Du Aus Pty Ltd v Riviera Cove Pty Ltd

[2010] NSWADT 228

CITATION:	Du Aus Pty Ltd v Riviera Cove Pty Ltd [2010] NSWADT 228
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Du Aus Pty Ltd RESPONDENT Riviera Cove Pty Ltd
FILE NUMBER:	105079
HEARING DATES:	2 September 2010
SUBMISSIONS CLOSED:	2 September 2010
DATE OF DECISION:	15 September 2010
BEFORE:	Fox R - Judicial Member
CATCHWORDS:	Jurisdiction, s19 ,31 & 32A Retail Leases Act 1994
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Aspromonte Pty Ltd v Zagari(1999) NSW ConvR 55-916 Botts v Grimme [2001] NSWADT 14 Helou 7 Ors v Bong Bong Pty Ltd trading as Regional Retail Properties [2006] NSWADT 128 Randi Wix Pty Ltd v Pokana Pty Ltd (No2) [2003] NSWADT 4 Sassine v McGlynn & Anott t/as Westland Produce (RLD)[2008] NSWADTAP 54 Thai Star Video Pty Ltd v Walpole [2007] NSWADT 193
REPRESENTATION:	APPLICANT F Gleeson, barrister RESPONDENT K Andronos, barrister
ORDERS:	1.Application for appointment of two specialist retail valuers pursuant to s32A of the Retail Leases is dismissed; the Tribunal has no jurisdiction 2. There will be no order for costs in these proceedings unless a party files and serves an application for costs, with supporting submissions, within 14 days. In such event, the opposing party or parties must file and serve submissions in response within a further 14 days. The question of costs will then be determined ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.

REASONS FOR DECISION

1 .This is an application by the Respondent Lessee for a declaration that the Tribunal has no jurisdiction to grant the Applicant Lessor’s request for an order that the Tribunal, pursuant to s32A of the Retail Leases Act appoint two specialist valuers to review a rent valuation made by a valuer who was appointed by the parties jointly. It is in the nature of an interlocutory application, but, of course, if the Respondent is successful my decision will finally dispose of the proceedings.

2 Both parties filed written submissions, and their counsel:- Mr Gleeson and Mr Andronos developed oral argument in the afternoon of 2^nd September 2010. The matter at hand is the interpretation of a document drawn and approved by the parties’ lawyers, and there was no suggestion that factual evidence needed to be considered and evaluated to make the decision. It is a “pure” question of interpretation. On that basis, contrary to the the decision of the Appeal Panel in Sassine v McGlynn & Anott t/as Westland Produce (RLD)[2008] NSWADTAP 54, there was no barrier to my dealing with it.

The Facts

3 The premises in question are situated in the Sydney entertainment precinct, between The Opera House and Circular Quay and are used as a restaurant and bar known as “Ice Bar”. The use is noted in Schedule 1 of the Act, and that brings the lease within the Act. For reasons which will become obvious, it is convenient to refer to the leases which were in issue as the Old Lease and the New Lease. This terminology was used in a Deed dated 19^th February 2010 between the parties, which was in evidence.

4 The Old Lease was for a term of 10 years starting in December of 1999, and ending 23^rd December 2009 with an option of renewal for a further term of 10 years. The further background is that the Respondent was assigned the Old Lease in 2003, and the Applicant purchased the underlying real estate (and so became lessor) in 2008.

5 Late in 2009 a dispute arose about the validity of the purported exercise of the option, and that was the subject of Supreme Court proceedings. These were settled by the Deed.

6 The Deed ended the issues of the alleged breaches of the Old Lease and of the exercise of the option, and required the parties to enter into the New Lease, the full text of which was an annexure to the Deed. It was for a term of 10 years, starting on 1^st January 2010, and was a fresh letting. It seems to have been accepted by both parties that the New Lease did not arise as a result of the option.

7 The rent to be paid had not been agreed when the Deed was executed, but the mechanism to that had. It was provided that a Mr Preston be the jointly appointed valuer to set the rent pursuant to a joint letter of instruction, which was also annexed to the Deed. Its effect was to require him to set the rent for the New Lease (and its’ associated licenses) by reference to parameters which amounted to a current market rent.

8 It is not difficult to understand why the Respondent has made this application. Mr Preston’s joint valuation appears to have been of a yearly figure in excess of $860,000. It also appears that the Respondent Lessee’s prior independent valuation had been of the order of $575,000, whilst the Applicant Lessor’s had been in excess of $1,100,000. Because the New Lease (just like the Old) provided only for annual increases of rent by reference to a formula based on the Consumer Price Index, and did not provide for any mid-term adjustments by reference to the then current market value, it is also easy to understand the Applicant’s position.

The Law

S3 relevantly states-

Retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:
(a) whether or not the right is a right of exclusive occupation and
(b) whether the agreement is express or implied, and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing

S19(1) provides:-

A retail shop lease that provides for rent to be changed to current market rent is taken to include a provision to the following effect:

and goes on to define what is current market rent, and to provide for the appointment of valuers by the Tribunal, and to oblige the parties to a rent dispute to co-operate in the valuation process.

S31 makes very similar provisions for a lease

that provides an option to renew or extend the lease at current market rent.

S 32A(1) provides:-

A party to a lease may apply to the Tribunal for the appointment of two specialist retail valuers to conduct a review of a determination of the current market rent made by a specialist retail valuer made under section 19 or 31.

The Respondent’s Argument

9 The Respondent’s argument in relation to s19 was twofold.

10 , Firstly the Deed was not a “lease” for the purposes of s19 because it did not grant a right of occupancy. That right was effected by the New Lease, all the Deed did in this regard was to oblige the parties to enter into it.

11 Secondly, the Deed did not provide for a “change in the rent required by the lease”. What the Deed did was to provide a mechanism for setting the rent from the date of commencement of the New Lease. That mechanism was the appointment of Mr Preston, who was to establish the rent by reference to parameters set out in a joint letter of instruction, which was also an annexure to the Deed. Whilst that letter of instruction may have referred to aspects of the current market, the valuation effected by Mr Preston was not a change, whether to current market rent or otherwise; it was the initial rent.

12 Mr. Andronos also called in aid the fact that the Deed specifically stated that the parties had agreed that once the rent was set, it would not be subject to review under s19. The Respondent having relied on that as one of the representations upon which it was persuaded to enter into the Deed, the Applicant was estopped from making this Application because it sought to “re-open” a dispute which had been settled.

The Applicant’s Argument

13 The Applicant’s case acknowledged the relevance of the first and second propositions advanced for the Respondent, being the requirement for a lease, and the requirement for a change to current market rent. It went on to say that the Deed itself was a retail shop lease as defined by s3 of the Act, and because it provided for the payment of an interim rental set by reference to the Old Lease (and perhaps some other factors), Mr Preston’s valuation effected a change in rental, and so fell squarely within s19. It stressed that the Deed made specific provision for payment by the Respondent of the difference between the rent being paid from 1^st January 2010 and the rent eventually set by the valuer, if it was an increase, or refund by the Applicant in the case of a decrease.

14 As I understood the argument, that retail shop lease was given a commencement date of 1^st January 2010 by the operation of S8, that being the date when the Respondent started to pay rent as lessee, or entered into possession as lessee. I presume it to be proposed that the Respondent’s occupation prior to that had been pursuant either to orders of the Supreme Court, or pursuant to the holding over provisions of the Old Lease, and that the Deed changed that to allow s8 to have effect.

S8 (1) provides:-

For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

S8 (2) goes on to say that if the parties execute the lease before either of those trigger events, then the lease was entered into at the time of signature. Nothing is said about what happens if a writing purporting to be a lease is signed after the commencement predicated by s8 (1)

15 As regards the Deed provision that s19 not apply, s7 of the Act rendered that void.

S7 states:-

This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between parties to a lease is void to the extent that it would be void if it were in the lease

Consideration:- is the Deed a Retail Shop Lease?

16 There have been many decisions of this Tribunal which remarked on the extreme width of the definition of “retail shop lease”, and the sometimes surprising results which followed. See Helou 7 Ors v Bong Bong Pty Ltd trading as Regional Retail Properties [2006] NSWADT 128 and Thai Star Video Pty Ltd v Walpole [2007] NSWADT 193 to name a few.

17 In my view the Respondent’s assertion that the Deed is not a lease in terms of s19 overlooks the very plain words of the Act definition. It is clearly an agreement to enter into a lease, and so itself becomes a Retail Lease. For ease of reference that phenomenon may well be described as a “Statutory Lease”. It seems to me that there can be no objection in principle to such a conclusion, because, as a matter of contract law, that statutory lease ceases to exist when the parties enter into a writing relating to the same premises, especially if such a document purports to contain all of the provisions which govern the right to occupy.

18 In this regard it seems apt to observe that the perhaps not fully resolved issue arising out of s8, illustrated by Aspromonte Pty Ltd v Zagari(1999) NSW ConvR 55-916 on the one hand, and Randi Wix Pty Ltd v Pokana Pty Ltd (No2) [2003] NSWADT 4 on the other does not arise in this matter. The Deed very clearly set out every term of the New Lease, and so there was consensus between the parties. This extended as far as the question of the rent, because although the amount was not known, the method of setting it was.

19 The New Lease (as annexed to the Deed) appears not yet to have been executed. The reason for that is found in clause 3.1 of the Deed, which provides that the parties

“will execute and enter into and be bound by the provisions of the New Lease as soon as possible, subject to the provisions of the Act. For the avoidance of doubt [the Respondent] agree that they will execute the Lease and return it to [the Applicant] not earlier than 7 days after receipt of the Disclosure Statements and not later than 10 days after”

Clause 3.2 provides “for the immediate provision of the Disclosure Statement.” Without such delivery the New Lease would have been subject to the right of termination given by s11 (2).

S11 (2) provides:-

If a lessee is not given a disclosure statement ......[at the appropriate time]........the lessee may terminate the lease by notice in writing to the lessor at any time within 6 months after the lease was entered into.......

20 Even if the New Lease was executed within 10 days of 19^th February 2010, and so superseded the Deed, the Deed, still had operation for a period of days as a matter of law because of s8. It is also possible that the Deed operated from 1^st January 2010 by agreement of the parties. Either way, the Respondent was in possession at the day of commencement (whichever it was), and that amounted to entry; see Botts v Grimme [2001] NSWADT 14.

21 It follows that the Deed is the Retail Shop Lease with which I am concerned.

22 Whether a Disclosure Statement which does not state the rent, but does state a process by which it will be set, avoids the operation of s11(2) is a matter for another day.

Consideration:- does the Deed change a rent?

23 The question which I have to resolve is:- does the Deed provide for a rental which “changed to current market rent”, or does it just provide for a rent?

24 Clause 3.4 of the Deed states:-

“During the period between the date of this deed and the date that the Rent is determined, the Parties hereby agree that [the Respondent] shall pay rent calculated in accordance with the provisions of the Old Lease as at 22 ^nd December 2009, increased under the Old Lease (that is increased by CPI + 1.5% (‘Old Rent’).......”

and then went on to make provision for payment of the difference if the rent set by the valuer was more that the amount thus far paid, and for refund if it was less.

25 It seems to me that these words allow for only one conclusion. Its’ effect is that the rent is to be as set by the valuer at some future time, and that in the interim there are to be payments “on account”. It is the requirement for adjustment of the initial payments required by the Deed, once the valuation is in hand which indicates that s19 is not triggered, because there is no “change to current market rent”. For there to be a relevant change, there has to be a previous rent payment which is changed. That is not what happened here, the valuer’s decision would set the initial rent, it would not change the rent.

26 The Applicant’s argument fails because it wrongly classifies the payments made before the determination as rent payments. They are not; correctly viewed they are payments on account of a rent which has not yet been determined. Were it to be otherwise, it would be the case that every lease within the Act which provides for a rent holiday or concession on commencement would be open to a review application because there would be a change to current market rental when the holiday or concession expired, and the rent, or full rent cut in.

Conclusion

27 If there is no change in rent then s19 has no operation, and neither does s32A. The Tribunal has no jurisdiction, and the Application is dismissed.

28 In view of my conclusion, the question of the operation of s7 on the agreement that s19 of the Act not apply does not arise.

Costs

29 The available hearing time did not allow the question of costs to be broached. I would make the preliminary observation that the point at hand was quite novel, and that the arguments for and against were finely balanced. Nevertheless, I propose to leave the decision to agitate that separate issue to the parties.