Dad and Dave Pty Limited v W and J Nicholls Pty Ltd

[2005] NSWSC 415

Reported Decision: (2006) NSW ConvR 56-131

New South Wales

Supreme Court

CITATION:	Dad & Dave Pty Limited v W & J Nicholls Pty Ltd [2005] NSWSC 415
HEARING DATE(S):	7 and 8 April 2005
JUDGMENT DATE :	8 April 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Option for new lease validly exercised. Order for specific performance.

CATCHWORDS:	LANDLORD AND TENANT - leases - option to renew - whether alleged subsisting breaches and failure to pay GST prevented valid exercise of option - effect of s 133E Conveyancing Act. - EQUITY - specific performance - provision of guarantee under previous lease by then-directors of lessee - lessee not party to guarantee - relevance of readiness and willingness of lessee to perform obligation. - STATUTES - interpretation - s 133E Conveyancing Act 1919 - requirement for valid notice.
LEGISLATION CITED:	Conveyancing Act 1919, s133E
CASES CITED:	Verdi La Fontana Pty Ltd v Marbrook Pty Ltd (unreported, Court of Appeal, 22 May 1992)
PARTIES:	Dad & Dave Pty Limited (Plaintiff/Cross-Defendant) W & J Nicholls Pty Limited (Defendant/Cross-Claimant)
FILE NUMBER(S):	SC 5396 of 2004
COUNSEL:	Mr J Donaldson SC with him Ms R L Seiden (Plaintiff/Cross-Defendant) Mr J Darvall (Defendant/Cross-Claimant)
SOLICITORS:	Deutsch Partners Lawyers Pty Ltd (Plaintiff/Cross-Defendant) Baker & Borthwick (Defendant/Cross-Claimant)

LOWER COURT JURISDICTION:

- 9 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY 8 APRIL 2005

5396/04 DAD & DAVE PTY LTD v W&J NICHOLLS PTY LTD

JUDGMENT

1 HIS HONOUR: This is a claim for a declaration that the plaintiff has validly exercised an option under a lease of premises known as the Old Bar Hotel near Taree for a further lease for five years from 30 September 2004 and for orders for specific performance, accordingly.

2 The summons refers to the lease as dated 30 September 1999. The lease did commence on that day, but, in fact, is dated 24 May 2000. The defendant is the lessor under the lease. The plaintiff company is assignee of the lease by assignment from the original lessee. On assignment a deed was entered into between Judith Karel and Geoffrey Stanfield, the then directors of Dad and Dave Pty Ltd, and W J Nicholls Pty Ltd, the defendant lessor, under which in consideration of consent to the assignment they agreed to guarantee to the lessor the payments of all moneys due by the lessee under the lease and due performance by the lessee under the lease covenants. Clause 1(h) of the document reads:-

if this Lease shall contain an option for a further Lease and the Lessee shall exercise such option then the Guarantor shall guarantee the obligations of the Lessee under such further Lease and indemnify the Lessor in respect of such further Lease in the terms of the guarantees and indemnities contained in this Guarantee.

3 The lease in clause 16 contains an option for a new term in the following words:-

(a) The Lessor offers a renewal of this Lease to the Lessee on the terms specified in this clause which the Lessee may accept strictly in accordance with the provisions contained in this clause, otherwise this offer shall lapse.

(b) This offer and the option bind the Lessor and the Lessor's successors and assigns being the owners for the time being of the leased premises.

(c) This offer may be accepted by:


(i) The Lessee or by the Lessee's successors and assigns being the Lessee for the time being of the leased premises;

(ii) In the event of there being two or more persons holding as Lessees as joint tenants, upon the death of any of them by their survivors;

(iii) If only some of the Lessees exercise this option, by those persons or corporations signing the notice of exercise of the option, in their favour.

(d) The Lessee may only accept this offer and exercise the option if:


(i) There is no subsisting breach of any lease covenants by the Lessee at the date of serving notice of exercise of this option and the Lessee shall have observed the lease covenants from that date to the expiry of the current lease term, and

(ii) The Lessee shall have served on the Lessor notice in writing of exercise of this option during a period no later than six calendar months before the date of expiry of the term of this lease; and

(iii) The Lessee upon exercise of this option, pays to the Lessor a premium of Seventy Five Thousand Dollars ($75,000.00).

(e) The renewal which the Lessee may accept under this clause is for the renewal of this lease for a further term of five (5) years from the date after the date of expiry of the term of this lease, containing identical covenants to the covenants of this lease (except this clause and the rental clause) subject to the following alterations.


(i) The renewal lease shall reserve unto the Lessor the current market rent, not being less than the rent hereby reserved to be agreed upon and failing agreement two months prior to the expiration of the term, to be determined by two valuers appointed forthwith by the lessor and lessee respectively with the power to refer points of disagreement to an umpire chosen by the said two valuers (and if they cannot agree to a valuer chosen by the President for the time being of the Commonwealth Institute of Valuers) and any such determination shall be final and binding on both parties and shall set out the proportion in which the cost of such determination shall be borne by the lessor and lessee respectively.

(ii) Under no circumstances shall the rent for the first year of the new term, be less than the rent for the last year of the term of this Lease.

(iii) After the first year of the renewed term, the annual rent shall increase on each anniversary of the commencement date by 3.5% of the rent payable in the previous year.

4 It also includes the heading "Payment of Rents and Outgoings", clause 13, in the following terms:-

(a) The rent payable under this Lease shall be paid monthly in advance to the Lessor or as the Lessor may direct in writing and such rental shall be:-


(i) During the first year the sum of Sixty One Thousand Six Hundred and Fifty Six Dollars ($61,656.00) by monthly payments of Five Thousand One Hundred and Thirty Eight Dollars ($5,138.00).

(ii) During the second year the sum of Sixty Three Thousand Eight Hundred and Fourteen Dollars ($63, 814.00) by monthly payments of Five Thousand Three Hundred and Seventeen Dollars and Eighty Three Cents ($5,317.83).

(iii) During the third year the sum of Sixty Six Thousand and Forty Eight Dollars ($66,048.00) by monthly payments of Five Thousand Five Hundred and Four Dollars ($5,504.00).

(iv) During the fourth year the sum of Sixty Eight Thousand Three Hundred and Sixty Dollars ($68,360.00) by monthly payments of Five Thousand Six Hundred and Ninety Six Dollars and Sixty Six Cents ($5,696.66).

(v) During the fifth year the sum of Seventy Thousand Seven Hundred and Fifty Two Dollars ($70,752.00) by monthly payments of Five Thousand Eight Hundred and Ninety Six Dollars ($5,896.00).


(b) To pay to the Lessor the annual premiums payable for insurance of the premises in the full insurable value against loss or damage by fire lightning storm or tempest together with all such other extraneous risks as the Lessor may require.

(c) To pay all water rates and garbage collection charges and to pay the general rates levied.

(d) If any goods and services tax or similar tax, is payable on or in connection with any money payable by the Lessee to the Lessor under this Lease, including rent and outgoings, the Lessee must pay the tax payable on that money by the due dates.

5 On 29 March 2004 Dad & Dave served notice of exercise of option together with a cheque for $75,000 being the payment required under clause 16(d)(iii) to be made upon exercise. There had been a previous purported exercise of option on 10 March 2004. At that time the $75,000 was not paid. A letter in response to this first purported exercise from the solicitors for the lessor was sent, after claiming that there were various breaches by the lessor of the terms of lease. The letter stated:

Please note that at this time even if your client were to validly exercise the option, our client would give Notice pursuant to s133E(2) of the Conveyancing Act 1919 that, subject to any order of the Court under s133F, our client considers your client to be in breach of its obligations in the Lease (and the obligations of the Lessee in the Terms of Settlement dated 12 November 2003 in the Supreme Court of NSW) and would propose to treat the breaches by your client as precluding your client from entitlement to the option.

6 On any basis that was not a notice under section 133E of the Conveyancing Act. After service of the notice of exercise now relied upon, the defendant's solicitor wrote again to the solicitors for the plaintiff, setting out once more what were described as subsisting breaches and stating in the last paragraph:-

We are instructed to offer your client a further opportunity to rectify the previously notified subsisting breaches, as we have amplified herein, within the next seven (7) days. Our client does not waiver its right to issue a Notice under s133E(2) of the Conveyancing Act 1919 , but is hopeful your client will rectify the breaches without necessity for the formal issue of such notice. We invite your client to do so.

7 That again would not be a notice under section 133E. As it says, it is not and it was not argued to the contrary.

8 The defendant company banked the cheque for $75,000.00. However, by letter dated 14 April 2004 the solicitors for the defendant wrote stating that as goods and services tax on the sum of $75,000.00 had not been paid, the option was not validly exercised. A cheque in refund of $75,000.00 was eventually sent to the plaintiff's solicitors. It has not been banked. I do not really think anything turns on any of this. It is clear that the issue of GST came to the notice of the accountant for the defendant company who included it as a receipt for a supply on the defendant's return for the quarter ended 31 March 2004. I should add that at a later date the sum of $7,500.00 was tendered but was not accepted.

9 A number of interesting questions have been raised in this matter, particularly as to whether or not GST was payable on the sum of $75,000.00, triggering an obligation on the lessor to pay GST on that amount, and whether or not that obligation pursuant to clause 13, to which I have referred, then fell on the lessee plaintiff.

10 Those interesting arguments can I think be left aside for the moment. I am of the opinion that the matter can be decided in the following way: Clause 16(d) sets out the manner in which the offer of a new term can be accepted; in other words, the means of exercise of the option for a new term; 16(d)(i) required that there be no subsisting breach and no breach from the date of exercise to the end of the term; 16(d)(ii) required a notice of exercise; 16(d)(iii) required payment of the sum of $75,000.00.

11 These latter two requirements were satisfied. Section 133E of the Conveyancing Act precludes reliance upon breaches of the type referred to in clause 16(d)(i) unless the necessary notices are given in accordance with that section. No such section notices have been given. Thus, unless clause 16(d)(iii) means that any GST payable on $75,000.00 must be paid with that sum at the time of exercise for the exercise to be valid, the option has been validly exercised. In my view, it clearly does not say so.

12 I turn to clause 13. In my opinion it is clear that the obligations under clause 13(d) are not limited to GST payable on rent or outgoings. The subclause refers to moneys payable under the lease, including rent and outgoings. It does not say rent, and outgoings payable under the lease. That is the end of that matter. It was not argued that the $75,000.00 was not money payable "under the lease".

13 I am also of the clear view that the expression "the due date" means the due dates for payment of rent, outgoings, and other moneys, not the due date for payment by the lessor of GST.

14 If there has been a breach of clause 13(d) in failing to pay the additional $7,500.00, that is a matter covered by s133E of the Conveyancing Act. No notice has been given, and, as I have said, the amount has been offered, so on that basis there is no breach on the assumption that the amount continues to be available.

15 I consider that the option has been validly exercised. In those circumstances it is not necessary to discuss the interesting arguments of counsel for both plaintiff and defendant as to whether or not GST is payable on the sum of $75,000.00 or for that matter was payable at the time. For it to be payable, there must be supply. My tentative view is that in the case of an option there is normally a supply on grant of the option as an interest in land, the GST being payable on the option fee. As in this case, there was no specific consideration in the lease for the option, a liability does not arise.

16 There is in my view a further supply which takes place on the exercise of the option because on the exercise of that option a further interest in land arises, the consideration for that supply being the sum of $75,000.00. It is not I think to the point that the supply is not made until the lease is given. The supply comes into existence upon exercise by the lessee of its right to accept the irrevocable offer of the lessor to grant a new lease in certain circumstances. As there is no need to pursue this further, I will refrain from doing so.

17 Lastly, I turn to the guarantee. The relevance of this matter is the argument of the defendant that there should be no order for specific performance because the lessee is not ready, willing, and able to perform an obligation, the obligation being an obligation to obtain a guarantee from the guarantors under the deed.

18 As to this first, there is no evidence that the lessee cannot obtain such guarantees. Second, readiness and willingness goes to the readiness and willingness of the parties seeking performance. Dad & Dave is willing to perform its obligations. Dad & Dave is not a party to the deed of guarantee. The position is entirely different from that which arose in the case of Verdi La Fontana Pty Ltd v Marbook Pty Ltd, (unreported, Court of Appeal, 22 May 1992). In that case the guarantors were parties to the original lease as was the lessee company which purported to exercise the option which was for a new lease in terms of the original lease. The guarantors would not sign. There was no way that a lease in terms of the original lease would be obtained unless the guarantors were party to it. Thus, the facts in that case were entirely different from the facts in the present case. The lease here has no guarantors. The guarantee which was obtained is in another document. Whether or not it is continuing under the present deed without a new deed being entered into in respect of any new lease need not be decided in this action, nor is it necessary to decide whether or not the lessee company might be under some obligation to do whatever it could to obtain a guarantee of its obligations under a new lease from the guarantors under the old lease. The fact is, however, that Mr Stanfield is the sole director and the sole shareholder of Dad & Dave and he has covenanted to guarantee the obligations of Dad & Dave under any new lease entered into as a result of exercise of the option. It seems to me, therefore, clear that as a matter of equity, he being the person in control of the company which wishes to have the benefit of a new lease, then any order for specific performance must be made conditional upon his guaranteeing the obligations of the lessee under that lease. I propose to make that order.

19 I declare that the plaintiff has validly exercised the option to renew the lease registered number 695910P between the defendant as lessor and the plaintiff as lessee by assignment from the original lessee. Order that upon condition that Mr Geoffrey Christopher Stanfield executes a guarantee of the performance by the lessee of its obligations under a new lease granted in accordance with the exercise of option that the defendant specifically perform the contract for a new lease arising from exercise of the said option. Order that the cross-claim be dismissed. Order the defendant pay the plaintiff's costs of the proceedings. Order the exhibits be returned but can be retained by the solicitors in their present form for 28 days. Liberty to apply.

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