Coco Chocolates Pty Limited v Lotz
[2013] NSWADT 83
•19 April 2013
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Coco Chocolates Pty Limited v Lotz [2013] NSWADT 83 Hearing dates: 10 September 2012 Decision date: 19 April 2013 Jurisdiction: Retail Leases Division Before: D Bluth, Judicial Member Decision: 1.The application in proceedings 125074 is dismissed.
2.The application in proceedings 125042 is dismissed.
3.Unless either party files and serves submissions within 21 days as to why a costs order should be made in favour of either party, there will be no order as to costs. If either party files and serves submissions within this period of 21 days, the other party shall file and serve any submissions in reply within a further 14 days of receipt of the initial submissions, and the issue of costs will then be determined upon the basis of the written submissions filed and without any further hearing.
Catchwords: Breach of essential terms of lease; forfeiture of lease; repudiatory conduct Legislation Cited: Conveyancing Act, 1919
Retail Leases Act, 1994Cases Cited: Canas Property Co Ltd v K.L. Television Services Ltd (1970) 2 QB
CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd [2011] TASSC71
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Shevill & Anor v The Builders Licensing Board (1981-1982) 149 CLF 620Texts Cited: CCH New South Wales Conveyancing Law and Practice Category: Principal judgment Parties: Coco Chocolates Pty Ltd (Applicant in 125042/ Respondent in 125074)
Debrah Lotz (Respondent in 125042 /Applicant in 125074)Representation: Counsel
P Glissan (Applicant in 125074)
Brown & Partners (Applicant in 125042)
NJ Papallo & Co (Applicant in 125074)
File Number(s): 125042 and 125074
reasons for decision
Parties
Coco Chocolates Pty Ltd (Coco) and Rebecca Kerswell (Kerswell) are the lessee and guarantor, respectively, under a Lease dated 28 May 2010 (the Lease) from Debrah Lotz (Lotz) of a retail shop at the rear of 565 Military Road, Mosman (the premises) for a term of ten years.
Orders sought and background
On 23 March 2012 Coco and Kerswell lodged an Application for Original decision numbered 125042 (Coco's application) seeking orders against Lotz under the Retail Leases Act 1994 (the Act) and an Application for Urgent Interim Order numbered 125042 (Coco's interim application) seeking an interim order against Lotz under the Act pending the determination of Coco's application.
On 27 March 2012 the Tribunal ordered that until further order Lotz shall not interfere with Coco's occupation of the premises.
On 23 May 2012 Lotz lodged an Application for Original decision numbered 125074 (Lotz's application) seeking orders against Coco under the Act.
All 3 applications are retail tenancy claims under the Act. Kerswell, as Coco's guarantor, is a party to the Lease, which is a "retail shop lease" under the Act.
The orders sought in Coco's application were to trade in peace, an end to any building disputes, and if no resolution then to end the Lease and also seek compensation for loss of trade and compensation for legal expenses.
Lotz sought in Lotz's application, that Coco vacate the premises and the Lease be terminated. Lotz also sought orders for damages for breach of the Lease as alleged including a claim for damages for partial loss of rent in relation to the upper level of the property and made a claim for costs under Section 77A of the Act.
The disputations between the parties focused mainly on the removal by Coco of a wall within the premises and whether the removal of the wall itself, and the manner in which it was removed and other alleged breaches of the Lease as pleaded by Lotz in Lotz's application constituted repudiatory conduct by Coco and Kerswell, entitling Lotz to forfeit the Lease and seek vacant possession of the premises.
Lotz applied for leave to amend her application so as to claim an order that Coco surrender possession of the premises to her at the expiration of 4 weeks (from the date of such order). The amendment was not opposed by Coco.
As Coco's interim application was granted, I granted leave to Coco not to pursue any of the orders sought in paragraphs 1-4 (inclusive) of Coco's application and to amend the application so as to claim relief against forfeiture of the Lease. This was not opposed by Lotz. The purpose of such amendment was to enable the Tribunal to determine the real issues between the parties.
Evidence
Lotz provided two statutory declarations, the first dated 4 June 2012 (LSD1) and the second dated 19 July 2012 (LSD2).Coco and Kerswell provided one statutory declaration by Kerswell, dated 11 July 2012 (KSD).
Written submissions were made by both parties, Mr Paul Glissan of Counsel representing Lotz and Mr David Brown, Solicitor representing Coco and Kerswell.
History between the Parties
In April 2010, Kerswell on behalf of Coco commenced negotiations with Lotz to take a lease of the premises. During those negotiations, Kerswell identified that she required an internal wall to be removed to make her business trading from the premises more viable.
The parties entered into the Lease and additional condition 25 of the Lease stated:
25.01Provided (Coco) complies with Additional Condition 25.02, (Coco) may carry out the following works:
(a)remove the interior walls within the Premises, some of which are load-bearing walls; and
(b)other works to fit out the Premises.
25.02The works referred to in Additional Condition 25.01 must be:
(a)undertaken in a proper and workmanlike manner and commenced only after (Coco), at its own cost, has consulted a structural consulting engineer for advice concerning the removal of the interior walls within the Premises;
(b)carried out in a workmanlike manner by a contractor under the supervision of persons both approved by (Lotz) and in accordance with the advice given by the structural consulting engineer referred to in Additional Condition 25.02(a);
(c)in accordance with all statutes, rules, regulations, proclamations, ordinances, or by-laws present or future and includes applicable Australian Standards and Codes of Practice, requirements, notices, orders, or directions received from or given by any Authorities;
(d)in accordance with and only after plans and specifications have been approved by (Lotz);
(e)in accordance with and only after obtaining the approvals of all relevant Authorities;
(f)only after providing copies to (Lotz) of all approvals from relevant Authorities, including without limitation an Occupation Certificate, Construction Certificate and/or such other certificate as may be required pursuant to Additional Condition 25.02(e) hereof in relation to the works prior to carrying out the works;
(g)(Coco) must only engage a reputable ... contractor ...
Kerswell states in paragraphs 10-15 of the KSDthat she undertook the following actions in relation to obtaining the approval of the proposed works and the construction of those works:
Approval of Proposed Works
10 I spoke to Mr Joe Vertel, a strategic planner working for Mosman Council, who advised me that I should contact a private certifier to sign off on the building works proposal as he did not think I needed to obtain a Development Application. He advised that he thought a Complying Development Certificate ("CDC") would suffice.
11 I engaged a structural engineer, Mr John Bagnall of John Bagnall & Associates Pty Ltd, who provided me with a report dated 1 April 2010 concerning the proposed works
12 I subsequently engaged Fitzgerald Building Certifiers ("Fitzgeralds") as a Principal Certifying Authority ("PCA") able to issue the CDC.
13 On or about 4 June 2010, Paul Lotz (as agent for the Owner) signed the Owners Declaration section of the CDC application form that had been provided to me by Fitzgeralds.
14 The CDC Application makes mention of the 'wall removal' and the plan submitted shows which wall is to be removed.
15 The Plan was lodged with Mosman Council, subsequently Mosman Council confirms having it on file.
16 Although Jeffrey Sharp, the proposed builder, was not a licensed builder, Mr Paul Lotz agreed to Mr Sharp completing the proposed works and subsequently asked Jeffrey Sharp to perform works for Lotz in the upstairs flat above the Premises concurrently with my renovation work. Fitzgerald certifiers were also fully aware of Jeffery Sharp's status as an Industrial Engineer, not a licensed builder. This was also addressed on the CDC application signed by Paul Lotz.
17 On 17 January 2011 Fitzgeralds issued a Final Occupation Certificate.
The Final Occupation Certificate contained a statement as follows:
"I, Paul Fitzgerald as the certifying authority am satisfied that the building will not constitute a hazard to the health or safety of the occupants of the building".
Subsequently, after the fit out works were completed Lotz became concerned about the state of the works and in particular the removal of the internal wall. She says in her statutory declaration at paragraph 11 of LSD1"...I have been requesting final structural engineer signoff since August 2010 by October 2011 there were multiple issues outstanding including disputes regarding money owed as well as the structural issues".
Lotz sought from Coco a sign off from a structural engineer and on 11 January 2012 she wrote to the Certifier, Fitzgeralds for a final confirmation whether or not the CDC included removal of the wall or not. Fitzgeralds responded that no reference was made in the CDC to a wall removal. This then raised doubt in the mind of Lotz as to whether the Occupation Certificate upon which Coco relied, based on the CDC was in fact comprehensive enough to cover the full extent of the works undertaken by Coco in accordance with additional condition 25.02 of the Lease.
A further problem occurred for Lotz. She stated at paragraph 16 that "as a result of me being unable right up to January 2012, to confirm the structural soundness of the wall removal, our insurance company refused to renew our building insurance".
On 17 February 2012 Lotz served a landlord's notice (the Section 129 notice) on Coco and Kerswell. The section 129 notice, in the form of a letter to Coco asserted that Coco was in breach of the essential terms of the Lease. The breaches included [but not limited to] breaches of the following clauses of the Lease:
(a) 7.2 in relation to repairs; and
(b) Additional condition 25 regarding the following:
(i) 25.02 failure to provide fit-out plans to Lotz for approval.
(ii) 25.02(c) failure to submit plans as part of the Complying Development Certificate (CDC) requirements.
(iii)25.02(c) and (e) failure to have a valid Occupation Certificate.
(iv) 25.02(a) and (b) failure to submit a final engineer's report to either a private certifier or to Lotz.
(v) 25.02(f) and (g) failure to produce copies of approvals to Lotz.
In the Section 129 notice Lotz asserted that due to Coco's certifier, Fitzgeralds not providing the current certification on the full scope of the works undertaken, (Lotz) was obliged to carry out a building code assessment report [BCA Report] which highlighted other building issues allegedly caused by Coco in completing its fit out works resulting in breaches of the Lease and providing to Coco 40 days from service of the notice to rectify these breaches.
Issues
Has Lotz forfeited the lease?
The key issue is whether Lotz has validly forfeited the Lease. The parties submitted that the determination of this issue will involve the determination of all the other issues that arise between the parties. I agree with this analysis.
Clause 12.1.3 of Annexure B to the Lease provides that the Lease "ends if (Lotz) lawfully demands possession of the (premises)."
Clause 12.2 of Annexure B to the Lease provides that "(Lotz) can enter and take possession of the (premises) or demand possession of the (premises) if:
12.2.1(Coco) has repudiated (the Lease); or ...
12.2.3(Coco) has failed to comply with a landlord's notice under section 129 of the Conveyancing Act 1919".
Had Lotz made a demand for forfeiture?
Before the Tribunal looks at the issues of performance under the Lease a preliminary point arose. No formal demand for possession was made by Lotz. No letter was sent to Coco demanding possession, only the Section 129 notice which is not a formal demand for possession of the premises.
Mr Glissan on behalf of Lotz submitted that on or about 23 May 2012, subject to the Tribunal's interim injunction granted on 27 March 2012, Lotz forfeited the Lease and notionally re-entered the premises by filing and serving Lotz's application seeking an order that Coco surrender possession of the premises, firstly for repudiation of the Lease by Coco through conduct which was accepted by Lotz and secondly for failure by Coco to comply with the Section 129 notice.
In Canas Property Co Ltd v K.L. Television Services Ltd (1970) 2 QB 433 the English Court of Appeal (Lord Denning MR, Fenton Atkinson and Megaw LJJ) followed Jones v Carter (1846) 15 M & W 718 and Scarf v Jardine (1882) 7 App Cas 345 held that the Lessor forfeits a lease and notionally re-enters premises by serving on the Lessee a summons for possession. Mr Glissan submitted that this is the law in Australia - see CCH's New South Wales Conveyancing Law & Practice at paragraph 30-110 on page 32,541 (as at November 2008). This position has recently been confirmed by Crawford CJ in CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd [2011] TASSC71.
The Tribunal will treat the filing of Lotz's application, Lotz as seeking forfeiture of the Lease and vacant possession of the premises. The Tribunal will also treat Coco's amended application as a claim by Coco and Kerswell for relief against forfeiture of the Lease.
Did Coco breach the essential terms of the Lease ?
In Shevill & Anor v The Builders Licensing Board (1981-1982) 149 CLR 620, a case concerning a lease of commercial land, Gibbs CJ assumed that the ordinary principles of contract law apply to leases of land and, omitting citations to authorities, said at pp 625-626,
"... a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract ...or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way ...In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages ... It is convenient to say that the injured party in these circumstances rescinds the contract... it is immaterial whether repudiation and fundamental breach are treated as separate categories, for in either case the innocent party can rescind the contract and recover damages to compensate him for the failure to perform the contractual obligations. ...A third situation in which a right to rescission arises is where there has been a breach of a fundamental or essential term of the contract. "
In Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, a case concerning a lease of a commercial factory, the High Court (Mason, Wilson, Brennan, Deane and Dawson JJ) unanimously held that the ordinary principles of contract law do apply to leases of land, and accepted the above passage in Gibbs CJ's judgment in Shevill concerning repudiation as correct, where rescission means termination of a contract or lease.
In Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd & Ors (2008) 234 CLR 237, a case concerning a lease of a retail shop in a shopping centre, the High Court (Gleeson CJ, Kirby, Heydon, Crennan and Kiefel JJ) applied Shevill and Progressive Mailing House.
The parties to a contract may expressly agree that a term in it is essential - see Shevill at 626, where Gibbs CJ cited a passage from Lord Upjohn's judgment in Suisse Atlantique Societe d'Armement Maritime S.A. v N. V. Rotterdamsche Kolen Centrale [1967] 1 AC at 422.
Essential Terms of the Lease
The question then is what terms of the Lease did the parties make essential ?In answer to this question, Mr Glissan directed the Tribunal to a number of clauses in the Lease:
Clause 12.5 of Annexure B to the Lease stated:
"Essential terms of this Lease include:
12.5.3the obligations of (Coco) in clause 6.1 (dealing with use);
12.5.4the obligations of (Coco) in clause 7 (dealing with repairs) ..."
Clause 6.1 of Annexure B to the Lease stated:
"(Coco) must:
6.1.4comply with all laws ... regulating how the (premises) are used, obtain any consents or licences needed ..."
Clause 7 of Annexure B to the Lease stated:
"7.4If an authority requires work to be done on the (premises) and it is structural work or work needed to make the (premises) safe to use then ... if it... is required only because of the way (Coco) uses the (premises) then (Coco) must do the work."
Mr Glissan directed the Tribunal to the proposition that in construing a contract, a court may find that a term in it is essential, even though the parties have not expressly agreed that it is. The objective test is whether the term "is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor" - see Shevill at 627, where Gibbs C J applied the test laid down in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337.
Mr Glissan then submitted that further essential terms of the Lease based on the objective test in Shevill are contained within clause 6.3 and additional conditions 23 and 25.
Clause 6.3 of Annexure B to the Lease stated:
"(Coco) must not:
6.3.1do anything that might invalidate any insurance policy covering the (premises) ...; or
6.3.2use the (premises) ... for any activity that is dangerous ... illegal... or that is or may become a nuisance or annoyance to (Lotz)..."
Additional condition 23 of the Lease provides:
"(Coco) covenants with (Lotz) that (Coco) must:
(b) comply with all statutes, regulations, by-laws or ordinances affecting the Premises ...and
(d) at (Coco's) expense repair and maintain the essential fire services for the Premises ..."
Additional condition 25 of the Lease is set out in paragraph 14 of these Reasons.
Mr Glissan submitted that Coco breached the following essential conditions of the Lease, inter alia:
Condition
Breach
Evidence
6.1.4, 6.3.2, 7.4
Coco used unlicensed contractor to carry out all its building works, without Lotz's approval
LSD1-65,68,iv
25.02(b)-(g)
Coco failed to provide plans of works to Lotz for her approval and failed to lodge plans with Mosman Council
LSD1-26,28, D,K,W, xxiii
6.3.1
Coco failed to provide evidence of structural soundness of internal walls of premises and caused Lotz's insurer to refuse to renew its insurance policy covering the premises
LSD1-16,M
6.3.2, 7.4 23.01(b)
Coco failed to comply with Clause D2.15 of BCA2011 - rear step height exceeded 190 mm
LSD1-33,Y
25.02(b)-(g)
After carrying out her works Coco failed to obtain an occupation certificate before occupying the premises
LSD1-58,N,O
7.4, 23.01(d) 25.02(b)-(g)
Coco's works disrupted fire protective coating of internal ceiling
LSD1-32,Y
It is then said by Mr Glissan on behalf of Lotz that Coco's breaches of the above essential conditions of the Lease amounted to a repudiation by Coco of its obligations under the Lease which entitled Lotz to forfeit the Lease, serve on Coco a notice under section 129 of the Conveyancing Act requiring Coco to remedy the breaches and then lodge an application with the Tribunal seeking an order under Section 72(l)(c)(ii) of the Act that Coco surrender possession of the premises, and pay damages and costs.
Mr Glissan submitted that as at 23 May 2012 Coco's breaches of essential conditions of the Lease as noted in paragraph 36 of these Reasons, together with Coco's failure to remedy such breaches within a reasonable period of 40 days after service of the Section 129 notice, were cumulatively such that:
- Coco was guilty of unreasonable delay in remedying its breaches, and such delay amounted to a repudiation;
- viewed objectively, Coco's conduct was such as to convey to a reasonable person in the situation of Lotz repudiation or disavowal either of the Lease as a whole or of a fundamental obligation under it;
- a reasonable person in Lotz's shoes could clearly infer that Coco would not be bound by the Lease or would fulfil it only in a manner substantially inconsistent with Coco's obligations and in no other way;
- a reasonable person could hardly draw any other inference than that Coco was not prepared to take its primary obligations under the Lease seriously;
- Lotz was entitled to say: words to the effect "My rights under this Lease are being completely ignored and my interests may suffer by non-performance by Coco of its obligations, and ... to such a fundamental and essential extent that I declare (Coco) is treating me as if no Lease existed which bound it";
Submissions by Coco that there has been no breach of essential terms of the Lease
Unlicensed Builder
Lotz claimed that Coco used an unlicensed builder, Mr Jeffery Sharp without Lotz's approval in breach of clauses 6.1.4, 6.3.2 and 7.4 of Annexure B of the Lease. Mr Brown submitted in fact these clauses were not relevant in that clause 6.1.4 related to compliance with strata laws and acquisition of necessary licences and consents, clause 6.3.2 related to prohibition to conducting dangerous, offensive, noxious, illegal, and immoral activities in the premises, and clause 7.4 related to whether Lotz or Coco should be responsible for works required by any Authority. Mr Brown submitted that there was insufficient evidence adduced by Lotz to support any breaches of these clauses and that the Tribunal should find that the use of an unlicensed builder was not in breach of those conditions by reason that the actual work performed did not require a licensed builder.
Mr Brown pointed out that Fitzgerald Certifiers and Lotz were notified of the proposed engagement of Mr Sharp in performing Coco's fit out work. Lotz agreed to the engagement of Mr Sharp, as evidenced by Mr Paul Lotz as agent for Lotz signing the CDC application. Mr Brown submitted that as Lotz subsequently asked Mr Sharp to perform works in the upstairs flat, and Mr Lotz was present during the time the works were carried out in the premises Lotz must have been satisfied with the standard of work performed by Mr Sharp.
Fitout Plans
Lotz alleged that the Coco failed to provide plans of works to Lotz for her approval and failed to lodge plans with Mosman Council in breach of additional conditions 25.02(b)-(g) of the Lease. Mr Paul Lotz had signed the CDC application as agent for his wife, the Lessor. Mr Brown submitted that it is clear from an exchange of emails between the parties(KSD Annexure W) that Lotz appeared to be satisfied as no mention was made of plans to be provided or works that were either unauthorised or unsatisfactorily performed.
Lotz stated (LSD1 Paragraph 26) that on 23 January 2012, Mosman Council confirmed that no private certifier plans were on record. However, in a separate email from Mr Vertel of Mosman Council on 4 April 2012, (KSD Paragraph 12, Annexure J). to Kerswell, Mr Vertel advised "Yes as previously advised to all parties, a plan has been lodged as part of the CDC application. This plan could best be described as a site plan". Mr Brown submitted that Lotz has failed to adduce sufficient evidence to show that plans were not submitted to Mosman Council as a required part of the CDC application.
Occupation of Premises
In response to Lotz's assertion that Coco failed to obtain an Occupation Certificate before occupying the premises in breach of additional condition 25.02(b)-(g) Mr Brown submitted that insufficient evidence had been adduced by Lotz to support this claim, but in any event the breach has now been rectified by the issuing of a final Occupation Certificate on 17 January 2011 (KSD Paragraph 17 and Annexure K), No damage is claimed by Lotz to have occurred as a result of the alleged breach.
Tribunal's determination on alleged breaches of the essential terms of the Lease
The resolution of the dispute between the parties has not been assisted by the inconsistent advice received by the parties from Mosman Council, the difficulties in interpreting the legislative requirements ofprivate certifiers Council and their respective obligations and duties with respect to Complying Development Certificates, the principal certifying authority and occupation certificates.
In the Lease, clauses 12.5.3 and 12.5.4 are nominated by the parties to be essential. These clauses refer in turn to clauses 6.7 and 7 of the Lease which deal with the use of the premises by Coco and the obligation to undertake repairs and maintain the premises. These are general clauses for lessee obligations under the Lease. Additional condition 25 of the Lease specifically deals with Coco's proposed fit out. It is noted though that additional condition 25 is not specifically made an essential or fundamental term in condition 17.
However, the Tribunal in applying the test set out by Gibbs CJ in Shevill find(on an objective view), that additional condition 25 was of such importance to, Lotz that without it being an essential term it is unlikely that Lotz would have entered into the Lease. Further applying the objective test with respect to additional provision 23.01(b) and (d) the Tribunal does not come to the same view that these are fundamental and essential terms without which Lotz would not have entered into the Lease. They are no more than general compliance obligations of the lessee with respect to maintaining the premises and are not in the same category, as additional provision 25 which viewed objectively is essential.
As noted, additional condition 25 stated that provided Coco complies with all the terms of the condition then Coco may carry out its fit out and remove internal walls (interestingly identified as load bearing). Additional conditions25.02 (a) and (b) required Coco to undertake the work in a proper and workmanlike manner. There appears to have been no complaint from Lotz about the nature of the work undertaken by the builder, Mr Sharp. Only now is Lotz asserting that Mr Sharp was not a licensed builder and that this constitutes a default by Coco. Further, there was no evidence presented to the Tribunal that a builder of commercial premises is required to be licensed. The Tribunal is asked to make an assumption that because Mr Sharp was not licensed, then the work carried out by him may not have been in a proper and workmanlike manner. There was no evidence to support that assumption. Further, during the work supervised by Lotz through her agent she engaged Mr Sharp to do work in the upstairs flat. The Tribunal finds that there was no breach of additional conditions 25.02(a) and (b).
Additional condition 25.02 (a) and (b) required Coco to engage a consulting engineer. Coco engaged Mr John Bagnall, who advised that the wall to be removed was non load bearing and thus additional condition 25.02(a) has been complied with. Mr Sharp undertook the work and Mr Paul Lotz, as agent for Lotz supervised the work and builder. Thus additional condition 25.02(b) has been complied with. After many emails and discussion between the parties, Mosman Council and the certifier eventually agreed that a CDC had been issued. Accordingly, additional condition 25.02(c) has been complied with.
The question whether Lotz approved the plan is vexed. There is no direct evidence to say that Coco provided the plan and Lotz approved it. The plan annexed to the application for a CDC held at Mosman Council was a copy of the plan out of the Lease. Nevertheless Lotz signed the application for a CDC and also Lotz had the work supervised by her agent Mr Paul Lotz. No complaint was made at the time of lodging the CDC application nor at the time of the work being undertaken that a plan had not been provided to Lotz and had not been approved. In these circumstances whatever breach had been made by Coco in not supplying a plan had been subsequently waived by Lotz by the conduct of her agent in the supervision of the work. A CDC application was made and approval granted by Mosman Council and therefore additional condition 25.02(e) has been complied with. Lotz now has the relevant approval, together with confirmation from the structural engineer, Mr Bagnall, that the wall removed was not load bearing. Further, additional condition 25.02(f) is in itself circular. It required Coco to provide an occupation certificate "prior to carrying out the works". This cannot be the case. Logically the occupational certificate comes after the works have been completed. In any event additional condition 25.02(f) has been complied with.
Section 129 Notice - alleged breaches of the Lease
The Section 129 notice alleged certain breaches of additional condition 25. The Tribunal has dealt with these alleged breaches. The next breach of the Lease alleged in the Section 129 notice was "a failure (by Coco) to provide three quotes under additional condition 32.01". However, it is the view of the Tribunal that any failure to provide quotes is not a breach of the Lease, but may disentitle Coco to claim from Lotz half the costs of the works because three quotes were not obtained.
Insurance
The next breach of Lease alleged related to the inability of Lotz to obtain insurance due to Lotz being unable to provide the insurance company at the relevant time evidence of the structural integrity of the building. Lotz alleged Coco failed to provide evidence of structural soundness of internal walls of the premises and such failure caused Lotz's insurer to refuse to renew its insurance policy covering the building. Therefore it is alleged that Coco is in breach of clause 6.3.1 Annexure B of the Lease. In response, Mr Brown submitted that there was no evidence that Coco's conduct contributed to the insurance being refused. Lotz unreasonably informed its insurer that the building may have been unsound (LSD2 Annexure xxivii). In the Final Occupation Certificate issued on 17 January 2011 the certifier stated "I, Paul Fitzgerald, as the certifying authority, am satisfied that the building will not constitute a hazard to the health or safety of the occupants of the building ". The internal wall that was removed was a non-Ioadbearing wall. Mosman Council has confirmed (KSD Annexure M) that no development consent was necessary for the removal of a non--loadbearing wall. Ultimately there was no issue with the structural soundness of the building and the insurance was renewed. Consequently, the terms of the Lease in particular, clauses 6.1.4 and 6.3.2 were complied with by Coco. The Tribunal finds in these circumstances there was no breach of the Lease.
Fire Safety
In the letter/notice forming the Section 129 notice, the lawyers for Lotz stated that "our instructions are that due to your certifier not providing the correct certification on the full scope of the works you undertook, the Lessor was obliged to carry out a building code assessment report to identify any further issue of compliance". The BCA Report referred to in the section 129 notice is a report from Building Regulation and Fire Safety Engineering Consultants dated 5 February 2012. The notice continued "as a result of the BCA (Report) the Lessor demands that you (a) correct the ceiling of the property to meet the fire regulation standards".
Mr Brown submitted that the evidence adduced by Lotz in support of her claim that Coco's fit out works do not conform with fire safety regulations is insufficient. The BCA report simply raised concerns but did not state either that there is a problem or that Coco's fit out works have caused a problem. The Final Occupation Certificate notes the fire safety measures as attachments and makes the declaration as to safety as noted in paragraph 16 of these Reasons.
In relation to the alleged piercing of the ceiling as a major fire safety concern and a breach of the Lease the Tribunal finds that the evidence from the BCA Report is inclusive and uncertain. Interestingly, in Part 1 of the BCA Report under Audit Objectives, the following statement is found "This report is to accompany a development application for the proposed strata subdivision of the property". Further, the Tribunal notes that additional condition 31 of the Lease states that Lotz "may lodge a strata plan" and Coco is not to object. As Mr Brown submits the BCA report is a report on what has to be done by the owner Lotz to prepare the building to be separated into two separate premises pursuant to a strata plan. The Tribunal agrees with the submission by Mr Brown that the BCA Report should not be relied upon in assessing whether the fit out works by Coco created fire safety issues and instead rely on the Final Occupation Certificate which is conclusive on this matter, given the statement by the certifier that there are no hazards to health and safety (see paragraph 16 of these Reasons).
Rear Step
In the section 129 notice Lotz asserted that in breach of building regulations the rear step height exceeded 190mm. Lotz asserted that Coco was in breach of clauses 6.3.2, 7.4 additional condition 23.01(d) and 25.02(b)-(g) of the Lease. Mr Brown submitted that insufficient evidence has been adduced by Lotz concerning the dimensions of the step and the relevant regulatory requirements to support her claim. Mr Brown also submitted that the height of the step was unchanged by Coco (KSD Paragraph 28 viii) and that any problem with the height was not caused by Coco but existed prior to the Lease being entered into. As there was no evidence presented to the Tribunal to show the height of the step prior to Coco's fit out works the Tribunal agrees with the submissions by Mr Brown that there was no breach of Lease by Coco.
Further alleged breaches of the Lease by Coco
Consequently, the Tribunal finds that Coco has not breached the essential terms of the Lease, and has not been in breach of any terms of the Lease referred to in the s129 notice. However, that does not dispose of this matter. During the hearing Mr Glissan on behalf of Lotz maintained that there were other building matters that required attention which Lotz purported to be breaches of the Lease by Coco. The Tribunal granted leave to Lotz to carry out any necessary inspection for the purpose of determining further rectification works required. On 29 October 2012, the solicitors for Lotz made further submissions regarding these alleged breaches. In these submissions, Lotz maintained the claim that Coco's fit out works damaged the ceiling which jeopardised the fire safety of the building as a whole. Annexed to the submissions were reports from consultants regarding the required upgrade works for fire safety, for non-compliant plumbing and required rectification regarding the shop front step (not the rear step) which again was alleged not to comply with building regulations. Quotations were provided for remedying the ceiling works, plumbing and rebuilding of the front step.
In this later submission, Lotz also amplified her claim for loss of rent due to the inability of Lotz to rent the upper level residential apartment due to the uncertainty over fire safety and Occupational Health and Safety compliance issues with respect to the building as a whole.
Mr Brown in his submissions in reply on behalf of Coco pointed out that the consultant report on fire safety matters noted that no specialist contractors were able to undertake any physical inspection and stated "from brief visual inspection we would concur with the (BCA Report) you have received and do not believe that an adequate fire separation has been achieved between the café and the residence above". Mr Brown submits that this consultant's report is inadequate in dealing with any alleged breach of fire safety to the premises in the building by Coco as it merely reinforces the original comments made in the BCA Report regarding separation of premises for strata plan purposes.
In relation to the plumbing problems, Mr Brown pointed out that the report from the consultant was vague and inconclusive. Phrases used were "would only know when pulling one out" and "unable to get closer to hot water heater to see what other pipe work was around it". There was no reference to the Building Code of Australia or other standard to measure the alleged breaches against.
In relation to the front step Mr Brown submitted that the dimensions were unchanged from the original dimensions and there is no evidence to suggest that Coco altered the dimensions during its fit out works. Mr Brown points out in the evidence from Coco, (KSD annexure Z) is an email from Mr Rod Marr, real estate agent dated 12 April 2012 confirming that in August 2011, he submitted to Lotz a tenancy proposal for the upstairs apartment and "the owner declined this proposal and advised us that he did not wish to let the premises".
The Tribunal finds that the BCA Report and the consultants' report focus on the necessary requirements to separate the premises from the upstairs flat for the purposes of lodging a strata plan for the building. The only feature of the fit out by Coco that appears to be non-compliant is new light covers - called fire protection down light covers. The Tribunal is of the opinion that it is not an obligation on a lessee of one part of premises in a building to ensure that the separation of it from other premises in the building is fire safety complaint. This is the responsibility of the Lessor. However, in relation to the premises the Tribunal notes the concession by Mr Brown on behalf of Coco that Coco would comply with any necessary fire safety recommendations and consequently the Tribunal notes that fire protection down light covers should be installed at the cost of Coco.
The Tribunal agrees with the submissions by Mr Brown that the report from the plumber is inconclusive and too vague to constitute evidence regarding any breaches and there is no evidence that if the front step does not comply with such non-compliance is as a result of the activities of Coco. With respect to the claim for lost rent the Tribunal takes note of the underlying reason for Lotz obtaining the BCA report in the first place, for the purposes of lodging a strata plan, as mentioned in the Lease and from the evidence from Coco that Lotz rejected the offer of a tenant and finds that vacancy in the upstairs flat is as a result of the commercial decisions made by Lotz and has nothing to do with any concern by Lotz regarding fire safety and compliance with Occupational Health &Safety issues.
CMA Recycling Victoria Pty Limited v Doubt Free Investments Pty Limited (2011) TASSC 71
CMA Recycling is a recent decision of the Chief Justice of Tasmania Crawford CJ. That case raised similar issues with respect to forfeiture of a lease by the lessor for either breaches by the lessee of essential terms and/or non compliance with the equivalent statutory notice to Section 129 of the Conveyancing Act. In Tasmania the relevant section is 15 of the Conveyancing and Law of Property Act which is very similar to Section 129 of the Conveyancing Act.
Crawford CJ found
"22In summary, the defendant landlord's case is that the plaintiff tenant caused damage to the premises, failed to keep it in good repair and condition, failed to promptly repair any damage it had caused and failed to comply with the requirements of the Council to prevent, control or reduce likely environmental harm from pollutants that escaped into the adjoining land of the defendant, and that the consequent breaches of the lease amounted to a repudiation of it by the plaintiff which the defendant accepted, by treating the lease as at an end and re-entering on 16 May 2011. It is also the defendant's case that some of the plaintiff's breaches amounted to breaches of essential terms in any event, and were fundamental breaches of contract, entitling it to re-enter.
23.Against that, the plaintiff's position is that its conduct was not repudiatory in that in any event, the defendant was required to give to the plaintiff a notice under the Conveyancing & Law of Property Act, s15(1), requiring it to render the breaches within a reasonable time, and the defendant failed to comply with the subsection. In the alternative, if the lease was validly terminated by the defendant, the plaintiff seeks relief against forfeiture............
137It was submitted by Counsel for the defendant that breach of an essential term of a contract amounts to both a repudiation and a fundamental breach of the contract in support he cited Progressive Mailing House, Shevill etc.
138Those cases are not authorities for that proposition. To the contrary, there are suggestions in some of them that breach of a fundamental term and repudiation are not the same thing... in Progressive Mailing House ... Mason J found it unnecessary to decide whether breach of a fundamental term was but another illustration of repudiation, or a separate category. Wilson J at 38, Deane J at 51 and Dawson at 56 substantially agreed with the judgment of Mason J. To similar effect, in Shevill at 626, Gibbs J said that whether repudiation and a fundamental breach were to be treated as separate categories was immaterial for the purposes of the case ...
139In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) NSWCA 268 at pa (296) it was observed that the Court of Appeal in World Best Holding Ltd v Saker (2010) NSWCA 24 proceeded "on the assumption that there is a distinction between fundamental breaches of contract (which entitle the other party to terminate), and repudiation of a contract (which entitles the other party to terminate by acceptance of the repudiation)". That was a view that was shared by the Court of Appeal in Macquarie. It is the view of Cheshire & Fifoot's law of contract by N C Seddon & NP Ellinghouse, 9th Aust ed (2008) at 1013, where it is said that repudiation and breach of essential term are not mutually exclusive, that repudiation can occur without breach of an essential term and, conversely, that a breach of an essential term can occur without repudiation. See all Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) HCA 61.
140.I will assume those views to be correct and consider as a separate question whether the plaintiff's breaches of the Lease amounted to a repudiation of its obligations under the Lease which justified the defendant's purported termination of it.
141.The question that arises is did the plaintiff evince an intention no longer to be bound by the Lease or that it intended to fulfil it only in a manner substantially inconsistent with its obligations and not in any other way. Progressive Mailing House Pty Ltd v Tabali Pty Limited at 33, 40: Shevill v The Builders Licensing Board at 625-6; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Limited at 634, 643, 650, 664-7.
142.More recently, in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at par (44), Gleeson CJ, Gummow, Heydon and Crennan JJ expressed the test as whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. I take into account that repudiation of a contract is a serious matter and not to be lightly found or inferred. Ross T Smyth & Co Ltd v TD Bailey, Son & Co (1940) 3ALLER 60 at 71. But an actual intention to repudiation is not necessary, for it is an objective test. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 657."
In CMA Recycling, Crawford CJ held that the lessee had in fact breached essential terms of the lease. He then examined whether the lessee by its conduct repudiated the Lease as well. In the circumstances of that case, while the Lessee breached essential terms of the lease it had not repudiate its obligations under that lease. Thus, one can have, as in CMA Recycling, a breach of an essential term by a lessee but that breach or breaches may not result in repudiatory conduct. Can there be circumstances where there is no breach by a lessee of essential terms of a lease but still the lessee by its conduct repudiates the lease. Lotz claims forfeiture of the Lease as a result of breaches of essential terms of the Lease and/or repudiatory conduct by Coco. Notwithstanding that the Tribunal has found no breach of essential terms of the Lease or of the alleged breaches under the Section 129 notice, the question of whether Coco repudiated the Lease will be examined on the basis that the Tribunal could be in error on breaches and in any event there may be conduct by Coco that could be viewed as repudiatory conduct entitling Lotz to forfeit the Lease
Repudiation of the Lease?
Did the conduct of Coco grant an entitlement to Lotz to seek termination of the Lease? Do words and conduct of Coco satisfy the requirement of seriousness to give rise to a repudiation. Mr Glissan in his submissions cited at paragraph 38 of these Reasons, sought to categorise the conduct of Coco in breaching essential terms of the Lease, not rectifying alleged breaches under the s129 notice and general conduct to leave Lotz to infer that the rights of Lotz under the Lease were being completely ignored and that Coco was not prepared to take its primary obligations seriously. This according to Mr Glissan was sufficient repudiatory conduct to entitle Lotz to seek forfeiture of the Lease.
Tribunal's Determination on Repudiation
In Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626, Gibbs CJ held that, to establish repudiation, it must be shown that the tenant "evinced an intention no longer to be bound by the contract; or to fulfil it only in a manner substantially inconsistent with his obligations". This was followed by Campbell CJ and CMA Recycling citing the High Court decision in Koompahtoo Aboriginal Land Council v Sanpine Pty Limited (see paragraph 142 of the CMA case cited at paragraph 64 of these Reasons). The test to be applied is whether the conduct of one party is such as to convey to a reasonable person in the situation of the other party renunciation either of the contract as a whole or of a fundamental obligation under it.
The Tribunal has already determined that Coco was not in breach of essential terms of the Lease or any other breaches as alleged under the section 129 notice or other building breaches alleged in the later submissions. As the Tribunal has found there were no breaches of the Lease as alleged in the section 129 notice and the conduct of Coco in not acting upon the notice therefore cannot be viewed as repudiatory conduct by Coco.
If in any event a breach was established, Mr Brown on behalf of Coco submitted such breach was not of a nature that shows "an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations". On the contrary, it is submitted that Coco's evidence shows that Coco went to great lengths both to ascertain the correct procedure to follow in relation to the proposed fit out works and to obtain Lotz's consent to the works being performed. The Tribunal accepts this submission. The Tribunal is not to judge a party's conduct in undertaking performance of essential terms of the Lease on the basis of an efficiency test. Consequently, the Tribunal finds no evidence of any conduct by Coco in performing its obligations under the Lease that could on the test to be applied be viewed as Coco repudiating its obligations under the Lease entitling Lotz to accept such conduct and forfeit the Lease. As there was no breach of Lease nor any repudiatory conduct by Coco the Lease cannot be forfeited by Lotz and the question of any rights that Coco might have for relief against forfeiture does not arise to be considered by the Tribunal.
Determination of issues and orders to be made
1.The application in proceedings 125074 is dismissed.
2.The application in proceedings 125042 is dismissed.
3.Unless either party files and serves submissions within 21 days as to why a costs order should be made in favour of either party, there will be no order as to costs. If either party files and serves submissions within this period of 21 days, the other party shall file and serve any submissions in reply within a further 14 days of receipt of the initial submissions, and the issue of costs will then be determined upon the basis of the written submissions filed and without any further hearings.
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Decision last updated: 19 April 2013
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