation on the tenant to carry out fit‑out works under para 20 of this lease.

   Paragraph 20 of the lease provides that the tenant must undertake works to upgrade the fit‑out in the premises; that the tenant must submit to the landlord for the landlord's approval plans for the fit‑out works within 21 days of the date of this lease; and that failure to complete the fit‑out is a breach of an essential term of the lease which may give rise to termination of the lease.

   •The landlord provided to Mr Chen a written reminder on 5 May 2008 that the fit‑out work had not been completed.  This written notice followed several oral reminders to Mr Chen.  The fit‑out had to be completed on 9 April 2008.  Mr Chen was also notified of the failure to pay the invoice for legal fees and administration.

   •On 8 July 2008 a further letter and notice of breach of lease was sent to Mr Chen in which again his attention was drawn to the breaches of the lease; namely, that he had not completed the outfitting work and that he had not paid the legal costs.  The legal costs were specified to be $2,376.  Mr Chen was given a period of seven days to comply with the requirements of the lease.

   •On 25 July 2008 a default notice was handed to Mr Chen in person.  In the notice he was given seven days to remedy the defaults as listed and he was put on notice that, '[i]f those defaults alleged are not remedied within the seven days, the lessor will regard itself as being legally justified to terminate your lease'.  The notice set out the details of the alleged breaches, specifically that Mr Chen had failed to make a payment of $988.61 towards outgoings; that he has failed to undertake the upgrade and outfitting of the premises; and that he has failed to pay for the legal preparation costs of $2,376.

   •On 8 August 2008 the landlord took possession of the premises and informed Mr Chen that the lease had been terminated.

5. Following the repossession of the premises, further discussions nevertheless took place between Mr Symington and Mr Chen.  In a letter dated 25 August 2008, Mr Symington followed up the directions of the Tribunal and provided Mr Chen with the requirements and conditions to comply with for the lease to be reinstated.  The Tribunal was told by Mr Symington during the hearing that none of those conditions have been met.  Mr Chen did not contradict Mr Symington's evidence.

6. The Tribunal has already explained that in order for it to consider the issues raised by Mr Chen in his application, the lease must fall within the Act.  If the lease was forfeited before the lodgement of the application, the Tribunal does not have jurisdiction to consider the questions.

7. In his discussion of commercial leases entitled Drafting and Negotiating Commercial Leases in Australia (Butterworth, 1990), Barnett comments in para 13.3 on p 87 as follows in regard to re‑entry of premises:

   Clearly landlords require the right to terminate the lease if the tenant is in default.  The definition of default may differ in detail from lease to lease but the following may be regarded as the basic events of default which will be found in virtually every lease:  (a) if any rent is unpaid by the due date or, more commonly, if any rent is unpaid within a specified period, such as 14 days, after the due date, whether formally demanded or not; (b) if the tenant is in breach of any covenant or condition on his part contained in the lease; (c) if the tenant, being an individual, becomes bankrupt.

8. Barnett then continues to discuss the importance of the tenant being put on notice of the alleged breaches prior to forfeiture or re‑entry. This is consistent with s 81 of the Property Law Act 1969 (WA) which provides as follows:

   (1)A right of re‑entry or forfeiture under any provision or stipulation in a lease for a breach of any covenant or condition in the lease is not enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice ‑

   (a)specifying the particular breach complained of;

   (b)where the breach is capable of remedy, requiring the lessee to remedy the breach; and

   (c)in any case, requiring the lessee to make compensation in money for the breach,

   and the lessee fails, within a reasonable time after the service of the notice on him, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

   (2)Where a lessor is proceeding, by action or otherwise, to enforce or has enforced without the aid of the Court such a right of re‑entry or forfeiture, the lessee may, in the lessor's action (if any) or in any action brought by himself[,] apply to the Court for relief[,] and the Court may grant or refuse relief …

Finding

1. The Tribunal accepts that the respondent acted in accordance with the lease when it repossessed the premises and informed Mr Chen that the lease had been forfeited.  The respondent on several occasions put Mr Chen on notice of the breaches of the lease.  There were several warnings, both oral and written, and formal demands for Mr Chen to comply with the provisions of the lease.  It appears from the evidence that those cautions were ignored by Mr Chen on the advice he received to withhold payments until the roof was fixed.  Mr Chen failed to bring those concerns to the Tribunal but chose to take the law into his own hands by withholding payments and not complying with the fit‑out provisions of the lease.

2. Under the supervision of the Tribunal, further opportunity was given to Mr Chen to comply with the provisions of the lease, and again on all available evidence, including Mr Chen's evidence, he failed to heed all those warnings or to utilise the opportunities.

3. As far as the jurisdiction of this Tribunal is concerned, it is not a lawful excuse for Mr Chen that the roof had leaked and as a result he refused to comply with his obligations under the lease.  If indeed it is correct that the roof had leaks, and at face value that seems to be the case, then Mr Chen should have brought an application to this Tribunal for a variation of the terms of the lease to order for the roof to be fixed or to refer the matter for mediation.  Withholding payments or refusing to do the outfitting was not a lawful option for him to exercise.  He in effect took the law into his own hands, and in doing so, forfeited the lease.

4. Through his own action, Mr Chen not only forfeited the lease, he persisted with his actions even though the Tribunal gave him opportunity to address the issues raised by Mr Symington.  The first formal letter Mr Chen received to put him on notice of the breaches was dated 5 May 2008.  The lease was only forfeited on 8 August 2008, three months later.  The respondent nevertheless gave Mr Chen further opportunity to rectify the breaches but he did not make use of the opportunity.

5. The Tribunal is therefore satisfied that the lease was forfeited before the application was lodged.  As a result, this Tribunal cannot deal with any questions arising from the lease.  If Mr Chen has any remedy, such remedy may be in another court.

6. The appropriate order for the Tribunal to make is that the application should be struck out on grounds that the Tribunal does not have jurisdiction to deal with it.

Order

1. The application is struck out.

I certify that this and the preceding [31] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

DR B DE VILLIERS, MEMBER