Crea v Latife
[2023] VCC 236
•23 February 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne commercial DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-22-00771
| FREDERICK CREA | First Plaintiff | ||
| JEANETTE CREA | Second Plaintiff | ||
| v | |||
| SAMIR LATIFE MERVAT LATIFE | First Defendant Second Defendant | ||
| REGISTRAR OF TITLES | Third Defendant | ||
---
JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20, 21 June 2022 and 1 July 2022 | |
DATE OF JUDGMENT: | 23 February 2023 | |
CASE MAY BE CITED AS: | Crea & Anor v Latife & Ors | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 236 | |
REASONS FOR JUDGMENT
---
Subject: RETAIL LEASE – TERMINATION -- ORDER FOR POSSESSION
Catchwords: Enforceability of lease agreement – overholding – relief against forfeiture – estoppel – notice of default – section 28 notice – section 46 notice – rent arrears
Legislation Cited: Property Law Act 1958 (Vic); Retail Leases Act 2003 (Vic); Retail Tenancies Act 1986 (Vic); Victorian Civil and Administrative Tribunal Act 1998 (Vic)
Cases Cited:Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd & Ors [2005] VSC 236; Carydis v Merrag Pty Ltd [2007] NSWSC 1220; Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; Direct Food Supplies (Victoria) Pty Ltd v DLV Pty Ltd [1975] VR 358; Feldman v GNM Australia Ltd [2017] NSWCA 107; Giumelli v Giumelli (1999) 196 CLR 101; Gurney v Gurney [1967] NZLR 922; Horsey Estate Ltd v Steiger [1899] 2 QB 79; Hughes v Metropolitan Railway Co (1877) 2 App Cas 439; Le v Victoria Investments and Properties Pty Ltd [1999] VSC 8; Legione v Hateley (1983) 152 CLR 406; Lidsdale Nominees Pty Ltd v Elkharadly [1979] VR 84; M’Goun v Smith (1886) 12 VLR 244; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268; Masters v Cameron (1954) 91 CLR 353; Mehmet v Benson (1965) 113 CLR 295; Primary RE Limited v Great Southern Property Holdings Limited (Receivers and Managers Appointed) (in liquidation) & Ors [2011] VSC 242; Rossi Recycling Pty Ltd v Buckland Valley Pty Ltd [2022] VSC 467; S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637; Sara Investments (NSW) Pty Ltd v West Asset Holdings Pty Ltd [2022] NSWCA 207; Sea Calm Shipping Co SA v Chantiers Navals de L’Esterel SA [1986] 2 Lloyd’s Rep 294; Sidhu v Van Dyke (2014) 251 CLR 505; Sinclair, Scott & Co v Naughton (1929) 43 CLR 310; Stieper v Deviot Pty Ltd (1997) 2 BPR 9602; Thompson v Palmer (1933) 49 CLR 507; Vasue v Lubo Medich Holdings Pty Ltd [2008] NSWSC 899; Vincent Cold Storage Pty Ltd v Centuria Property Funds No 2 Limited [2022] VSC 766; Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Catlin | Kennedy Guy |
| For the Defendants | Mr I Percy | Stenta Legal |
HIS HONOUR:
Introduction
1The principal issue in this case is whether the defendants (“Sam and Mervat Latife”) have a right in equity to enforce a retail lease of the property at 29 Driscolls Road, Kealba (“the Property”), or whether they have any right to remain in possession of the Property. If they do not, the plaintiffs (“Fred and Jeanette Crea”) may be entitled to an order for possession. For ease of reference and without intending any disrespect, I will refer to the parties by their first names.
Background
2The Property comprises a milk bar, adjoining three-bedroom residence and a detached garage. The Creas bought the relevant land in Kealba in around 1974. They built the milk bar and ran the Kealba milk bar business until about 1982. It was a very successful business for the Creas. Kealba Secondary School was located next door and they began the business at a time when most shops shut at lunch time on Saturday. Moreover, there was no Sunday trading or late-night shopping.
3From 1982 to 2006, the Creas had a number of different tenants at the Property. They generally entered into a two-year lease with their tenants, with an option to renew for another two years. The tenants generally ran, or organised for someone to run, the Kealba milk bar business.
4From about 2000, Sam managed the milk bar for the then owner Mr Assad. Sam and Mervat bought the business from Mr Assad around August 2006 and on 8 August 2006, the Creas entered into a formal written lease of the Property with the Latifes. The initial term of the lease was two years, with an option of six further terms of two years each. This meant that the lease would terminate, if all options were exercised, on 8 August 2020. The rent for the initial two-year term was fixed at $2,900 per month.
5When the Latifes entered into possession of the Property there were about 300-500 students at the school. The school was on the same side of the road as the milk bar so teachers and students did not need to cross the road but could simply walk next door to visit the milk bar. The school was an important source of income for the Latifes’ business.
6Upon signing the lease, the Latifes paid $10,000 in cash to the Creas. This was effectively key money, required by the Creas in order to grant the lease.
7The Latifes operated the Kealba milk bar and lived in the adjoining residence. Under the lease, they were obliged to pay for insurance, rates and outgoings.
8The relationship that existed between the Creas and the Latifes was described by both parties as friendly. The dealings between the parties were informal and involved a degree of trust. For example, when the Creas received a rates notice or an insurance premium invoice, Fred (and later Jeanette after Fred became ill) would take the document to the milk bar for payment. The same practice applied when the Creas collected the fortnightly payments of rent owing. Before his illness, Fred would call into the milk bar from time to time just to say hello if he was driving past. It was common ground that the Creas did not give the Latifes formal notice directed to various provisions in the lease every time they wanted something done or paid.
9On 5 August 2008, Fred wrote to the Latifes. He asked whether they had taken up the option to renew the lease for the next two years and informed them of a rent increase to $3,100 per month commencing in August 2008.
10On 25 August 2008, Fred wrote to his solicitors asking them to arrange for the next option of the lease to be drawn from 8 August 2008 with the new monthly rental fixed at $3,100.
11The Creas’ solicitors prepared a deed of renewal of the lease in 2008. The Latifes never signed this document.
12By letter dated 13 July 2010, Fred wrote to the Latifes noting that they had not renewed the next option of their lease and informed them that, as of July 2010, the rent had been increased to $3,250 per month.
13In 2010, Kealba Secondary School closed. Upon closure of the school, Sam said that the Latifes lost about 20-30% of their income. In the years following, the Latifes started to experience difficulties in making payments for rent, insurance and rates.
14From late 2012 or early 2013, the Latifes began to have occasional problems with the payment of rent. For example, in January 2013, instead of making a single payment of $3,250, the Latifes made two payments three days apart, one for $2,250 and another for $1,000. Then in 2014, the Latifes paid the February rent on 2 April and the March rent on 29 April before paying no rent in May and making the April payment on 2 June 2014. The Latifes paid the May rent in July 2014 by separate instalments of $1,600 and $1,650 respectively. In and after 2014, the Latifes more frequently failed to pay the full amount of rent when due and made multiple smaller payments which collectively totalled the rent owing.
15In or around August 2016, these rental payments became smaller and more frequent such that the Latifes were making a weekly payment of $700. The Latifes later reduced the weekly payments without the consent of the Creas to $600.
16In 2017, the land where the Kealba Secondary School was situated was listed for sale.
17An arrangement was reached between the Creas and the Latifes in about February 2017 that the Latifes would make a fortnightly cash payment of $100. These payments commenced in September 2018. The Creas contended that the payments represented the back-rent which was owing and had not been paid when due.
18On 15 February 2017, Fred wrote to the Latifes saying (“the 2017 letter”):
“This is the letter you asked for to put your mind at ease that I will renew your lease in the last year of the current lease which is 2020. I would like to point out to you that you have been on a monthly tenure since 2008 as you have never written to me to take up the next option.
Of course in stating the above I must emphasis [sic] that all outgoings must be up to date including rent, rates, insurance, & fees for a new lease.”
19Fred deposed that the Latifes’ payments dropped to $600 per week from 2019. From this time their debt accumulated more quickly.
20In about February 2021, the Creas decided to sell the Property. This was due to Fred’s deteriorating health. There were three main concerns. He had a fall which caused him to sustain a head injury including bleeding on the brain. This hospitalised him for three weeks. Subsequently, his balance was adversely affected and he suffered some memory loss. Secondly, Fred had a heart condition which required him to take about nine tablets each day. Finally, Fred had kidney cancer which came originally in about July 2019 and then returned in October 2020.
21Jeanette went to the shop in early February 2021 and told Sam that she and Fred had decided to sell the Property. She said that Sam and his wife had the first option to purchase the Property and asked if they were interested. Sam said that they might have been a few years ago but not now.
22In December 2021, the Creas sold the Property. It was not disputed by the parties that this sale was subject to a lease. The disputed issue is whether or not the Latifes have any enforceable right to claim this leasehold interest.
23On 17 February 2022, the Latifes lodged a caveat over the title to the Property claiming a leasehold interest in the Property.
24By letter dated 21 February 2022, the Latifes’ solicitors wrote to the Creas’ solicitors making a number of points:
(a) the Creas did not comply with their obligations under section 28 of the Retail Leases Act 2003 (Vic) (“RLA”) and failed to provide yearly outgoings statements as required under section 46 of the RLA;
(b) the Latifes currently enjoyed tenure to the premises under the continuing lease and had a caveatable interest in the Property.
(c) the Latifes’ instructions to their solicitors were that:
(i)in February 2017, the landlord approached the tenants to ask if they wanted to renew the lease on the same terms as the August 2006 lease for a further term of 14 years with the same options as before. The weekly rent would be $600 on the books and $100 cash.
(ii)the tenants agreed and asked for some written confirmation of the agreement and that a formal lease would be produced and signed as soon as possible. The landlord agreed.
(iii)the landlord gave the tenants the 2017 letter.
(iv)the tenants sought the formal lease several times over the next two years. The landlord promised the lease document would come but “wanted to make sure payments kept coming in the meantime.”
(v)in 2020, the tenants demanded the new formal lease for signing. The response by the landlord was “why don’t you just buy the premises for $2.2 million?”
(vi)during 2021, the landlord continued to refuse to provide the new lease for signing by the tenants and indicated that the Property was going to market for $1.5 million. The landlord was “sorry they changed their mind and want to sell without a lease instead of renewing the lease.”
(d) the caveat was lodged to ensure the purchaser was put on notice of the Latifes’ interest and that the purchaser’s rights were subject to those of the Latifes.
25Under cover of the letter dated 8 April 2022, the Creas served a notice of default pursuant to section 146 of the Property Law Act 1958 (Vic) (“PLA”) on the Latifes together with a schedule of outstanding arrears. The default notice alleged that the Latifes had failed to comply with the obligations under clauses 2.1 and 5.4 of the lease by failing to pay rent and outgoings. The Creas required payment of the rent of $42,200 and $12,716.77 for outgoings. The notice said that if the tenants failed to make the payment within 14 days of service of the notice, the Creas intended to terminate the lease, exercise their other rights and recover the loss from the Latifes.
26Settlement of the sale of the Property has not yet occurred.[1]
[1]In a letter dated 15 February 2023 sent to the Court and the other party, the plaintiffs’ solicitors advised that the purchaser had rescinded the contract of sale.
27The Latifes remain in possession of the Property and continue to operate the milk bar.
Jurisdiction
28These proceedings commenced as a caveat removal application brought by the plaintiffs. They were later modified so that the Creas sued the Latifes for outstanding moneys and an order for possession of the Property.
29After the conclusion of the trial, the Court received an email from the defendants’ solicitors notifying the Court that it had come to the attention of the parties that the Victorian Civil and Administrative Tribunal (“VCAT”) had exclusive jurisdiction over retail lease disputes under the RLA. Accordingly, the County Court did not have jurisdiction to determine the dispute. This remarkable outcome did not reflect well on the various lawyers engaged in the case. How could competent lawyers prepare for and conduct a three-day trial without ascertaining in their preparatory research that the only body with jurisdiction was VCAT? This approach to the case was also reflected in the closing written submissions where both parties eschewed the effective and efficient method of addressing in turn the particular legal and factual issues which counsel had identified in writing at the beginning of the trial.
30The parties made an application to VCAT by consent under section 29 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (“VCAT Act”) for me to be appointed, nunc pro tunc, with the power to determine all issues.
31The President of VCAT, Justice Quigley, determined that pursuant to section 77 of the VCAT Act, the County Court of Victoria was the more appropriate forum for the determination of the dispute and ordered that the matter be dealt with by the County Court, preferably by me as I had already heard the case.
Issues
32The parties determined that, in this case, the Court needs to decide the following issues:
(a) Did the letter of 15 February 2017, the pleaded Representation surrounding the provision of the letter and/or other circumstances give rise to an enforceable agreement for lease of the Property?
(b) If the answer to (a) is “yes”, are the defendants entitled to specific performance of the agreement for lease?
(c) If the answer to (a) is “no”, did the letter of 15 February 2017, the Representation and/or other circumstances including expenditures by the defendants allegedly on the basis of the Representation give rise to an estoppel preventing the plaintiffs from asserting that the defendants have no right to continue to occupy the Property?
(d) If “yes” to (c) on what terms in equity should the defendants be entitled to remain in possession of the Property?
(e) Are the plaintiffs entitled to any, and if so what, arrears of rent from the defendants?
(f) Are the plaintiffs entitled to any, and if so what, outgoings or insurance premiums from the defendants?
(g) Have the plaintiffs validly terminated the leasehold interest of the defendants in the Property?
(h) Alternatively to (g), have the plaintiffs given the defendants a valid notice to quit, and if so is that sufficient to defeat any proprietary estoppel established by the defendants?
(i) If yes to (g) or (h), are the plaintiffs entitled to an order for possession of the Property?
(j) Alternatively to (i), are the defendants entitled to relief against forfeiture, and if so on what terms?
(k) Alternatively, if specific performance is not granted, are the defendants entitled to any and if so what equitable compensation or damages for breach of the agreement to lease?
The credit of the witnesses
33A matter of significance in this case is the credibility of the witnesses.
34At trial, the Creas and the Latifes gave conflicting evidence about alleged conversations and presented two different narratives about what was orally communicated and agreed.
35There is limited documentary evidence that can be relied upon in determining what oral representations were made. Therefore, the credibility of the Creas and the Latifes and their oral evidence at trial, is important in deciding this case.
36The Latifes contended that Fred was an unreliable witness. They accepted that he was unwell and that his memory might well have been affected by his fall. They argued that, at points in his evidence, it was unclear whether Fred was fully aware of what was being asked and his role as a witness.
37In relation to Jeanette, the Latifes accepted that she had been living under substantial stress in recent years. Nevertheless, they contended that she too was unreliable. For example, while she initially denied that the Creas received $10,000 as key money in 2006, she later acknowledged that the Latifes had paid that amount when getting their initial lease of the Property. The Latifes argued that it was troubling that Jeanette appeared to have forgotten such a significant event.
38The Creas were critical of the Latifes as well. They submitted that their evidence on some significant matters was untrue and that their actions were inconsistent with the position which they now adopt in the litigation.
Analysis
39I find that Fred and Jeanette were honest witnesses and did their best to tell the truth to the best of their recollection.
40Although Fred was honest, I accept that his memory has been affected by the brain bleed and his evidence cannot be unreservedly relied upon. Especially on matters which occurred many years ago, I would be disinclined to accept Fred’s evidence without corroboration.
41I find that Jeanette too was an honest witness even though she corrected her evidence about the payment of key money in 2006. Certainly her initial evidence on this issue was incorrect. But, after finding the document which indicated the payment was made, she recanted without equivocation. Jeanette appears not to suffer from significant ill health and presented as quite a vigorous lady. I find that particularly for matters which occurred in the last five to eight years, her evidence is likely to be reliable and trustworthy. To that extent, where she disagrees with Sam and Mervat, I generally prefer her evidence to theirs.
42In assessing the credibility and reliability of Sam and Mervat, I have made due allowance for the fact that English is not their native tongue. However, they have lived and/or worked at the Property since about 2000 so they have interacted with customers and the broader community since that time. From this, and from observing him in court, I consider that Sam has quite good English. Mervat has been helping in the shop only since about 2016. Her command of spoken English is not as good as Sam’s. In addition, there was an interpreter present at the trial and to the extent the defendants sought to have recourse to her, she was available to each of them while they gave evidence. Accordingly, if they wanted clarification on any point or sought to use the interpreter more generally, she was at their disposal.
43For the reasons which follow, I find that Sam and Mervat were unreliable witnesses whose evidence on contested matters I would be disinclined to accept.
44There are several aspects of the Latifes’ evidence which concern me. Sam gave evidence that he was paying “full rent” until 2016. He accepted that it was hard to pay the rent on time but said that he “didn’t stop” paying. Further, he denied that he ever fell behind on rental payments. Similarly, Mervat denied that they fell behind on the rent from 2015.
45During the period from around early 2013 until December 2020,[2] the Creas kept records of the rent which the Latifes paid in relation to the Property together with payments of back-rent owing. Jeanette used these records to create a document which reconciled the rent paid by the Latifes with the amount they should have paid over the period between 2015 and 2021. The balance indicated an outstanding debt of $41,680 rent which was due but not paid.
[2]The Creas did not dispute that the Latifes continued to pay at a rate of $600 per week in 2021.
46The ledger of rent kept by the Creas shows that from sometime around the middle of 2014, whilst the Latifes were making multiple payments per month which totalled $3,250, these payments were often made two to three months after the month for which the rent was due. By virtue of this pattern, the Latifes were frequently in arrears from the middle of 2014.
47The fact that both Sam and Mervat denied falling behind on rent, a view which is inconsistent with the written ledger, and spreadsheets,[3] does not assist their credibility as witnesses.
[3]See paragraphs 140 – 147 below
48The second aspect of the Latifes’ evidence that casts doubt upon their credibility is the evidence they gave about the 2017 letter. The letter written by Fred to the Latifes commences “[t]his is the letter you asked for to put your mind at ease …” which suggests that the Latifes had asked for some correspondence to help them to renew the lease if they so wished. Fred said the 2017 letter was written at the request of Sam who wanted security because he “wasn’t confident that he had a lease although he should have been”. Fred explained that he would not have written the letter if Sam had not asked for it.
49However, both Sam and Mervat gave evidence that the 2017 letter was Fred’s idea. Mervat said that promises were being made about a future lease in 2017, three years prior to the end of the 14-year term, because “[t]hat’s what Fred wanted.”
50I have difficulty accepting the Latifes’ evidence on this point. If the lease were valid until the end of the 14-year term, then the Creas had no reason to raise questions or make promises about renewal in 2017. In my view, it is more likely that these discussions in 2017 were initiated by the Latifes. They were probably prompted by the sale of Kealba Secondary School and the proposed development of the school land. It is likely that the Latifes wanted some sort of assurance from the Creas that they could stay at the Property when the school land was developed and there was potential for increased takings for the milk bar business. Sam and Mervat’s insistence on the fact that the 2017 letter was Fred’s idea undermines their credibility.
51Thirdly, there were inconsistencies between the Creas and the Latifes as to the rent to be paid in cash. Around February 2017, the Creas and the Latifes reached an arrangement whereby the Latifes would make a fortnightly cash payment of $100. The Creas said that these payments constituted a back-payment of the Latifes’ rental arrears. Sam gave evidence that the cash payments came about as a “gentlemen’s agreement” implying there was a tax incentive for the Creas in having some portion of the rent paid as “cash in hand.” I do not accept Sam’s evidence about why $100 per fortnight was paid to the Creas in cash. The payment was recorded in a document called “Back Rent Payment Ledger” and commenced in September 2018, when the Latifes had fallen significantly behind on their rent. Jeanette also explained that, considering their income, a fortnightly cash payment of $100 would not have created any tax benefit for them.
52Fourthly, in his affidavit filed in the caveat removal application, Sam said that at no time since 8 August 2006 had he or his wife received from the plaintiffs any reminders in relation to renewals of the lease under section 28 of the RLA. This was inconsistent with the undisputed evidence that Fred sent a letter to the Latifes on 5 August 2008 about the exercise of the first two-year option. Under section 28, having received this notice, the Latifes had time in which to formally exercise the option. They did not do so.
53Finally, Mervat gave some evidence which I find incredible. Even though:
·the closure of the Kealba Secondary School reduced the income of the milk bar business by 20-30%;
·Mervat knew about the reduced income caused by the closure of the school;
·the Victorian Government sold the Kealba Secondary School land in 2017;
·there were plans to develop the former school land to accommodate 200 or more apartments; and
·one of the Latifes’ sons made enquiries from time to time with the council about the progress of the development application for the school land
Mervat said that, in the years 2017, 2018 and 2019 she did not know about the proposed apartment development on the school land. Further, she said that she never had any discussions with her husband about how the apartments might improve the income of their business.
54In contrast, Sam said that he talked with his family about the proposed development. He hoped that the development would proceed quickly so there would be many new customers who would rejuvenate their business.
55I find Sam’s evidence to be more likely and credible than Mervat’s on this issue. The Latifes were a family with a business in which the children had worked and one of them had given $10,000 to the parents to assist with the business. The business was significant for the family and, I find, would have been discussed by the parents.
56The two other main witnesses were the two estate agents whom Fred and Jeanette engaged to sell the Property, namely, Jason Sassine (“Sassine”) and Leo Kikyris (“Kikyris”).
57Sassine was a director of Jason’s Real Estate Commercial Pty Ltd. He gave some evidence about his dealings with the Creas and the Latifes regarding the sale of the Property. I found him to be a credible and reliable witness.
58Kikyris was a sales agent at Jason’s Real Estate Commercial Pty Ltd. He attended the Property with prospective buyers. His recollection in court of conversations between himself and Sam was limited. He did not mention in court a couple of matters he referred to in his affidavit filed in March 2022 in connection with the Creas’ application to remove the caveat lodged by the Latifes.
59The Latifes sought to impugn the credit of the estate agents by suggesting that the payment of commission on the sale of the Property was dependent upon them supporting the Creas to ensure that the sale transaction went through.
60I reject the defendants’ argument on this point. First, I do not find that either Sassine or Kikyris was dishonest and gave false evidence. Secondly, as Sassine said, the agency became entitled to commission once the vendors and purchaser signed the contract of sale. Thus, even though the Creas have not yet paid commission, and the sale of the Property has not settled, the agency’s entitlement to commission already exists.
(a) Did the letter of 15 February 2017, the pleaded Representation surrounding the provision of the letter and/or other circumstances give rise to an enforceable agreement for lease of the Property?
61By letter dated 15 February 2017, Fred wrote to the Latifes. The letter read as follows:
“This is the letter you asked for to put your mind at ease that I will renew your lease in the last year of the current lease which is 2020. I would like to point out to you that you have been on a monthly tenure since 2008 as you have never written to me to take up the next option.
Of course in stating the above I must emphasis [sic] that all outgoings must be up to date including rent, rates, insurance, & fees for a new lease.”
The letter was signed by the Creas but was not signed by Sam or Mervat.
Pleadings
62The Latifes argued that in early February 2017, the Creas represented to them that they would renew the lease in the last year of the current lease, being 2020. The renewal would be for a term of 14 years at a rental of $700 per week.
63The representation was said to be partly written, party oral and partly implied. The written aspect was the 2017 letter from Fred.
64The oral component was a conversation between the parties in early February 2017 when the Creas asked the Latifes whether they wanted to renew the lease on the same terms for a further 14 years. The Latifes alleged they said that they would be agreeable to a new lease if the rent was $700 per week and a new lease was entered in the same terms as the existing lease. They said that the Creas accepted this. The Latifes asked the Creas to provide something in writing to confirm the agreement and the Creas later produced the 2017 letter.
65The representation was alleged to be implied from the Latifes remaining in possession of the Property at the expiration of the term on 8 August 2020 and continuing to pay rent and outgoings in respect thereof.
66The Creas pleaded in response that, subject to the Latifes meeting the conditions in the 2017 letter and there being no change of circumstances, there was an expression of intention to renew the lease for three years. The Creas otherwise denied the allegations.
Submissions
67Broadly speaking, the Latifes argued that the 2017 letter constituted an agreement between the parties such that they intended to be immediately bound to the performance of those terms but proposed to have the terms restated more fully or precisely in a formal document. This categorisation of the factual circumstance that existed between the parties in 2017 would place the case within the first class of Masters v Cameron[4].
[4]Masters v Cameron (1954) 91 CLR 353 at 360
68In their final submissions, the Latifes contended that:
(a) the four elements of an enforceable agreement to lease, namely, parties, property, term and rent were satisfied. The agreement fell within the first category of case in Masters v Cameron[5] or the fourth category discussed in Sinclair, Scott & Co v Naughton.[6]
(b) the renewal was to take effect in the last year of the current lease, being 2020;
(c) the representation or promise to renew the lease was an agreement for a new lease with a term of 14 years;
(d) the proviso in the lease was not a condition precedent which the Latifes failed to satisfy. The letter did not say that the agreement was “subject to” the parties entering into a formal lease agreement;
(e) if the proviso were a condition, the evidence does not show that the Latifes were in arrears of rent at 8 August 2020. There was no expert evidence to show the arrears. Further, because the Creas failed to give notice of the estimated outgoings to which the tenants were liable to contribute pursuant to section 46 of the RLA, the Latifes were not liable to pay anything towards outgoings after 8 August 2020;
(f) due to the Creas’ failure to notify the Latifes to remedy any default under the lease (See section 27(2) of the RLA), the Latifes were not prevented from exercising the option to renew; and
(g) in any event, because the Creas failed to give the notice required under section 28(2) in relation to the exercise of the option to renew, the former lease continued.
[5]Ibid
[6](1929) 43 CLR 310 at 317
69The Creas submitted that:
(a) the 2017 letter did not constitute an enforceable agreement because essential terms of the new lease were not agreed; and
(b) any agreement for a new lease was subject to conditions which the Latifes did not satisfy.
70The Creas argued that that there was no enforceable agreement between the parties arising from the 2017 letter and surrounding circumstances. The plaintiffs said that the arrangement between the parties in 2017 fell within the third class of Masters v Cameron[7] being a state of postponement until execution of a formal agreement. Further, they said that, for the Latifes to succeed, the parties had to intend to be immediately bound. This element was missing.
[7](1954) 91 CLR 353
71The various Masters v Cameron[8] categories were set out in the judgment as follows:
“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”[9]
A proposed fourth category concerns a situation in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.[10]
[8]Ibid
[9]Ibid at 360
[10]Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317
72The New South Wales Court of Appeal in Feldman v GNM Australia Ltd[11] usefully summarised the legal principles to be applied when addressing the operation of Masters v Cameron[12] and whether parties in a particular context had made a binding contract. The Court of Appeal noted that:
·the categories identified are neither strict nor prescriptive, nor are they exclusive or necessarily exhaustive. They describe circumstances in which a binding contract may or may not have come into existence.
·in examining the intention to create contractual relations, there must be an objective assessment of the state of affairs between the parties. The intention is that which would be objectively conveyed by what a party said or did having regard to the circumstances in which words were uttered or conduct occurred. A court could consider the subject matter of the communications and the commercial context in which the dispute arose. A major aspect of that context would relate to the subject matter to which the parties had regard, or would ordinarily be expected to have regard, as matters to be covered by the contract.
[11][2017] NSWCA 107 at [60]-[71]
[12](1954) 91 CLR 353
Analysis
73The intention of the parties to make a concluded bargain is critical to determining the class of conditional contract into which the agreement falls.[13] Regard should be had to the commercial circumstances surrounding the exchange of communications, the subject matter of those communications,[14] and whether the agreement was drawn up by a solicitor or a layperson.[15]
[13]Masters v Cameron (1954) 91 CLR 353
[14]Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550
[15]See for example Masters v Cameron (1954) 91 CLR 353 at 361-2
74In order to be enforceable as an agreement for lease, four matters must be clearly agreed: the term of the lease, the area of demise, the commencement date and the rent.
75There was no serious dispute about the area of the demise or the commencement date.
76The area of any new lease would have been the same as that granted under the initial 2006 lease. There was no change to the leasehold area.
77From the terms of the conversation between the parties and the 2017 letter, I would infer that, subject to the question of the Latifes actually seeking another lease, such further lease would commence after the expiry of the initial lease on 8 August 2020.
78The controversy concerned the remaining elements, the rent and the term. The Latifes asserted that the rent on the new lease was $700 per week. Alternatively, if that amount were not agreed, then they said it could have been determined by agreement or by a valuer under clause 13 of the lease, such newly determined rent to take effect from 9 August 2020. Similarly, the Latifes claimed that the new lease for a term of 14 years.
79Given its importance in the trial, the evidence about the alleged agreement for a new lease in August 2020 was relatively vague and sparse.
80The Latifes asserted that Fred promised in 2017 to renew the lease in 2020. They made comments to the effect that Fred assured them that he would refresh the lease and he would secure them.
81The Creas accepted that the Latifes wanted an assurance that they could remain at the Property with a new lease when the initial lease expired in 2020. The Creas were content to grant a lease provided all outstanding amounts owing by the tenants were brought up to date.
82As to rent, the Latifes gave no evidence of any discussion with the Creas about rent details. Their evidence at trial was to the effect that the rent was to be $600 per week on the books plus $100 cash.
83In relation to the term of the new lease, again the Latifes asserted that it was to be 14 years. But the evidence did not give any detail about discussions with the Creas to this effect.
84The high point of the defendants’ oral evidence on these matters was Sam’s response in evidence in chief to the question “was there any discussion with you about what the rent would be when a lease took effect at the end of 2020?” Sam said he thought the lease should be 14 years and the rent would be $600 on the books and $100 cash in hand. Counsel did not seek to elicit other details from Sam. This answer gave no detail about any conversation which passed between Sam and the landlords around February 2017. Thus, the defendants’ evidence on the point was general and conclusory and probably inadmissible.
85I note too that in his affidavit filed in the caveat removal application, Sam said that in early February 2017, both Fred and Jeanette approached him and his wife at the Property asking if they wanted to renew the lease of the Property on the same terms as the 2006 lease for another 14 years with the same options as before. Sam said that he told them that he and his wife were agreeable to this if the rent was $700 per week. At trial, the defendants did not put this scenario to the plaintiffs.
86The Creas gave no detailed evidence about the rent for the period after August 2020. It was not put to them that they agreed to a monthly rental of $700 comprising $600 on the books and $100 cash in hand. When the Creas referred to the receipt of $100 cash every two weeks (which took place after about September 2018), they said that this money represented the late payment of rent which was owing.
87The Creas’ evidence did not address the question of the duration of a new lease. It was not put to them that they agreed to a 14-year lease.
88I have set out the evidence about how the 2017 letter came to be written and my conclusions about who promoted the idea.
89The evidence given by Sam and Mervat in particular, but also by the plaintiffs, in my view did not support propositions to the effect that:
(a) the rent was agreed at $700 (or indeed any other amount) or was agreed to be set by an independent person; and
(b) the term of the lease was 14 years.
90My assessment of the evidence leads me to conclude that there was no detailed discussion of the rent which would apply if Sam and Mervat commenced a new lease of the Property in August 2020. Indeed, I find that the topic of an appropriate rent was not even discussed between the parties much less the subject of agreement.
91I note that from one perspective, the question of rent was likely to be contested. The initial rent in 2006 was $2,900 per month. At the first renewal in 2008, it increased to $3,100 per month. From 2010, the rent increased to $3,250 per month. Between 2010 and August 2020, the rent nominated by the Creas did not increase. But, by around 2018, the Latifes appear to have unilaterally reduced the rent payments to $600 per week (plus the extra $100 per fortnight for arrears). In those circumstances, if a new rent were to be struck at the commencement of a new lease in August 2020, I would have expected that a market rent would have been rather higher. This reflected the absence of rental increases after 2010 and the substantial growth in Melbourne property prices and rents since that time. However, there was no discussion or agreement that the rent for the new lease should be determined by an independent expert.
92My conclusion is the same regarding the term of any new lease. Again, the total term, or the initial term and later options to renew, were neither discussed nor agreed upon by the parties. That being so, there could be no agreement for lease which was capable of enforcement.
93A reason explaining the parties’ failure to examine such topics was the defendants’ failure after 2017 to actually ask for a new lease. By August 2020, there was still no certainty about the nature of the development on the school land and the time for its completion. The evidence disclosed that VCAT did not approve the development application for the school land until 8 October 2020. Even at the time of the trial, no construction work on the land had begun.
94Sam said that, due to the pandemic, the milk bar business “suffered a severe drop in turnover”. However, he said that the defendants still managed to pay the rent. Given the pandemic and the reduced income for the business, it was understandable that the Latifes did not wish to commit to a two-year lease with six further options. That would involve a financial commitment from the Latifes which would create significant obligations for at least two years. By not asking for, and entering into, such a lease, the Latifes maximised their freedom to quit the Property at short notice if that became expedient. Without a lease, their rent liability was not the balance of the two-year term but a much shorter period.
95In connection with this issue of the possible new lease, its duration, and rent, I note the substantial disparity on the one hand, between the allegations in the Latifes’ pleading and the solicitors’ letter to the Creas[16] and, on the other hand, the evidence which Sam and Mervat gave at trial. The oral evidence made no mention of the parties agreeing to a 14-year term and a weekly rental of $700. Nor did the defendants’ evidence disclose that:
·the Latifes in 2020 demanded a new formal lease to sign;
·the Creas responded that the Latifes should just buy the Property for $2.2 million;
·the Creas informed the Latifes in 2021 that the Property was going on the market for $1.5 million;
·the Creas said they were sorry they changed their mind and wanted to sell the Property without a lease;
·the Creas asked the Latifes in early February 2017 if they wanted to renew the lease on the same terms for a further 14 years;
·the Latifes said that they were agreeable to a new lease if the rent was $700 per week.
[16]See paragraph 24 above
96As to the proviso in the 2017 letter, I regard it as a condition of any agreement. Although the words “subject to” were not used, this is not determinative. The Creas themselves, not a lawyer, drafted the 2017 letter. The intention conveyed by the words used in the letter was that the Latifes had to be up to date with all payments before a new lease could be executed. The talk of a new lease agreement was conditional upon outgoings and rent being up to date and any potential agreement was not enforceable until a formal lease was executed. This interpretation aligns with the fact that certain essential elements of the lease agreement had not yet been agreed but could be discussed if and when a new formal lease was drafted and executed. Moreover, the Creas had required a formal written lease agreement for the initial lease. There was no reason to think that they required anything less formal for a second lease agreement.
97Thereafter, there seemed to be no documents produced or spoken of regarding the further renewals of the lease.
98Viewing the words and conduct of the parties in the circumstances at the time, it was objectively evident that:
·the subject matter in question was a leasehold interest in land
·the creation and/or transfer of interests in land are routinely effected by written documents signed by the parties;
·the parties engaged solicitors and signed a written lease agreement, including options to renew, when creating the initial lease in 2006;
·in 2008 around the expiry of the initial two-year term, the Creas arranged for their solicitor to draft a deed for renewal of the lease for a further two-year term. The Latifes never signed this document;
·given the initial lease provided for a total possible lease period of 14 years (assuming the tenants exercised all the options to renew) the parties were due to enter a new lease if the tenants were to remain long-term leaseholders into the future;
·there was no discussion or agreement between the parties in or before August 2020 about the rent or term of any new lease.
In my opinion, these factors indicate that the parties had not made any binding agreement in relation to the Property for the period after 8 August 2020. Sam and Mervat had to ask for a lease and then the parties had to agree upon essential terms. Because there was no agreement to lease, there was by definition no agreement to which the parties could be immediately bound.
(b) If the answer to (a) is “yes”, are the defendants entitled to specific performance of the agreement for lease?
99Because I have found that the 2017 letter does not give rise to an enforceable agreement for lease of the Property, the answer to this question is “no”.
100However, if my answer to the first question was wrong, I will briefly consider the question of specific performance.
101A party seeking specific performance must be ready, willing and able to perform the essential obligations imposed on them by the contract which they seek to enforce.[17]
[17]Mehmet v Benson (1965) 113 CLR 295
102A court can refuse specific performance if the party seeking it is unable to perform its obligations – for example, there is proven financial inability.[18] A party seeking specific performance must produce at least some evidence to show that it is ready, willing and able to meet its obligations. The court should be satisfied that the party has the intention and ability to complete the contract.[19] This could be satisfied through oral evidence or could be strengthened by the party adducing evidence of readily available capital or loan funds or paying any overdue payments owing.[20]
[18]Gurney v Gurney [1967] NZLR 922 at 925
[19]Carydis v Merrag Pty Ltd [2007] NSWSC 1220 at [34]
[20]See, for example, Sara Investments (NSW) Pty Ltd v West Asset Holdings Pty Ltd [2022] NSWCA 207 upholding trial judge at 2022 NSWSC 674 at [11] – [16]; Rossi Recycling Pty Ltd v Buckland Valley Pty Ltd [2022] VSC 467
103Here, there was no evidence from the Latifes that they were ready, willing and able to take up a lease of the Property of the kind for which they contended, namely, a two-year lease with six two-year options and a commencing rent of $700 per week. The Latifes did not provide to the Court any tax returns, financial records or bank statements which showed an ability to pay the future rent and outgoings (or any accumulated debt). I would not have been persuaded by mere assertions of willingness and ability. This was because of my concerns partly about the credibility of the Latifes and partly their attempt to extract a payment of possibly $50,000 from the Creas or the purchaser of the Property to surrender possession of the Property.[21]
[21]See paragraph 116 below
104In the absence of appropriate evidence, I am not satisfied that it is proper for the Court to order specific performance.
(c) If the answer to (a) is “no”, did the letter of 15 February 2017, the Representation and/or other circumstances including expenditures by the defendants allegedly on the basis of the Representation give rise to an estoppel preventing the plaintiffs from asserting that the defendants have no right to continue to occupy the Property?
105It is the defendants’ position that, if the 2017 letter and surrounding circumstances did not give rise to an enforceable lease agreement, the Latifes nevertheless have a leasehold interest in the Property pursuant to the principles of estoppel.
106In their submissions, the Latifes argued that:
(a) they had a leasehold interest in the Property pursuant to the principles of estoppel;[22] and
(b) the 2017 letter and surrounding circumstances formed a representation by the Creas that the Latifes would have a leasehold interest in the Property beyond 2020. This representation led the Latifes to assume that a new lease would be entered into. It was said that in reliance on the assumption that a new lease would be executed, the Latifes changed their position by undertaking improvements to the milk bar and buying new furniture for their home. The Latifes claim that they would suffer a detriment if a new lease was not executed and the Creas could resile from the representation. This was a case of proprietary estoppel by encouragement and, possibly, one by acquiescence.[23]
[22]Paragraph 28 of the defendants’ closing submissions
[23]Paragraph 32-38 of the defendants’ closing submissions
107The Creas denied that there was any binding promise or estoppel which operated against them.
108The field of estoppel is an unusual one. It comes in an array of varieties and is often affected by doctrinal confusion, even in the highest courts.[24] A reasonably uncontentious but broad division exists between common law estoppels which are based on representations of fact and equitable estoppels which are based on promises or assurances.
[24]See for example the criticisms of the High Court of Australia’s judgments in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394 in Denis SK Ong, Ong on Estoppel (The Federation Press, 2020) and Justice Kenneth R Handley, Estoppel by Conduct and Election (Sweet & Maxwell, 2nd rev ed, 2016)
109In Thompson v Palmer[25] Dixon J said:
“Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He … is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.” [26]
[25](1933) 49 CLR 507
[26]Ibid at 547
110The doctrine of promissory estoppel was established in the decision of Hughes v Metropolitan Railway Co[27] where Lord Cairns LC said:
“[I]t is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.” [28]
[27](1877) 2 App Cas 439
[28]Ibid at 448
111The High Court of Australia recognised the existence of promissory estoppel in Legione v Hateley.[29] The doctrine has been further examined in subsequent cases such as Walton Stores (Interstate) Ltd v Maher,[30] Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd,[31] Sidhu v Van Dyke.[32]
[29](1983) 152 CLR 406
[30](1988) 164 CLR 387
[31](2016) 260 CLR 1
[32](2014) 251 CLR 505
112In short, I do not consider that the 2017 letter contained or gave rise to an estoppel which prevented the Creas from asserting that the Latifes had no right to occupy the Property.
Analysis
113Here, at its highest, the 2017 letter represents that, subject to certain conditions, in August 2020, the Creas will grant a new lease to the Latifes on terms to be agreed when the Latifes ask for it. I find that there is no estoppel operating against the Creas because:
(a) the representation was so vague it was difficult to enforce or to award compensation in lieu of holding the Creas to the representation;
(b) the Latifes did not ask for the new lease in or before August 2020;
(c) the grant of the lease was conditional upon the Latifes paying to the Creas the amount outstanding for rent and outgoings. The Latifes did not pay or tender payment of these monies; and
(d) the Latifes did not establish detrimental reliance on the representation alleged.
114As already discussed, the indication or representation was conditional upon the Latifes asking for the lease and the Latifes paying the rent and outgoings which were due and unpaid. Also, the terms of any proposed lease were not agreed. The duration of the lease and the starting rent were unknown as were other terms.
115I find that the Latifes did not ask for the new lease until after the Creas had contracted to sell the Property to a third party. So, although Jeanette told Sam in February 2021 of the intended sale of the Property, the Latifes did not assert their alleged leasehold interest in the Property until February 2022 when they lodged the caveat. Sam acknowledged to both Jeanette and Sassine that by 2021, the Latifes had no leasehold interest in the Property. Sassine pointed out to Sam the danger he faced in having no lease. It meant that the new owner of the Property could require him to vacate the Property at short notice.
116It was not until late in the process that the Latifes lodged their caveat. While the Latifes did not admit it, it seems most likely that they did this in the hope of receiving a payout of about $50,000 as compensation for surrendering, or providing possession of, the Property to the new purchaser. I infer this from Sam’s conversations with Jeanette and Sassine. In 2021, Sam was aware that he and Mervat did not have a long-term lease over the Property and were vulnerable to be ejected from it at short notice. Also, without a long-term lease, they effectively had no goodwill to sell. When Jeanette pointed out to Sam that he would not get anything for the goodwill of the business if the buyer told them to leave the Property, Sam said that he knew this and “what’s $50,000?” He said both the Creas and the Latifes were victims of bad luck.
117I do not accept that the 2017 letter and surrounding circumstances constituted a promise to the Latifes that they would have a leasehold interest beyond 2020 without ever requesting a new lease in 2020. In February 2017, the “current” lease had a remaining three and a half years before renewal became necessary.
118However, even if the Creas’ conduct in 2017 constituted a representation that led the Latifes to assume a new lease would automatically be entered into, the improvements alleged to have been made in reliance on this assumption are not such that the Latifes would suffer a detriment if no new lease were to be executed.
119The improvements made to the shop included replacements of the flyscreen, improvements to the windows and doors, upgrades to the counter, register and shelving, installation of new curtains, repairs to the cool room, painting and some minor plumbing. This work was not of a major nature and did not involve much expense. It was so minimal that the Latifes did not seek a tax deduction for the cost incurred on the work.
120Sam also made repairs to the garage and Mervat purchased items of furniture. The purchases included new beds, new couches, a new television and television unit, a coffee table and dining chairs, a fridge and a washing machine. Receipts from Harvey Norman identify the goods that were purchased, and when and where they were delivered. 12 of the 14 items of furniture were delivered in May and June 2017 to an address in Hillside whilst the remaining two items were delivered to the Kealba Property. Sam said that the goods were delivered to a different property but later transported to his home in Kealba.
121Importantly, as outlined in the defendants’ statement of claim, these improvements were undertaken, and purchases were made after 2017 but not after 8 August 2020. During examination in chief, counsel for the defendants did specify that he was asking about any improvements made to the shop after 8 August 2020. However, it was not clear from the evidence of Sam that he was restricting his answers to this time period. If these improvements were undertaken in 2017, it is impossible to say with certainty that they were a result of reliance on the plaintiffs’ alleged representation. It is likely that in 2017 Sam would have sought to make repairs to the cool room and upgrades to the shelving, for example, knowing that he needed the business to be operating smoothly for at least another three years.
122With regard to the furniture which was purchased in 2017, it was not clear whether all 14 items remain at the Property now or whether some were to remain at the Hillside address to furnish that property. I think the most likely scenario is that some of the items were for family members in the Hillside property and the remaining items were transported by the Latifes and their children, to the Property in Kealba. Ultimately, it is of little consequence because there was no evidence before me to contradict the view that these items are portable and can be utilised and enjoyed in many locations. They are not site specific.
123The Latifes have not demonstrated a detriment that exists as a result of the improvements to the business or the furniture purchased for the home.
(d) If “yes” to (c) on what terms in equity should the defendants be entitled to remain in possession of the Property?
124If I had have found that the defendants were entitled to remain in possession of the Property by reason of an estoppel, I do not consider that the estoppel would have entitled the defendants to the full benefit of the assumption upon which they allegedly relied,[33] thereby resulting in a grant of a 14-year lease.
[33]Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404-5 per Mason CJ and Wilson J, at 423 per Brennan J
Legal principles
125The equity is said “not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon.”[34]
[34]Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 423 per Brennan J
126Where it would be inappropriate or impossible to require the party estopped to make good the assumption by entering into a contract with the other party, damages may be awarded in lieu.[35]
[35]S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 at 639-40
127Equity may also impose conditions to be performed by the successful party, on the ground that a party seeking equity must be prepared to do equity.[36]
[36]Giumelli v Giumelli (1999) 196 CLR 101 at [42]
Analysis
128The Latifes are said to have relied upon an assumption that a second 14-year lease would be executed on the same terms as the original lease. If the Creas were required to make good this assumption, there would be an obligation on the Latifes to bring all outstanding payments up to date on the basis that the party seeking equity must come to court with clean hands.
129The Latifes say that the detriment they would suffer if this assumption were not made good at equity would be the loss of enjoyment of furniture purchased for their home and the time and money lost on improvements made to the milk bar. The remedy at equity should not necessarily compel the Creas to fulfil the assumption but rather it should avoid the detriment that the Latifes say would be suffered if the assumption were not fulfilled.
130If I were satisfied that the detriment claimed by the Latifes were made out, it would be disproportionate to hold the Creas to the assumption that the Latifes would be given a new lease for a 14-year term. Equity would be done by paying compensation for the moneys expended on improvements to the milk bar and on furniture for the house.[37]
[37]See Vasue v Lubo Medich Holdings Pty Ltd [2008] NSWSC 899 at [52]
131The Latifes have not precisely quantified this expenditure. I note that this outcome also assumes that I accept that the Latifes relied upon a representation by the Creas about a new lease after August 2020. I have found that this alleged representation was not made out. Further, I do not accept that the Latifes relied upon such an alleged representation when incurring the expenditure. To the extent that the Latifes suggest that they so relied, I do not believe them. No other objective contemporaneous evidence makes good the defendants’ position.
(e) Are the plaintiffs entitled to any, and if so what, arrears of rent from the defendants?
Arrears of rent
132The solicitors for the plaintiffs issued a notice of default to the defendants dated 8 April 2022 claiming $42,200 in unpaid rent. The Creas say that they are entitled to payment of $42,200 being the outstanding rental arrears as at 8 April 2022 and accruing. The Latifes deny that they are in arrears.
133An arrangement was reached between the Creas and the Latifes in or around February 2017 that the Latifes would make a fortnightly cash payment of $100. These payments commenced in September 2018.[38] The plaintiffs say (and I accept) that these payments were to be put towards a back payment of the Latifes’ rental arrears. Sam simply said the arrangement was a “gentlemen’s agreement”.
[38]The delay between the date of the arrangement and the payment was not explained in any detail. Sam said that it was not until September 2018 that Fred asked for the cash payment.
134Pursuant to this arrangement, the Latifes have paid $3,650 in cash to the Creas. This figure must be credited to the Latifes in calculating any outstanding rent arrears.
Key money
135I referred earlier in the judgment to the key money issue and the Creas’ evidence about it. Coincidentally, the Latifes’ evidence about the key money had some confusing aspects too: which child had provided the funds and whether the child relied only upon cash or the withdrawal of funds from the bank.
136By the conclusion of the trial, there was no dispute that the sum of $10,000 paid by way of key money to the Creas should be credited to the Latifes. The Creas did not seek to make any point that the funds were produced by one of the defendants’ children rather than the defendants themselves.
Analysis
137An agreement existed between the parties from August 2006 under which the Latifes were obliged to make regular payments for rent. Initially, rent was fixed at $2,900 per month. From August 2008 it was fixed at $3,100 per month and from July 2010 it was fixed at $3,250 per month. The written lease agreement of 2006 created a two-year term with the option to renew. After 2008 there was a letter from Fred to his solicitors asking that the next option for the lease be drawn but the Latifes did not sign the 2008 deed of renewal. Fred then wrote to the Latifes in July 2010 noting that he had not received anything from them regarding the next option of their lease.
138So, probably from 2008 but certainly from 2010 onwards, the Latifes were overholding and were on a monthly tenancy pursuant to clause 10 of the lease.
139Clause 10 of the lease reads as follows:
10. OVERHOLDING AND ABANDONMENT OF THE PREMISES
10.1 If the tenant remains in possession of the premises without objection by the landlord after the end of the term -
10.1.1 the tenant, without any need for written notice of any kind, is a monthly tenant on the conditions in this lease, modified so as to apply to a monthly tenancy,
10.1.2 either party may end the tenancy by giving one month's written notice to the other which may expire on any day of the month,
10.1.3 the monthly rent starts at one-twelfth of the annual rent which the tenant was paying immediately before the term ended unless a different rent has been agreed, and
10.1.4 the landlord may increase the monthly rent by giving the tenant one month's written notice.
140The plaintiffs produced a spreadsheet which purported to calculate the arrears of rent which formed part of the notice of default dated 8 April 2022. It recorded the possible amount outstanding as $42,200. The accuracy of this spreadsheet was disputed by the defendants. Two further versions of the spreadsheet were included in the court book. One prepared by the plaintiffs stated the amount outstanding as $36,200. This figure did not take account of the key money nor the back-rent payments. The third version, which was a reconciliation prepared by the defendants, brought into account the $10,000 key money and the $3,650 in back-rent payments. It recorded possible arrears of $25,400.
141However, the defendants said that they were not obliged to pay this. They contested the accuracy of the spreadsheets, pointing to anomalies such as the missing row for July 2014. A similar administrative error also occurred in July 2015. The defendants argued in final submissions that the spreadsheet was not in evidence and relied upon the fact that no expert evidence was called in relation to it.[39]
[39]Paragraph 13 of the defendants’ closing submissions
142As was made clear to counsel at the outset, this trial was conducted on the basis that any documents referred to in the opening, or to which a witness was taken, were assumed to be tendered unless objected to at the time. During her evidence in chief, Jeanette was taken to the plaintiffs’ amended version of the spreadsheet. Jeanette said that her solicitors produced this spreadsheet from the information she provided to them. She believed the spreadsheet to be accurate with the fortnightly $100 back-rent payments deducted from the balance at the end. The defendants’ counsel disputed the accuracy of this spreadsheet but did not object to this line of questioning or reliance upon the spreadsheet.
143The parties were directed to keep a list of all the documents referred to throughout the trial so that, at the conclusion of the evidence, they could provide a list of documents to either leave in, or take out of, the court book. I explained to counsel that the documents which remained in the court book would form the agreed documentary evidence. The parties produced a list entitled “List of documents not tendered into evidence”. This list dated 27 June 2022 does not include any version of the spreadsheet.
144In any event, aside from a few administrative errors, the spreadsheets largely reflected the ledger created by the Creas which comprised part of the evidence. The ledger stopped at the end of 2020 but the spreadsheet continued on the basis that the Latifes paid $600 per week from January 2021 until June 2022. The payment of $600 per week was consistent with the figure provided in Jeanette’s summary table and with Jeanette’s oral evidence.
145Aside from the $10,000 key money payment in 2006 and the $3,650 for back-rent which the defendants account for in their version of the spreadsheet, the amended spreadsheets produced by the plaintiffs and the reconciled version produced by the defendants record the same individual entries in the columns “due” and “paid”. For reasons unexplained by the parties, the figures given for the total amount due differ. The plaintiffs say that, by June 2022, the total due was $360,750. The defendants calculate the total due by June 2022 to be $370,500. Due to the missing rows for July 2014 and July 2015, neither of these figures is correct. The rent due per month was $3,250. The spreadsheet purports to record nine full calendar years of rental payments,[40] plus two months at the end of 2012, and six months at the start of 2022. Multiplying the monthly rent accordingly gives a total rent due of $377,000.
[40]The spreadsheet is incomplete due to the missing entries for July 2014 and July 2015 referred to above.
146Furthermore, the only differences in the figures recorded as paid in these two versions are the $10,000 in 2006 and the $3,650 in June 2022. Yet the totals given as paid differ by more than $13,650. The plaintiffs say that $327,800 was paid while the defendants calculate the total paid as being $345,100. This figure given by the defendants incorrectly takes account of the $3,650 for back-rent twice. The total paid should be recorded as $341,450.
147Accordingly, the total owing in outstanding rent is the difference between $377,000 and $341,450. I find that the Latifes are in arrears in the payment of rent and owe $35,550 to the Creas.
(f) Are the plaintiffs entitled to any, and if so what, outgoings or insurance premiums from the defendants?
148The Creas had building insurance for the Property which was paid annually. Before 2016, the Creas made the payment electronically, Fred would then visit the milk bar to inform the Latifes of the account and they would repay him. They would not necessarily pay the entire amount owing on the day of Fred’s visit but it was always repaid. In 2016, Sam told Fred that they could no longer afford to pay the building insurance. The Creas continued to pay the insurance so that the Property was insured. But from 2016 onwards, the Latifes did not reimburse them. Jeanette gave evidence that they stopped asking Sam to repay them for the insurance because he “kept saying no”. Jeanette gave evidence that the Creas were “prepared to indulge” the Latifes when they could no longer afford to pay their building insurance and that they did not give them a notice to vacate when this first occurred.
149The defendants rejected the Creas’ claim for the building insurance on the grounds that:
(a) the Creas failed to provide them with written notice of the outgoings as required under section 46(2) of the RLA; and
(b) the conduct of the Creas in relation to the building insurance constituted a waiver of the obligation upon the defendants to pay the same.
150The substance of section 46 of the RLA has been the same at all times material to this case. Section 46(2) of the RLA requires that the landlord give the tenant a written estimate as to outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings. Pursuant to section 46(3)(b) the estimate must be given in respect of each of the landlord’s accounting periods during the term of the lease, at least one month before the start of that period. Section 46(4) ensures that the tenant only becomes liable to contribute to any outgoings once the tenant is given the estimate.
151Jeanette conceded that the Creas did not give advance notice of outgoings to their tenants as required under the 2006 lease. By way of a letter dated 19 November 2014, Fred wrote to the Latifes seeking reimbursement for insurance payments made from 2010 to 2014. The total sought in this letter was $8,022.96. There was no further notice relating to insurance given to the Latifes until the notice of default in April 2022.
152Due to the operation of section 46 of the RLA, it appears that sending a notice in accordance with the section is required as a condition of entitling the Creas to claim for the outgoings. Because there is no dispute that they gave the Latifes no estimate in accordance with the RLA, I consider that I am obliged to find against the Creas on this issue.
153From one perspective this is unfortunate because the relationship between the parties was informal and based on mutual trust. The Latifes sought and obtained indulgences from the Creas and the latter were the antithesis of rapacious landlords. Further, it does not sit well when the Latifes approbate and reprobate – they were happy to have an informal arrangement for the bulk of the time but demand strict compliance with statute when it is to their advantage.
154However, the requirements of section 46 of the RLA are there to serve a statutory purpose and promote a public good in dealings between landlords and tenants. I note that even if the Creas had alleged some form of agreement or estoppel against the Latifes in relation to the informal approach taken from 2006 to 2016 in paying the building insurance, that would most likely have been ineffective due to section 94 of the RLA.
155In view of my conclusion about section 46 of the RLA, the waiver argument is redundant, but I shall consider it briefly.
156The law of waiver operates in a number of areas of the law. It is difficult to give it a precise meaning. It is flexible and covers a variety of situations. In general terms, waiver is the voluntary or intentional relinquishment of a known right, claim or privilege. It is an informed choice manifested in unequivocal conduct which involves forbearing from exercising or abandoning a right.
157A common category of waiver is waiver by election.[41] There, a party is said to waive a right when it elects to take one of two courses of action. For example, A chooses between remedies and decides to take one path and communicates that to the other party B in such a way that A leads B to believe that A has made that choice. The election and the communication must be unequivocal. A need not orally communicate the election to B. The election can be implied from conduct. But such conduct must be unequivocal and capable of only one construction.
[41]See the discussion in Sean Wilken and Karim Ghaly, The Law of Waiver, Variation and Estoppel (Oxford University Press, 2nd ed, 2012) [3.14] – [3.16] and Ch 4
158When the Latifes failed to pay or reimburse the Creas for the insurance, the Creas had a choice of taking action under the lease or not. The fact that, until April 2022, they did not assert their rights was not unequivocal. The Creas were silent and stopped asking for the money when they believed, as a practical matter, that the Latifes could not pay. However, silence or a failure to act does not constitute an unequivocal representation. This is especially so when one considers the terms of the lease. For example, clause 7.7 stated that, even though the lessors did not exercise their rights under the lease on one occasion, they could do so on any later occasion. This provision is important in establishing that a waiver will not automatically arise because, at an earlier time, the lessor could have, but did not, exercise certain rights.
159If the Latifes intended to rely upon waiver in the sense of equitable forbearance, I note that this doctrine and waiver, while frequently confused, are conceptually different:
“It will therefore be seen that both species of waiver require proof by the party alleging waiver of some kind of unequivocal statement or representation from the opposite party. In relation to election it is crucial to show both knowledge of the facts and knowledge of the right of choice, but once all those are shown there is no need to establish reliance or detriment. In estoppel, however, the essential ingredients are the unequivocal representation coupled with the reliance to the opposite parties’ detriment.”[42]
[42]Sea Calm Shipping Co SA v Chantiers Navals de L’Esterel SA [1986] 2 Lloyd’s Rep 294 at 298
160Here, not only was there no unequivocal representation by the Creas, I find that the Latifes did not rely upon any representation (assuming it was unequivocal) to their detriment. The Latifes effectively refused to pay for the insurance notwithstanding their contractual obligation.[43] It was a unilateral act. Accordingly, I would not have granted relief under this head to the Latifes.
[43]I accept that the obligation under the lease was subject to the provisions of the RLA.
(g) Have the plaintiffs validly terminated the leasehold interest of the defendants in the Property?
161Clause 10.2.2 of the lease provides:
10.2.2. this lease continues until a new tenant takes possession of the premises, unless the landlord -
(a) accepts a surrender of the lease, or
(b) notifies the tenant in writing that the landlord accepts the tenant's repudiation of the lease, or
(c) ends the lease in accordance with clause 7.1.
162Clause 7.1 details the circumstances under which the landlord may terminate the lease by re-entry or notice of termination including when the rent is unpaid for 14 days after becoming due for payment (clause 7.1.1); and when the tenant does not meet its obligations under the lease (clause 7.1.2).
163It is the position of the plaintiffs that the lease was terminated on 27 April 2022 by virtue of the notice of default dated 8 April 2022. The notice states that the tenant has defaulted in the performance of its obligations under the lease to punctually pay rent and to reimburse the landlord for building outgoings within seven days of request. The default period as stated in the notice is from March 2021 to April 2022 and as at the date of the notice, the total amount due to the landlord is said to be $54,916.77 (including GST) consisting of:
(a) $42,200.00 for rent; and/or
(b) $12,716.77 for outgoings (building insurances).
164The defendants rely upon section 28(2) of the RLA to submit that the original lease is continuing.
165If I do not accept that submission, the defendants say that the notice of 8 April 2022 does not comply with the requirements under section 146 of the PLA. They further submit that the amount of $42,200 claimed for rent was incorrect and the amount claimed for outgoings (building insurances) of $12,716.77 was not owing due to the plaintiffs’ failure to comply with section 46(3) of the RLA.
166Furthermore, the defendants made rental payments after 8 April 2022 being the date of the notice of default and after 27 April 2022 being the date of the notice of termination and intention to re-enter. The defendants say that acceptance of these rental payments by the plaintiffs constitute a waiver and they rely upon the case of M’Goun v Smith.[44]
[44](1886) 12 VLR 244
167Section 28 of the RLA provides as follows:
(1A) The landlord, at least 3 months before the last date that an option to renew the lease may be exercised, must give the tenant written notice setting out—
(a) the date by which the option to renew the lease may be exercised by the tenant; and
(b) the rent payable for the first 12 months under any renewed term of the lease; and
(c) the availability of an early rent review under section 28A; and
(d) the availability of a cooling off period under section 28B; and
(e) any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.
(2) If the landlord fails to give the tenant all of the information required by subsection (1A) or to give written notice within the time specified by that subsection—
(a) the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 3 months after the landlord notifies the tenant as required; and
(b) subject to subsections (2A) and (2B), if that date is after the term of the lease ends, the lease continues until that date on the same terms and conditions as applied immediately before the lease term ends, unless the landlord and tenant otherwise agree; and
(c) the tenant, whether or not the landlord has by then notified the tenant as required, may give written notice to the landlord terminating the lease from a specified day that is—
(i) on or after the date on which the term of the lease ends; and
(ii) before the date until which the lease would otherwise have continued because of paragraph (b).
168The Latifes argued that, in circumstances where there is an exercisable option under the lease, there is an obligation on the landlord to give notice to the tenant of its entitlement to exercise that option. If the landlord fails to give the tenant written notice setting out all of the information required by subsection (1A) and, if the date is after the term of the lease ends, then the lease continues until that date on the same terms and conditions as applied immediately before the lease term ends.
169The Latifes rely upon section 28 of the RLA to argue that because the Creas did not give them notice about the option to renew, the initial lease effectively continues on.
170I do not accept the defendant’s contention. This is primarily because the section in its current form is inapplicable.
171The Latifes had an initial term of two years for the lease of the Property followed by six options each of two years. Hence, the first option was due for exercise in 2008. At that time, section 28 of the RLA required that if a retail lease contained an option exercisable by the tenant, the landlord was to notify the tenant in writing of the date after which the option was not exercisable. This notice was to be given by the landlord at least six months, but not more than 12 months, before that date. If the landlord failed to give the notice within the time specified in section 28(1), then the option could be exercised up to six months after the landlord gave notice. If that date was after the lease ended, then the lease continued until that date on the same terms and conditions.
172On 5 August 2008, Fred wrote to the Latifes. He asked whether they had taken up the option to renew the lease for the next two years “as according to item 19 of the lease the latest date was 1 May 2008.” He also informed them of a rent increase to $3,100 per month commencing in August 2008. The deed of renewal drafted in 2008 was never signed by the Latifes.
173In part of his evidence, Sam suggested that he had renewed the lease even though he and his wife did not sign the renewal document which the Creas’ solicitor prepared. Sam said that Fred told him he did not need to see a lawyer and spend money on the renewal.
174I reject this evidence. As noted earlier I have significant reservations about the credibility of this witness. In this context I note that Sam said Fred gave him a copy of the deed of renewal. Then, shortly after, Sam said that Fred did not give him a copy of the document but read it to him. Secondly, I consider it unlikely that the Creas would expend time and money on retaining a solicitor to prepare a renewal deed when they were apparently content to tell the client in effect not to worry about observing the formalities associated with the lease renewal. Thirdly, the defendants never put to Fred that:
·he did not give Sam a copy of the deed but only read it to him;
·he told Sam to not bother spending money and seeing a lawyer about the renewal.
175Hence, the Creas satisfied their obligation at the time under the then existing section 28 by notifying the Latifes that the option to renew was to be exercised by 1 May 2008. Because the Creas notified the Latifes of the exercise date on 5 August 2008 and the Latifes did not exercise the option to renew the lease within six months of that date, the initial lease ceased and the Latifes became monthly tenants. Accordingly, once this occurred, there were no options to renew available to the Latifes which could enliven the operation of section 28 of the RLA.
Notice of Default
176Pursuant to section 146 of the PLA, a notice served on the lessee by the landlord to assert a right of re-entry or forfeiture by reason of a breach of covenant or condition of the lease must:
(a) specify the particular breach complained of; and
(b) if the breach is capable of remedy, require the lessee to remedy the breach; and
(c) in any case, require the lessee to make compensation in money for the breach.
177In M’Goun v Smith[45] the tenant made alterations to the premises in breach of the condition of the agreement that required he not make any alterations without the written consent of the landlord. Holroyd J found that the landlord must have been aware of some of the alterations being made by the tenant even if he did not know the extent of them. His Honour was unable to separate the breaches into those which were known to the landlord and those which were not known. However, the alterations as a whole were said to have improved the property and this would have been beneficial to the landlord. Holroyd J held that the acceptance of rent by the landlord after he became aware of the improvements constituted a waiver at least of all non-separable breaches of the agreement.
[45](1886) 12 VLR 244
178The notice of default of 8 April 2022 specifies the breaches complained of, being the failure to punctually pay rent and the failure to reimburse the landlord for building outgoings within seven days of request. The notice specifies the amount outstanding and the date by which the tenant must make payment to remedy the defaults. I find the notice of default dated 8 April 2022 to be compliant with section 146 of the PLA. However, I do not consider that the details in the notice are correct. The sum of $42,200 claimed for rent fails to take account of the $3,650 paid in cash towards back-rent and the $10,000 key money cash payment made in 2006. Furthermore, whilst the stated period of default is from March 2021 to April 2022, the sum of $12,716.77 given for outstanding building insurance is from 2016 onwards.
179The gist of the Latifes’ argument was that because of the errors in the section 146 notice in relation to the amount of rent owing and the claim for building insurance, the notice was invalid and of no effect.
180This argument was recently addressed by Osborne J in Vincent Cold Storage Pty Ltd v Centuria Property Funds No 2 Limited.[46] In that case, the plaintiff tenant attacked the section 146 notice served upon it on the basis that the amount claimed by the lessor was overstated and inaccurate – it claimed double the amount which was arguably due. His Honour found that errors in the section 146 notice did not invalidate the notice. His Honour relied upon the analysis of Judd J in Primary RE Limited v Great Southern Property Holdings Limited (Receivers and Managers Appointed) (in liquidation) & Ors[47] where the court examined the validity of notices served under various statutory provisions including section 146 of the PLA. Also referred to was the judgment of Hodgson JA in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service[48] where he said that such a notice was not invalidated because:
“A s 129 notice is not invalidated if the lessor includes in it specification of breaches that a court later finds were not committed. In my opinion, it would follow from this that an otherwise valid s 129 notice is not invalidated just because the lessor requires the lessee to remedy a breach that has not in fact occurred, or to pay an amount in compensation that is more than what is reasonable. In such cases, if the lessee does not wish to comply with requirements in the notice to the extent that the lessee considers them excessive, the lessee may take the risk of not complying fully with the lessor’s requirements; and if the lessor then purports to forfeit the lease and the matter comes to litigation, the lessee may or may not be successful. But in such a case, at least the lessee is given information as to what the lessor requires and can be confident that if these things are done there will be no forfeiture. The notices in this case did not perform that function. (citations omitted)”[49]
Hodgson JA also referred with approval to the judgment of Lord Russell CJ in Horsey Estate Ltd v Steiger[50] where Lord Russell CJ said:
“The object seems to be to require in the defined cases (1.) that a notice shall precede any proceeding to enforce a forfeiture, (2.) that the notice shall be such as to give the tenant precise information of what is alleged against him and what is demanded from him, and (3.) that a reasonable time shall after notice be allowed the tenant to act before an action is brought. The reason is clear: he ought to have the opportunity of considering whether he can admit the breach alleged; whether it is capable of remedy; whether he ought to offer any, and, if so, what, compensation; and, finally, if the case is one for relief, whether he ought or ought not promptly to apply for such relief. In short, the notice is intended to give to the person whose interest it is sought to forfeit the opportunity of considering his position before an action is brought against him.” [51]
[46][2022] VSC 766
[47][2011] VSC 242
[48][2010] NSWCA 268
[49]Ibid at [327]
[50][1899] 2 QB 79
[51]Ibid at 91
181Here, I find that the section 146 notice is valid in fulfilling its statutory purpose. Hence, even if the outstanding rent claimed was excessive and the claim for building insurance failed, as I have found, the 8 April 2022 notice remains valid and effective.
182It is not disputed that the Latifes paid money to the Creas after the Creas served the notice to quit upon them. The essence of the Latifes’ argument is that, in accepting such payments, the Creas have affirmed the lease.
183For a lessor to affirm a lease, the lessor must engage in a positive act. This could include a situation where the lessor, after an event which gives rise to a right of re-entry, accepts rent which has accrued due since that time.[52] However, where a lessor recovers rent payments which were due prior to the breach giving rise to re-entry, there is no election. So, if the Creas accepted rental payments after April 2022, such payments can be attributed to rental arrears which accrued before the right of re-entry arose. In these circumstances, the acceptance of such payments without more cannot be a waiver of the landlord’s rights because the rent remained due and payable as a debt to the landlord.
[52]M’Goun v Smith (1886) 12 VLR 244; Lidsdale Nominees Pty Ltd v Elkharadly [1979] VR 84
184In short, given the amount of unpaid rent which had accrued due at 8 April 2022, I consider that, to the extent that the Creas have accepted payments from the Latifes since that time, the payments are for back-rent preceding the issue of the notice of default and not for rent accrued after the issue of the notice. For that reason, while the case of M’Goun[53] remains sound authority, it has no application here.
[53](1886) 12 VLR 244
(h) Alternatively to (g), have the plaintiffs given the defendants a valid notice to quit, and if so is that sufficient to defeat any proprietary estoppel established by the defendants?
185As I have detailed above, whilst I am not satisfied with the accuracy of all the details in the notice of default dated 8 April 2022, I find that the notice otherwise satisfies section 146 of the PLA.
186Furthermore, I have found that the defendants have not established a proprietary estoppel (or any other estoppel) that prevents the plaintiffs from asserting that the defendants have no right to continue to occupy the Property. If I were satisfied that their claims of detriment had been made out, equity would be done by paying compensation for the moneys expended on improvements to the milk bar and on furniture for the house[54] (assuming they had all been itemised and costed).[55]
[54]See Vasue v Lubo Medich Holdings Pty Ltd [2008] NSWSC 899 at [52]
[55]See paragraph 131 above
(i) If yes to (g) or (h), are the plaintiffs entitled to an order for possession of the Property?
187An order for possession may be granted once a tenancy has been terminated.
188The plaintiffs have validly terminated the leasehold interest of the defendants in the Property and are entitled to an order for possession.
(j) Alternatively to (i), are the defendants entitled to relief against forfeiture, and if so on what terms?
189The defendants submit that they are ready, willing and able to make good the arrears and, subject to doing so, are entitled to relief against forfeiture. The Property is both the defendants’ home and business. They have lived in the house and operated the Kealba milk bar for a substantial time.
190The plaintiffs say that relief against forfeiture is pointless if I reject the claims in equity and find that there is no enforceable agreement for lease.
191My first comment about relief against forfeiture is that I have reservations concerning whether the Latifes should be able to raise the issue in circumstances where it was not raised in the defendants’ pleading. My inclination would be to prohibit the Latifes from advancing argument on the point. However, the Creas’ counsel took no objection at the hearing so I infer that he was not taken by surprise and did not believe that the issue adversely affected the fairness of the hearing afforded to his clients.
192Generally, the courts are in favour of granting relief against forfeiture if:
·the tenant pays the arrears of rent outstanding;
·the tenant pays the costs and expenses which the landlord incurs in relation to the tenant’s breach which gives rise to the section 146 notice; and
·it is otherwise just and equitable to grant the relief.[56]
[56]RE Megarry and HWR Wade, The Law of Real Property (Stevens & Sons Limited, 4th ed, 1975) pp. 660-1
But if there is reason to believe that the tenant will not meet the obligation to pay rent in the future, that can be a reason for a court to refuse relief. In Direct Food Supplies (Victoria) Pty Ltd v DLV Pty Ltd[57] Starke J refused to assist a plaintiff which was suffering financial difficulties. His Honour ruled that it was unlikely that the plaintiff could pay future rent if relief were granted, or if it did, the lessor would probably have to disgorge the money as preferential payments.
[57][1975] VR 358
193When considering such an application, a court can have regard to a range of factors when exercising its discretion. These include[58]:
·whether the tenant’s default was inadvertent or wilful;
·the gravity of the breaches;
·the damage to the lessor;
·the relative loss to the lessee; and
·any disparity between the value of the property forfeited and the damage caused by the breach.
[58]Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 at [163] per Keane JA with whom Douglas J agreed
194In this case, the tenants have a lengthy history of not paying the monthly rent when it is due. Also, regardless of whether the landlord gave the statutory notice, the tenants have not honoured their commitment to reimburse the landlord for the building insurance after 2016. These actions were not inadvertent. I accept that, to a degree, the tenants have been affected by the closure of Kealba Secondary School.
195The breaches are serious because payment of rent in particular is a fundamental aspect of the landlord tenant relationship.
196The Creas are self-funded retirees and need the rental income.
197If relief were not granted, the Latifes would need to find somewhere else to live and would lose the milk bar business. The evidence discloses that they have another house. Beyond that, there was no evidence of how hard it would be for them to secure other accommodation and other work. There was no financial data produced to the Court to show the income of the milk bar business or its net profit.
198Given that the Latifes are seeking relief against forfeiture and are presumably aware of the discretionary factors which a court can take into account, I infer from the absence of evidence adduced that the impact upon them of refusing relief would not be significantly detrimental. However, I assume it would be inconvenient.
199The effect of granting relief is to restore the original lease as if there had been no forfeiture by the lessor. This is consistent with the notion that relief against forfeiture for non-payment of rent has been traditionally regarded as a special category because the provision of forfeiture is considered to be security to ensure the payment of rent.[59]
[59]Stieper v Deviot Pty Ltd (1997) 2 BPR 9602 at 9604
200The connection between rent, security and forfeiture also means that relief against forfeiture is not available when the term of the lease has expired. For example, in Le v Victoria Investments and Properties Pty Ltd[60] the plaintiff entered into a lease with the defendant’s predecessor for a term of six years. The lease commenced on 1 May 1991 and expired on 20 April 1997. The lease contained an option to renew for a further term of three years. The plaintiff did not exercise the option prior to the lease expiring. On 12 November 1998 the defendant re-entered the premises and took possession of them. The basis of the re-entry was the tenant’s failure to pay rent and other outgoings. The leasehold premises were retail premises within the Retail Tenancies Act 1986 (Vic) (“RTA”).
[60][1999] VSC 8
201There was no dispute that the defendant had not given the plaintiff the notice required by section 14(3) of the RTA. His Honour said it was arguable that the lease was still on foot and the landlord had no entitlement to re-enter the premises.
202The landlord argued that the tenant determined the lease by its letter of 25 March 1998. There, the tenant said that the income of the business had dropped substantially. From 1 January 1998 the tenant was prepared to pay only a reduced rent while waiting for a new lease. If that were not acceptable, then the landlord was to regard the letter as a notice to vacate. The landlord rejected the rental offer and sued for outstanding rent and outgoings. It also sent a notice under section 146 of the PLA. The lessee did not comply with the notice and the lessor took possession of the property.
203Beach J concluded that the tenant’s letter was sufficient to determine the lease. His Honour said that there was no lease subsisting at the date of re-entry and it was inappropriate to grant relief against forfeiture.
204Subsequently in Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd & Ors[61] Hollingworth J stated that where a lease for a term expires due to the effluxion of time, there is no jurisdiction to grant equitable relief.
[61][2005] VSC 236 at [449]
205In my view, this case is similar. Not only (on a best case scenario) did the 14-year lease expire in August 2020 but the monthly tenancy terminated in April 2022 when the Latifes did not make good the defects set out in the section 146 notice. After that, it was not until the trial submissions that the Latifes sought relief against forfeiture. Apart from the problems caused by the termination of the lease, there are two other reasons for refusing relief to the Latifes.
206First, I have concerns about the Latifes’ ability to meet the usual conditions for relief, namely, paying the rent outstanding and costs. There was no evidence adduced at trial regarding the Latifes’ ability to pay. In the absence of clear supporting evidence or documentation, I would not have accepted assertions from the Latifes that they could satisfy the conditions. Nor were there any undertakings or offers made in their evidence to pay what was due to the Creas.
207Secondly, such relief is equitable and discretionary. Those who seek equity must do equity. The Latifes should have paid or undertaken to pay the Creas whatever was owing by way of rent and outgoings. The Latifes knew or should have known that they were indebted to the Creas. While they disagreed with the sum claimed by the Creas, they did not offer any amount at all even after performing their own reconciliation of the figures.
208I find the Latifes were not entitled to relief against forfeiture.
(k) Alternatively, if specific performance is not granted, are the defendants entitled to any and if so what equitable compensation or damages for breach of the agreement to lease?
209If the plaintiffs were found to be in breach of the agreement for lease but it was not appropriate to order specific performance, the defendants would be entitled to equitable compensation or damages. But such circumstances do not arise in this case. I have found that the Creas did not materially breach any lease or agreement to lease with the Latifes such as to give rise to an entitlement in the Latifes to specific performance or damages in lieu. Similarly, I have found that the Creas were not affected by any estoppel in such a way as to entitle the Latifes to enforce a lease over the Property.
210Insofar as the Creas obtained key money contrary to the RLA, and failed to credit the Latifes with $3,650 representing the back-payment of rent, I have taken these matters into account when assessing the debt due to the Creas.
Conclusion
211For the reasons set out I find that the Creas are entitled to rent arrears in the sum of $35,550 and an order for possession. I find that the 2017 letter does not give rise to an enforceable agreement nor to an estoppel which prevented the Creas from asserting that the Latifes had no right to occupy the Property. I find that the Creas have validly terminated the leasehold interest of the Latifes in the Property and that, without a valid lease, the Latifes are not entitled to relief against forfeiture. Due to the operation of section 46 of the RLA, the Latifes are not obliged to pay any insurance premiums.
212I direct the parties to confer about the form of final order and costs in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by noon on 2 March 2023, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed five A4 pages, a minimum 12 point typeface, and 40mm margins on both sides of the page. By noon on 6 March 2023, each party may file a reply submission limited to no more than three A4 pages. Unless I consider it desirable or the parties require it, I propose to determine the final orders and costs on the papers without an oral hearing.
0
22
0