Coffey and Ors and Australia the Gift Pty Ltd
[2020] WASAT 67
•22 JUNE 2020
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
CITATION: COFFEY & ORS and AUSTRALIA THE GIFT PTY LTD [2020] WASAT 67
MEMBER: MR K BALES, SESSIONAL MEMBER
HEARD: 22 APRIL 2020
DELIVERED : 22 JUNE 2020
FILE NO/S: CC 491 of 2020
BETWEEN: DAVID PATRICK COFFEY & ORS
Applicant
AND
AUSTRALIA THE GIFT PTY LTD
Respondent
Catchwords:
Retail shop lease - Destruction of premises - Reinstatement - Goodwill - Penalty - Special circumstances
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 13(6), s 13(7)
Interpretation Act 1984 (WA), s 18
Result:
Reasons for decision provided pursuant to s 78 of the State Administrative Tribunal Act 2004 (WA)
Category: B
Representation:
Counsel:
| Applicant | : | N/A |
| Respondent | : | N/A |
Solicitors:
| Applicant | : | Jackson McDonald |
| Respondent | : | N/A |
Case(s) referred to in decision(s):
480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd [2020] WASC 59
REASONS FOR DECISION OF THE TRIBUNAL:
On 20 April 2020, David Patrick Coffey and others (applicants) lodged an application under s 13(7) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Act) in respect of a retail shop lease between the parties relating to Ground 1, 159 Murray Street, Perth for approval of the following clause (inter alia):
13.2 Destruction of Building
(a)if a substantial part of the Building is destroyed or damaged:
(i)to such an extent so as to be unfit for occupation or use during the Term; and
(ii)is not being re-instated by the Owner within six (6) months of such occurrence,
then unless within such six (6) month period the Owner:
(iii)elects by notice in writing to the Tenant to reinstate the Building to as nearly as practicable its original design; and
(iv)commences such re-instatement,
the Owner or the Tenant may (in the case of the Tenant, only if such damage or destruction is not caused by the Tenant or a Permitted Person) by notice in writing to the other of them determine this Lease and the Term as from the date of the giving of such notice without prejudice to the rights of the Owner for any previous breach by the Tenant of any of the Tenant's Obligations.
For the purpose of this clause the expression 'a substantial part of the Building' means 1/3 or more of the Net Leasable Area of the Building.
(Italicised emphasis added)
In support of the application, the applicants stated:
(c)we request that you approve the inclusion of clause 13.2 on the grounds that In the event of the total or substantial destruction of the Shop, reinstatement of the Shop in the present form may not be economical or realistic.
Section 13(7) of the Act provides:
The Tribunal may, upon application made to it by the landlord notice of which has been given to the tenant, approve of the inclusion in a retail shop lease of a provision under which the landlord may determine the lease (other than under subsection (6)(a), (b) or (da)) before the day set out in subsection (6)(aa) or (ab), as is relevant, if it is satisfied that special circumstances exist by reason of which such approval ought to be given.
On 22 April 2020 the Tribunal made the following order (inter alia):
Clause 13.2 is not approved as the clause contains provisions which do not comply with the requirement of the Tribunal that the tenant be entitled to terminate the term of the lease if the landlord does not reinstate the premises within three months of the date of the damage, whatever the cause of the damage.
In a leasehold relationship, the landlord owns the premises and the rental income from the premises. The landlord is able to obtain insurance against the loss of each.
In a retail leasehold relationship, the tenant owns the fit out of the premises and the goodwill of the business conducted by the tenant in the premises. The goodwill of a business is the likelihood of customers of the business to return to trade with that business on a regular basis. The tenant is able to obtain insurance against the loss of the fit out of the premises, but is not able to obtain insurance against the loss of the goodwill of the business.
Between 1985 and 2004, the Commercial Tribunal had the conduct of matters under the Act. The Commercial Tribunal formed the view that if a business is closed for more than three months, the goodwill of the business will be lost. It also noted that if the damage to premises is relatively superficial in nature, the reinstatement may be completed quickly with a minimum of regulatory requirements, whereas the rectification of more serious damage will require consents from several regulatory sources and will take many months to complete. It formed the view that the tenant should be entitled to protect the goodwill of its business by moving the business to other premises, and should not be held for an extended or unlimited time to a lease of premises from which the tenant is unable to trade.
Since 2005 the Tribunal has had the conduct of matters under the Act. The Tribunal has considered and affirmed the view of the Commercial Tribunal, and has consistently required the tenant to be able to terminate the term of the lease in order to transfer its business to other premises, if reinstatement by the landlord is not completed within three months from the date of the damage or destruction. It has also formed the view that the date of commencement of the reinstatement works is irrelevant to the objective of completion of the reinstatement within that three month time frame. The use of the word “commences” without further qualification creates an unlimited time frame.
Section 18 of the Interpretation Act 1984 (WA) (Interpretation Act) provides:
In the interpretation of a provision of a written law, a construction that would promote the purpose or object underlying the written law (whether that purpose or object is expressly stated in the written law or not) shall be preferred to a construction that would not promote that purpose or object.
In the interpretation of the provisions of s 13(7) of the Act, the Tribunal has formed the view that each clause submitted for approval under s 13(7) of the Act should regulate the relationship of landlord and tenant within the general context or purview of the provisions of s 13(6) of the Act.
The Tribunal has formed the view that the bracketed words in clause 13.2(a) of the lease are to be construed as being in the nature of a penalty by reason of seeking to prevent the tenant from terminating the term of a lease of premises which are not able to be used for the tenant's business, if the tenant or an invitee of the tenant has caused the damage to or destruction of the premises.
The Tribunal has formed the view that those words, the effect of which is to negate the equality of the rights of either party to terminate the term of the lease, are not based on an act or omission by the tenant or a tenant's invitee which is a breach of a provision in the lease, but are rather based on an act or omission which is either criminal in nature, or the basis for an action for damages in tort. Either case would be outside the jurisdiction of the Tribunal under the Act, and would fall to be dealt with under the jurisdiction of another forum.
Following the rule of interpretation in s18 of the Interpretation Act, the Tribunal has determined that the act or omission described in the bracketed words in clause 13.2(a) of the lease does not promote the purpose or object of the Act in general or fall within the context or purview of s 13(6) of the Act.
In the case of 480 Hay Street Pty Ltd v Irwin St Lower Pty Ltd [2020] WASC 59 at [42] Curthoys J stated (obiter) in relation to the interpretation of s 13(7) of the Act:
… In the context of costs the term 'special circumstances' has been held to mean 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. I have concluded that that is an appropriate manner in which to interpret that term in the Act[.]
The Tribunal considers that the reason given by the applicants in support of the application for approval of clause 13.2 of the lease does not satisfy the test approved by Curthoys J for the identification of 'special circumstances', as the Tribunal finds that the circumstances stated in the support for the application apply to every retail lease, and are therefore not 'out of the ordinary'.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MR K Bales, SESSIONAL MEMBER
22 JUNE 2020
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