Fares v Bleakley

[2005] NSWADT 230

CITATION:	Fares & ors v Bleakley & anor [2005] NSWADT 230
DIVISION:	Retail Leases Division
PARTIES:	APPLICANTS Ghassan Fares Jittmia Chawalittara Kektanok Roongsawang Jutarpon Channoom RESPONDENTS Robert John Bleakley Shala Pty Limited CROSS APPLICANTS Robert John Bleakley Shala Pty Limited CROSS RESPONDENTS Ghassan Fares Jittmia Chawalittara Kektanok Roongsawang Jutarpon Channoom
FILE NUMBER:	035135; 045036
HEARING DATES:	21/03/2005-23/03/2005 12/05/2005-13/05/2005
SUBMISSIONS CLOSED:	05/13/2005
DATE OF DECISION:	10/11/2005
BEFORE:	Boyce P - Judicial Member
APPLICATION:	Claim for declaration of rights, obligations and liabilities under a lease - Claim for payment of money
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Conveyancing Act 1919 Retail Leases Act 1994
CASES CITED:	Aliotta v Broadmeadows Bus Service Pty Limited (1988) 65 LGRA362 Wanice Pty Ltd v Bocove Pty Ltd [2003] NSW ADT 17
REPRESENTATION:	APPLICANT & CROSS RESPONDENT M Southwick, Barrister RESPONDENT & CROSS APPLICANT D L Warren, Barrister
ORDERS:	Matter 035135; 1. The Applicant’s application; (i) for damages for false and misleading representations by the Respondents; (ii) for damages for loss of sale of the business; (iii) for damages for loss of income when the premises could not be used as a restaurant; is dismissed; 2. I declare that; (i) no rent is payable from 15 October 2004 until 31 March 2005; (ii) the lease terminated on 16 March 2004; 3. That the Respondent’s pay to the Applicant’s; (i) the security deposit held by them in full; and; (ii) the sum of $3522.19 being the refund of overpaid outgoings; Matter 045036; The application is dismissed; Costs; 1.The parties may make written submissions in relation to costs within 28 days of this decision; 2.If no submissions are made, then there will be no order as to costs.

1 This is firstly an application by Ghassan Fares, Jittmia Chawalittara, Kektanok Roongsawang and Jutarpon Channoom who will be referred to throughout this decision as Mr Fares or Mr Fares and his partners.

2 Mr Fares and his partners were the Sub-Lessees of premises from which they conducted a restaurant business known as La Thailande at Level 1, Verona Centre, 17 Oxford Street, Paddington.

3 Robert Bleakley is the registered proprietor of the Verona Centre. Shala Pty Ltd leases the whole of the Verona Centre from Robert Bleakley (“head lease”). Shala sub-leases the premises, from where the restaurant business was conducted, to Greg Wright & Associates Pty Ltd and Neil Wright & Associates Pty Ltd. With the head lessors’ and the head lessees’ consent the sub-lease was assigned to Mr Fares and his partners. Shala is a company controlled by Mr Bleakley and Mrs Lisa Bleakley.

4 The application by Mr Fares is for damages against Shala and Mr Bleakley for false and misleading representations made by Mr Bleakley pursuant to Section 10 (1) of the Retail Leases Act. Mr Fares also claims damages for the loss suffered by he and his partners as a result of Mr Bleakley allegedly refusing consent to assign the Lease of the premises to a prospective purchaser of the business. He also seeks damages for loss of income when the premises could not be used as a restaurant as a result of water leakage from the premises, and an accounting for outgoings and rent based on the direct lettable area of the premises, a declaration that rent is not payable for the period after the premises could not be used because of the water leakage and finally a declaration that the Lease has been terminated.

5 In the second application for determination, Shala seeks orders for payment of arrears of rent, outgoings and for the cost of moving Mr Fares fitting fixtures from the premises.

6 The deterioration of the parties relationship as landlord and tenant has resulted in these proceedings being fully contested with both parties evidence the subject of thorough testing by the other. It is appropriate that both applications be heard and determined together.

7 The hearing of both applications was conducted over a period of five days and a large quantity of evidence was presented to the Tribunal in support of the party’s applications.

BACKGROUND

8 On 20 October 1993 South Sydney Council granted consent to a development application by Robert Bleakley for the construction of Cinema Complex and Cinema Café at 17 Oxford Street, Paddington known as the Verona Centre.

9 The whole of the premises at 17 Oxford Street, Paddington were leased by Robert Bleakley to Shala Pty Limited on 22 June 1994. This Lease is referred to as the Head lease and terminates on 2 June 2025.

10 The Licensing Court of New South Wales granted an On-Licence (Restaurant) to Robert Bleakley with a special condition attached to the Licence permitting seating in the restaurant for 150 persons with a reception area licensed for seating of 20 persons.

11 On 4 December 1995 Mr Bleakley lodged a development application to extend the closing time of the Cinemas to 3am however on 28 February 1996 Mr Bleakley withdrew the application.

12 The Liquor Licence was transferred to Gregory Neil Wright on 23 March 1998 after a company associated with Mr Wright and a partner obtained a grant of a sub-lease from Shala for the premises from which they operated an Italian restaurant.

13 In about 1997 Mr Bleakley excised from the restaurant an area of 53.9 m² which he converted to his use as an office and an occasional residence for himself. No development approval was sought or obtained by Mr Bleakley for the use of those premises for residential/office purposes. His evidence being that he understood, at the time, that he did not need to obtain approval to use the area as an office.

14 Mr Fares saw an advertisement in the Sydney Morning Herald Internet site on 23 February 2002 placed by Action Negotiators on behalf of Greg Wright and Associates Pty Limited and Neil Wright & Associates Pty Limited (called in this decision “Wright”) for a café in Paddington stating that the price was $120,000.00 licensed to 3am, seats 150, well equipped kitchen with an area of 300sq metres. Mr Fares contacted Alex Fardoulis of Action Negotiators on or about 25 February 2002 about the business.

15 On 28 February 2002 Mr Fares and his partners signed an option agreement to purchase the business. Contracts between Mr Fares and his partners where exchanged with the Vendors of the business for a purchase price of $120,000.00 on 18 March 2002.

16 At 18 March 2002, the occupancy of the premises by Wright’s was on the basis of month to month tenancy holding over under their expired lease.

17 Between signing the option agreement and entering into the Contract Mr Fares and his partners met with Mr Bleakley and they were approved by Mr Bleakley on behalf of Shala as tenants of the premises.

18 The business was sold as a going concern and to accommodate this condition Shala agreed to grant the Wright’s a new sub-lease upon similar terms to which it has agreed to grant a sub-lease to Mr Fares. It was proposed that the Wright/Shala sub-lease be immediately assigned to Mr Fares at completion of the contract to comply with the requirements for the business to be sold as a going concern.

19 On 1 April 2002, Mr Fares met with Mr Michael Soulis, Solicitor for Robert Bleakley and also Solicitor for the Vendors of the business to Mr Fares at the restaurant for purpose of completing the Contract for the purchase of the business. Before completion of the Contract changes where made to it to include the sub-lease that had been entered into by the Wrights with Shala for a term of three years commencing on 31 March 2002 at a rental of $80,000.00 for the first year increased by the CPI for the 2nd and 3rd years. The contract was amended to include a provision for assignment of the sub-leases to Mr Fares and his partners. Mr Fares’ evidence was that he took little notice of the amendments.

20 On 24 June 2002 Mr Fares made a development application to South Sydney Council for approval to extend the operating hours of the business from the premises for consent to have live entertainment, Mr Bleakley on behalf of Shala gave consent to the application being made.

21 When Shala presented its invoice for the Shala/Wright sub-lease and its assignment to Mr Fares a dispute arose as to liability for Mr Soulis’ fees and whether the lease included two option periods of three years. Mr Fares denied his liability to pay the fees and Mr Soulis on Shala’s behalf refused to provide Mr Fares with the executed lease consent to assignment car park and storage room licence until he received payment.

22 South Sydney Council refused the consent for the development application on or about 25 September 2002.

23 Mr Fares’ evidence is that in October 2002 he placed the business on the market because of the difficulties he had in obtaining the signed Sublease from the Landlord’s Solicitor, the anomalies in the Liquor Licence and the failure to obtain consent from South Sydney Council for the extended trading hours. Mr Fares listed the business for sale through Lyons Business Brokers in October 2002 and it was advertised by that firm in the Chinese News Weekly on 18 October 2002. The advertisement stipulated that the restaurant was fully licensed for 150 people with 300sq metres of floor space, a separate bar area for 20 people and having, at the time of the advertisement applied to Council for permission to conduct live music, even though the development application had been refused on 25 September 2002. The advertisement represented that the turnover of the restaurant was $12,500.00 plus per week and had an asking price of $280,000.00.

24 The business was again advertised in the Sydney Morning Herald in February 2003 the advertisement offering the business as a café netting $2,400.00 per week for five and a half days opening, at a price of $280,000.00. In cross-examination Mr Fares said he did not know how the turnover figure or nett profit figures were arrived at as the business ran at a loss.

25 In about April 2003 Mr Fares negotiated the sale of the business to Dr Pollard for a sale price of $110,000.00. Dr Pollard gave him a cheque for $11,000.00 as a deposit which was not met on presentation.

26 After advertising the business again in late June 2003 for a sale price of $295,000.00 Mr Mark Ariansen offered Mr Fares $280,000.00 on a walk-in walk-out basis including stock on 4 July 2003.

27 On 8 August 2003, Mr Fares and his partners entered into a contract for the sale of the business to Mr Ariansen for a sale price of $280,000.00, Mr Ariansen gave Mr Fares a cheque for $28,000.00 being the deposit. Mr Fares did not bank the cheque. The Contract was conditional upon Mr Fares satisfying Mr Ariansen that the restaurant was licensed to seat 150 people.

28 On or about 16 August 2003 Mr Ariansen informed Mr Fares that he would not be proceeding with the Contract and accordingly rescinded it on the basis that he was unable to satisfy himself that the restaurant had available to it 150 seats purposes of the liquor licence.

29 After the Contract with Mr Ariansen was rescinded Mr Fares became aware that the area of the leased premises was less than had been stipulated by the Wrights at the time Mr Fares purchased the business.

30 Mr Fares was given notice by Shala’s property manager, Deans Property on or about 14 October 2003 that water from the restaurant premises was leaking through its floor to the tenancy below, being a shop conducted under the business name “Aveda”, also in the Verona Cinema Complex.

31 On 16 October 2003 Mr Fares was requested by Dean’s Property to turn off the water supply and refrigeration in his premises to prevent water leakage. Without water supply and refrigeration Mr Fares could not trade from the premises and has not traded since that time.

32 Mr Fares commenced these proceedings by application filed on 11 November 2003.

33 Shala issued a notice under Section 129 of the Conveyancing Act requiring Mr Fares to re-open the premises for trade on 21 January 2004.

34 Shala commenced its proceedings against Mr Fares by its application filed on 1 April 2004.

MISREPRESENTATION BY LESSOR

35 In Mr Fares’ application for damages and declarations the issues have crystallised into Mr Fares’ allegations that there were representations made by Mr Bleakley knowing they were false and misleading upon which he and his partners relied in coming to his decision to accept an assignment of the lease at the time he purchased the business from Greg Wright & Associates Pty Limited and Neil Wright & Associates Pty Limited.

36 Mr Fares relies on a number of particulars supporting his allegation of representations made by Mr Bleakley on behalf of Shala in relation to:

(a) the lettable area of the premises;

(b) the permitted use of the premises;

(c) the grant of a lease for a 3 year term with option periods of 3 years each; and

(d) that the premises were licensed by the Licensing Court of New South Wales to seat 150 people.

37 Mr Fares has not sought a remedy from the Wrights as Vendors of the business.

(a) LETTABLE AREA

38 A disclosure statement in relation to the sub lease was annexed to the Contract between the Wrights and Mr Fares and his partners for the purchase of the business. (Exhibit A2). The disclosure statement is unsigned but identifies Neil Wright & Associates Pty Limited and Greg Wright & Associates as lessees under Part 2 in the Lessees Disclosure. The Disclosure Statement identifies the lettable area as “approx. 288.9m sq” it further identifies that the total lettable area in the Verona Retail Shopping Centre is “approximately 2136.7 m sq”.

39 After Mr Ariansen raised the issue of the lettable area in August 2003, Mr Fares measured the premises and prepared a plan (Exhibit A9) showing an area of 235.8 sq metres. The area occupied by Mr Bleakley as his Sydney residence/office contains an area of 51.4 sq metres. The common area for the hallway is shown as 6.3 sq metres and another area being the disabled toilet is shown having an area of 3.7 sq metres.

40 There was much evidence in the Respondents’ case in an attempt to explain the lettable area of the premises.

41 Mr Bleakley’s property manager, Sharon Dean, gave evidence that the net lettable area of the premises after allowing for Mr Bleakley’s city residence, the disabled toilets and the common area corridor is 279.1 m². Under cross-examination Ms Deans admitted that she obtained this information from surveys prepared by Higgons & Norton Pty Limited, Surveyors and given to her by Mr Bleakley. Ms Deans was unable to give an explanation as to how the survey prepared by Surveyors, Higgons & Norton Pty Limited prepared on 7 June 1996 showed that in accordance with the BOMA method of measurement the gross lettable area retail (GLAR) is 331 m² squared. In a further report by Higgons & Norton Pty Limited dated 17 February 1998 they advised that the area occupied as Mr Bleakley’s city residence contained an area of 53.9 m².

42 Document E of Exhibit A12 is a calculation by Tomkin Zulaikha dated 24 May 1995, Architects, showing the common area corridor having an area of 4 m² and the disabled toilet 3.8 m² and in document F they show an area of 18.3 m² for the fire exit corridor. Taking into account these deductions with the exception of the fire exit corridor the GLAR is 269.3 m².

43 At page 11 of Exhibit A7 Mr Fares gives evidence of how GLAR is defined. Clause 4.3 of that Exhibit sets out the definition “that any public or common stairs where same are provided as common facilities for other occupiers of the building should be excluded from the lettable area at each floor level”. The evidence before the Tribunal is that this area for the fire corridor comprises 18.3 m² this further reduces the GLAR to 251 m².

44 The Lease refers to a storeroom No 1 on the ground floor of the building as being included in the demised premises. The Disclosure Statement refers to an office and it was not disputed that the office is storage room 1. The storage room has an area of 9.3 m² and this must be added to the GLAR previously calculated of 251 m² making a total of 260.3 m².

45 I find that the GLAR of the premises is 260.3 m².

46 The definition of demised premises in the Lease omits the reference to store room No 1 on the ground floor of the building. Mr Fares occupied and used storeroom No 1 and relied on the Torrens title description on the first page of the Lease and the disclosure statement. I find that the Lease included storeroom No 1.

47 The issue of the lettable area is relevant in calculating the liability of Mr Fares for his proportion of the outgoings under the Lease. The rent had not been calculated on a price per square metre but rather the price of occupying the café area which was evident to Mr Fares at the time he inspected the premises before purchasing the business. I find that any difference in the lettable area from the representation made under the disclosure statement and the actual floor area does not effect the calculation of the rent.

48 In calculating the outgoings the total area of the building must be reliably calculated. The disclosure statement states that the total lettable area of the shopping centre is approximately 2136.7 square metres. Mr Bleakley’s property manager, Deans Property in document G annexed to Exhibit A12 dated 14 February 1996 quoted a total lettable area for the shopping centre of 2205.21 square metres.

49 There is sufficient doubt in the veracity of the figures provided by Deans Property which they obtained from Mr Bleakley to question the accuracy of these calculations as a basis of determining the total area of the shopping centre, the area occupied by Mr Fares and the calculation made.

OBLIGATIONS UNDER THE ACT

50 Article 3.4(f) of the Lease permits the Lessor to re-survey the premises, and/or the building, at any time during the Lease. As a result of a re-survey, the Lessor is permitted to adjust the percentage of operating expenses. The Lessor is obliged under this Article to provide the Lessee with copies of all documents relating to the Survey and how the operating expenses are determined at the Lessee’s expense. Documents attached to Exhibit A12 disclose that on 14 February 1996, the net lettable area of the Verona Cinema Complex totalled 2,205.21 m². This has a notation on it identifying it as a pre-survey. I draw the conclusion that this figure was an estimate only. A further document annexed to Exhibit A12 on Deans Property letterhead dated 18 February 1998 describes “Tenancy areas surveyed” and totalled to provide a surveyed area of 2,136.7 square metres. Ms Deans’ evidence is that these figures were provided to her by Mr Bleakley.

51 I find that for the purposes of calculating outgoings, Mr Bleakley can rely on the Disclosure Statement setting out that the total lettable area of the Verona Centre is 2,136.7 square metres.

52 Section 27 of the Retail Leases Act requires the Lessor to give to the Lessee, a written estimate of outgoings to which the Lessee contributes under the Lease in respect of each accounting period of the Lessor during the term of the Lease.

53 Section 28 of the Retail Leases Act provides that the Lessor give to the Lessee a written statement (Outgoings Statement) detailing all expenditure by the Lessor in each accounting period of the Lessor during the term of the Lease on account of outgoings to which to the Lessee is required to contribute. The Outgoings Statement must be accompanied by an Auditor’s report except if the Statement does not relate to any outgoings other than Land Tax, water, sewerage and drainage rates and charges, Local Council rates and charges, and insurance, and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the Lessor for the outgoings.

54 Section 22 of the Retail Leases Act requires that for liability to pay outgoings the lease is to specify:

a) the outgoings that are to be regarded as recoverable; and

b) how the amount of those outgoings will be determined and how they will be apportioned to the lessee; and

c) how those outgoings or any part of them may be recoverable by the lessor from the lessee.

55 In the definitions set out in Article 1.1 of the Lease, outgoings have the same meaning as operating expenses of the Verona Centre and the operating expenses of the Verona Centre include all outgoing costs and expenses of the Lessor in respect of the Centre, therefore the Lessee is obliged to comply with Section 28 of the Retail Leases Act 1994.

56 I am urged by Mr Southwick, in his submission on behalf of Mr Fares, that in the absence of providing an Outgoings Statement accompanied by an Auditor’s report, precludes Mr Bleakley from recovering outstanding outgoings and indeed challenges Mr Bleakley’s entitlement to outgoings at all. In Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17 at paragraph 36 Judicial Member Donald found that:

“By Section 22 there is no liability on the Lessee to pay outgoings except “in accordance with the provisions of the lease” that specify certain matters. Section 27 and 28 specify that “a retail shop lease is taken to include provision to the following effect...” as set out above and accordingly those provisions are applicable for the purposes of Section 22”.

57 I find that Mr Bleakley in his disclosure statement did not knowingly make a representation knowing it to be false or misleading that lettable area of the premises was less than stated. The error was caused by reliance on incorrect facts and incorrect assumptions. However, the apportionment of outgoings has shown to be incorrect and the requirements under Section 27 and Section 28 have not been met, the effect of Section 22 is to preclude the lessor from being entitled to recover the outgoings it seeks to recover in its application. Indeed, Mr Fares is entitled to a refund of the outgoings paid by him so far as they relate to the incorrect area of his occupancy.

(b) PERMITTED USE OF THE PREMISES

58 The Disclosure Statement sets out the permitted use of the shop as a Licensed Restaurant and office. The Lease at Item 10 of the Summary of Lease Particulars provides for the permissible use as “Licensed Café and Restaurant”. Article 6.1 of the Lease provides for the Lessee not to use the demised premises otherwise than for the purpose in Item 10. Further, Article 6.2 provides for the Lessee to obtain and keep current all licences and permits required for carrying on of all businesses conducted by the Lessee in or upon the demised premises. Article 6.3 provides for the Lessee to comply with all statutes, ordinances, proclamations, orders and regulations present or future affecting or relating to the demised premises.

59 On 20 October 1993, South Sydney Council granted consent to a Development Application for, inter alia, a Cinema Café conditional upon:

“(a) The use of the Café shall be ancillary to the use of the Cinema Complex at all times.

(b) That the hours of operation of the Cinema Café be restricted to between 9.00am to 12 midnight daily.

(c) That the Cinema Café shall be open for business only between 9.00am and 12 midnight daily.”

60 On 25 May 1995, Council granted further consent to a Development Application to increase the area of the Cinema Café on level 2 of the Verona Cinema Complex to an area of 270 m². The conditions of approval included, inter alia:

“(a) That the use of the first floor as a Cinema Café shall be ancillary to the use of the premises as a Cinema at all times;

(b) That the Café shall be open for business only between 9.00am and 12 midnight daily.”

61 Mr Bleakley in his evidence acknowledged that he was aware of the conditions attached to the Development Approval for the operation of the premises as a Cinema Café.

62 Before Mr Fares purchased the business, he had discussions with Mr Bleakley about his intentions to open a Thai Restaurant and Mr Bleakley in cross-examination admitted that he was aware of Mr Fares’ intention before Mr Fares entered into the Contract to purchase the business.

63 In cross-examination, Mr Fares gave evidence that “all my concern was the location of the business, the accessibility of my customers....that’s all I cared about at that time when I took the business”.

64 Mr Fares’ evidence of a conversation with Mr Bleakley about the beginning of March 2002 is submitted to be evidence of Mr Bleakley’s support for Mr Fares’ proposal for an Application to obtain a consent for live entertainment and extension of the trading hours to 5.00am on Friday and Saturday night.

65 Mr Fares bases this ground of misrepresentation against Mr Bleakley on the conversation that he had with him before he entered into the Contract.

66 Mr Southwick submits that Aliotta v Broadmeadows Bus Service Pty. Limited (1988) 65LGRA 362 should be followed and that as Mr Bleakley was aware of the intended use of the premises by Mr Fares and by his silence represented that the use as a restaurant was permitted. I distinguish this matter from Aliotta, as Mr Bleakley’s evidence is that he told Mr Fares there was no DA or entertainment permit for Mr Fares proposed use as a Karaoke Restaurant. Mr Fares proposed a change of use. He was an experienced architect and builder whose knowledge of these matter would be greater than most. In fact his evidence was just that.

67 On balance I prefer Mr Bleakley’s version of the conversations between Mr Fares and Mr Bleakley before entering into the contract and lease. Mr Bleakley indicated he would give his consent for Mr Fares if he made an application for extended trading hours and a live entertainment but doubted its success. I do not find this to be a statement or representation made with knowledge that it was false or misleading.

(c) GRANT OF LEASE FOR A THREE YEAR TERM WITH TWO OPTION PERIODS OFTHREE YEARS EACH

68 Mr Fares in his submissions claims that in the Disclosure Statement attached to the Contract for the purchase of the business represented that the Sub-Lease would be for a period of three (3) years with two option periods of three (3) years each.

69 The copy of the draft Lease annexed to the Contract shows on the first page that it is for a term of three (3) years with an option to renew for a period of three (3) years as set out in Article 2.8 of Annexure A to the Lease. Article 2.8 of the Lease stipulates that the option periods are specified in Item 6 of the Summary of Lease Particulars. Item 6 provides that there are two further option periods under the terms of the Lease, each of three (3) years.

70 On the first page of the Lease, the reference to one option period is at odds with the Disclosure Statement and the body of the Lease. On the evidence before me, I have no difficulty in finding that it was the intention of the parties that the Lease be for a period of three (3) years with two three (3) year options.

71 I find that Mr Bleakley did not misrepresent the term of the lease.

(d) PREMISES LICENSED FOR 150 PEOPLE

72 The final head of the misrepresentation alleged by Mr Fares is in relation to the leased premises being licensed by the Licensing Court of New South Wales to seat 150 people although 44 of those seats were not available to the premises. When the business was advertised by the Wrights, it was advertised “seats 150”.

73 The evidence before the Tribunal was that 44 of the 150 seats were contained within an area that Mr Bleakley excised from the restaurant area in 1996 in order to construct his Sydney residence and office.

74 The Liquor Licence was held at the time of transfer to Jutarpon Channoom by Gregory Neil Wright, who was a Director of one of the Vendor Companies to Mr Fares and his partners.

75 Mr Fares says that in his discussions with Mr Bleakley before entering into the Contract to purchase the business, he had a conversation with Mr Bleakley as follows:

Fares: “...we feel that the premises is (sic) ideal because it is on a large space of some 300m2 on the first floor which can sit 150 people and it is licensed to 3am”.

Bleakley: “...I don’t have any problem with the restaurant.”

76 Mr Bleakley’s evidence is that he was unaware that the area for the liquor licence had not been redefined after he excised his office/residence from the original licensed premises. He also says that he did not have any conversations with Mr Fares about the number of seats the restaurant was licensed for.

77 There is evidence before the Tribunal that Mr Soulos, Solicitor for Mr Bleakley and the Vendor, Wrights, assisted Mr Fares to engross the Application for Transfer of the Liquor Licence for the premises by providing him with the forms generated from Mr Soulos’ suite of precedents. That licence being endorsed with a special condition that the premises were licensed for 150 persons. In Mr Fares’ submissions he submitted that Mr Bleakley is bound by the actions of his Solicitor. I do not agree that on the evidence before me, that in Mr Soulos assisting Mr Fares in engrossing the Application for Liquor Licence Transfer that he necessarily binds his client, Mr Bleakley. Mr Soulos was merely facilitating Mr Fares’ transfer of the Liquor Licence, Mr Fares not being represented by a solicitor in the transaction. Had Mr Soulos not provided the Application for Transfer form and assisted Mr Fares to complete it there is no evidence whether it would be done or not.

78 In July 2002, Jutarpan Channoon the Licensee was prosecuted for trading outside the hours permitted under the license. The conclusion I can draw is that Mr Fares and his partners may have had a somewhat cavalier attitude to the limitations imposed by Council regulations and licensing laws.

79 I find that Mr Fares understood that the premises had capacity for 150 people, distinguished from being licensed for 150 people under the Liquor Act and that in his discussions before he entered into the Contract to purchase the business with Mr Bleakley, he did not discuss or question the conditions attached to the liquor licence. Mr Fares’ evidence is that in deciding to purchase the business, his material consideration was as to the location of the restaurant. I prefer Mr Bleakley’s evidence of his conversations with Mr Fares as to this alleged misrepresentation I find that Mr Bleakley did not misrepresent being licensed for 150 persons.

REFUSAL TO AGREE TO ASSIGN SUB-LEASE

80 On 3 July 2003, Mr Fares notified Mr Bleakley that he had found a buyer for his restaurant.

81 The proposed purchaser, Mr Ariansen, met with Mr Bleakley on 9 July 2003 to discuss an assignment of the Sub-Lease from Mr Fares and his partners to Mr Ariansen. At that meeting, Mr Bleakley requested trade references and a detailed business plan. Mr Ariansen sent a letter by facsimile to Mr Bleakley on 17 July 2003 outlining his proposals for his operation of the business from the premises. At a further meeting on 30 July 2003, Mr Bleakley outlined some changes that he wished to make to the restaurant and proposed that a new lease be granted to Mr Ariansen for a revised area of the restaurant premises.

82 On 3 August 2003, Mr Ariansen sent an e-mail to Mr Bleakley in response to Mr Bleakley’s request that he retain part of the restaurant area and grant a new lease for the balance of the restaurant area to Mr Ariansen. Mr Ariansen informed Mr Bleakley that he could not proceed on the basis suggested by him, as he required to purchase the business as a going concern and he required the whole of the restaurant area so that it retained its full seating capacity for Liquor Licence purposes of 150 persons. He then requested that the existing Lease be assigned to him. In response, Mr Bleakley sent an e-mail on 5 August 2003 to Mr Ariansen explaining that the proposal to alter the area of the restaurants was “a possibility at some point where we may, through negotiation acceptable to both parties, be able to pick up the number lost from the bar through the additional numbers which could be seating on a balcony”. Mr Bleakley stated that he did not want to stand in the way of the sale of the business.

83 On 6 August 2003, Mr Bleakley raised issues again about the noise levels and the need for an acoustic wall to be constructed between the restaurant and his Sydney residence. He also stipulated that the toilets would need to be re-configured and offered to participate to an agreed extent to the cost of the works. This would further reduce the GLAR to 251 square metres.

84 On or about 8 August 2003 Mr Ariansen entered into a contract with Mr Fares and his Partners to purchase the business for $280,000.00. The contract provided for it to be subject to, and conditional upon, the restaurant being licensed to seat 150 people and that Mr Fares, the Vendor had seven days from the contract date in which to provide evidence of the restaurants capacity to seat those people.

85 On 16 August 2003 Mr Ariansen sent a letter to Mr Fares advising that he was not proceeding with the purchase of the business. In that letter he stated that there were four reasons that he was not able to proceed with the purchase. They were firstly, that the area of the restaurant was less than 288 m² as had been advertised by Mr Fares, as the fire escape areas were not available to be made for the restaurants exclusive use and that this reduced the area of the restaurant and affected the proportion of outgoings, which Mr Ariansen regarded then as excessive. Secondly, he stated that the unlockable fire doors leading to the restaurant would present him with a major security problem and that the only way that he could see that the problem could be resolved was by construction of a fire wall to separate from the restaurant, which he was not prepared to do. Thirdly, he had inspected the file for the licensed premises at the Licensing Court. He determined that the area that was being occupied by Mr Bleakley at his Sydney residence/office contained an area where 44 seats of the licensed seating should have been. He identified that he needed a full one hundred and fifty seats for his business to be able to succeed. Fourthly and finally, Mr Bleakley had informed him that Mr Fares did not have a sublease and was not in a position to assign the sublease to Mr Ariansen. He also informed Mr Fares that Mr Bleakley required him to do some major works including re-configuration of the toilet entrances with some acoustic insulation to his apartment and lodgement of a development application.

86 It was only on the basis that there were less than one hundred and fifty seats available that Mr Ariansen was able to rescind the contract.

87 The contract that Mr Ariansen entered into with Mr Fares refers to a current lease of the premises although the lease particulars of that current lease were not provided in that contract. Clause 29 of the Contract provides for the transfer of an existing lease. The completion date was noted to be 42 days after the contract date. Clause 29.4 provides:

“if the landlord does not consent to the transfer of the lease -

29.4.1 by the completion date, the purchaser can rescind; or

29.4.2 by the 90th day after the contract date, a party can rescind”.

88 Section 41(a) of the Retail Leases Act requires the Lessee upon a request for the assignment of the Lease to provide the Lessor with such information as the Lessor may reasonably require concerning the financial standing and business experience of the proposed assignee. Section 41(b) requires the Lessee to furnish the proposed assignee with a copy of any disclosure statement given to the Lessee in respect of the Lease together with details of any changes that have occurred in respect of the information contained in that disclosure statement since it was given by the Lessee, before the consent of the Lessor is requested. Section 41(d) provides that the Lessor must deal expeditiously with the request for consent and is taken to have consented to the assignment if the Lessee has complied with paragraphs (a) and (b) and the Lessor has not, within 42 days after the request was made, given notice in writing to the Lessee either consenting or withholding consent.

89 On the evidence before me, it appears that the only grounds upon which Mr Ariansen had to rescind the Contract, when he did, was that he had satisfied himself that the restaurant, as being sold by Mr Fares, did not have the capacity to seat 150 people as permitted under the Liquor Licence even though the date of rescission was more than 7 days after the contract date.

90 At the time that the Contract was rescinded, discussions were still taking place between Mr Ariansen and Mr Bleakley and that the Sub-Lessor’s consent to the assignment had neither been given nor withheld. The Contract and the Act effectively provided that this consent could be given at any time up to the completion date.

91 Accordingly, at the date that Mr Ariansen rescinded the Contract, the assertion that Mr Bleakley unreasonably failed or refused to agree to the assignment of the Sub-Lease cannot be sustained by Mr Fares.

FAILURE TO MAINTAIN THE PREMISES

92 A large amount of evidence was put before the Tribunal in relation to the water leaks from the premises affecting the “Aveda” shop premises below the restaurant. This included on behalf of Mr Fares evidence from Mr James Hickey, a Licensed Refrigeration Mechanic, Mr John Hickey, a Licensed Builder and Expert Witness, and on behalf of Mr Bleakley, Mr Anthony Steiner, licensed to carry out building maintenance. The Tribunal conducted a view of the premises with the parties, their legal representatives, and the Building and Town Planning witnesses on 23 March 2005.

93 On 14 October 2003, Mr Fares was notified that water was leaking through the floor of the restaurant premises into the “Aveda” premises. On Mr Fares’ evidence, Deans Property Management Services, on behalf of Mr Bleakley, had been aware of the water leakage into the “Aveda” premises since at least 19 September 2003, when a Plumber, Robert Mulheron, visited the “Aveda” premises and found water seeping through “unsealed floor service penetrations”.

94 In a letter to Deans Property, Mr Fares, on 14 October 2003, advised Deans Property that his Plumber had found that the leak was due to the original connection of the dishwasher in the restaurant and that the pipes did not properly fit and were undersized. He also gave evidence that the waterproofing of the floor was deficient when the kitchen was originally fitted out.

95 On 17 October 2003, Mr Tony Steiner attended the premises. Mr Steiner’s evidence is that he observed the water leaks in the “Aveda” tenancy and traced the leaks to the restaurant premises above them. He found that the kitchen of the restaurant had faulty taps on every sink and that buckets and trays were placed under the sink to catch the water, but these were overflowing. The glass washer was also leaking hot water from beneath its tray and although most of this water was passing over the tiles to the floor waste, some of it flowed along to core holes in the cement slab that had been made for plumbing to pass through when the restaurant was originally fitted out, before Mr Fares’ tenancy. Mr Steiner observed that the core holes had not been sealed after the floor tiles had been laid. He also found that a refrigerated cabinet which was used by the restaurant to cool their wine, was sealed with the refrigeration units located within the cabinetry. Mr Steiner was unable to observe whether there was water leaking from the cabinetry through condensation or a broken water supply line, however turned the refrigeration motor off pending an inspection by Refrigeration Mechanic who was to attend the premises on the following day.

96 Mr Fares turned off the water to the premises and ceased trading on 15 October 2003. He did not pay any rent from that day. Deans Property made several attempts to gain access to the premises to permit tradespeople to have opportunities to inspect the premises to determine the cause of the leaks and so that they could make recommendations for solutions to the problem.

97 By letter dated 14 November 2003, Macquarie Lawyers, acting for Mr Fares, sent a facsimile to Spanko Soulos and Co, Solicitors acting on behalf of Mr Bleakley, advising that Mr Fares would be attending the premises to permit access for investigative purposes only. They requested a report indicating the nature and the cause of the water problem and informed Mr Bleakley’s Solicitors that Mr Fares would consider obtaining his own tradesman for the purposes of “confirming the defect only”. They also gave notice that Mr Fares would not be held accountable in respect of any work that was carried out without his authorisation. By this facsimile, Mr Fares asserted that he still had control of the premises.

98 These proceedings were commenced on 11 November 2003 seeking Orders inter alia, that no rent be payable by Mr Fares for “the period after there was water damage“.

99 The Lease provides at Article 10.1 as follows:

“The Lessor may, at any time, and from time to time, give notice in writing to the Lessee to repair all defects and wants of reparation found by the Lessor in the demised premises and the Lessee shall make good such defects and wants which are the obligation of the Lessee under this Lease, to make good to the satisfaction of the Lessor’s Architect within the time prescribed by that notice which to be good and effectual shall prescribe a reasonable time”.

100 Article 10.3 provides:

“Keeping in Repair

The Lessee shall, from time to time, and at all times during the Term of this Lease, well and substantial repair and keep in good and tenantable repair and condition, fair wear and tear and damage from fire, floods, storm, tempest, act of God, war or civil commotion, excepted the demised premises and all additions thereto, including all glass in the windows and doors, furniture, appurtenances, carpets, lifts, conveyors, air-conditioning plant, fire equipment and all other plant and machinery, installations and equipment and the fittings and attachments thereto belonging of whatsoever nature and the walls, awnings, fences, gates, doors, vaults, ducts, pipes, wires, sewers, drains and attachments thereto, having regard to their condition at the commencement of this Lease except where there the need for any such repair or such condition shall arise from any structural defect (for which the Lessee is not otherwise hereby responsible) or inherent defect or from subsidence or from fire, flood, lightening, storm or tempest provided that the Lessee is not required to undertake works of a capital or structural nature except where the need for such works arise due to the default of the Lessee, or the Lessee’s particular use of the premises.”

101 There was considerable evidence in relation to a substance that appeared to be the waterproof membrane laid between the structural concrete floor and the finished surface of the floor. At the view of the premises, where investigative work had been carried out to determine the location of water penetration to the floor, the waterproof membrane referred to was observed to be a thin white layer of material.

102 It is common ground that the material referred to as the waterproof membrane was not laid by Mr Fares and that Mr Fares did not refit the restaurant.

103 Mr Steiner gave evidence of his observations at the restaurant. Mr Steiner asserted that the membrane below the tiles had been damaged and attributed that damaged to lack of proper maintenance and sealing. Mr Steiner’s expertise in this area has not been established. He attended the premises not as an expert, but to carry out maintenance at the time of the leaks.

104 Mr John Hickey, a Licensed Builder and Qualified expert witness gave evidence that if the material, referred to as the waterproof membrane, was indeed membrane, it was substantially less than the recommended thickness of membrane, was brittle and was unsuitable for sealing the floor and that it was inevitable that it would fail in the long term.

105 There has been further considerable evidence as to whether Mr Fares, in his maintenance and use of the premises, caused any penetration to the waterproof membrane causing it to fail. The evidence before the Tribunal of when there was any likelihood of penetration by Mr Fares of the membrane, was when a stove was installed by him. A Licensed Plumber, employed by Mr Fares, installed the stove and Mr Fares was present at the time of the installation. There were pipes installed to an existing drain. Mr Fares’ evidence is that he did not see the Plumber cut through any membrane. On balance, I am satisfied that neither Mr Fares, nor his Contractors, penetrated or damaged the membrane, causing its failure.

106 Article 10.3 of the Lease excludes wear and tear from the Lessee’s obligations to keep the premises in good tenantable repair and condition. The Lessee’s obligation is further exempted by that Article if there is an “inherent defect”, the Lessee not being required to undertake any works of a capital or structural nature, except where the need for such works arise due to the default of the Lessee. Mr Fares’ evidence is that he caused the tiling in the kitchen area to be re-grouted with a sand and cement mixture where it had shown signs of wear and so that the floor could be maintained in a clean state. The sand and cement grout did not prevent the water spillage from passing through that medium. That is, it did not have the effect of waterproofing the tiled area. Water spillage or leakage from Mr Fares use of the premises, penetrated the tiling and travelled to the unsealed areas where cores holes and conduits passed through the floor allowing water damage to occur in the Aveda tenancy.

107 The disclosure statement provided by the Lessor in the documents attached to the Contract to purchase the business, discloses that there had been payments made to contractors in relation to water leaks to the Café/Aveda tenancies and clearing blocked drains in the Café.

108 I find that the water leaks from the Café to the tenancy below predated Mr Fares’ tenancy of the premises, although they were exacerbated by Mr Fares’ use of the premises and failure to maintain taps, sinks and refrigeration units. The lessee is exempted under the lease from being required to remedy an inherent defect or undertake works of a capital or structural nature unless caused by default of the lessee.

109 I find that there is an inherent defect to the water proofing of the floor. If the waterproofing to the floor had been sufficient the water spillage or leakage from Mr Fares’ premises should have been carried away to waste drains and not have carried through the waterproof membrane or through the unsealed core holes. I further find that the premises became unusable by Mr Fares because of the failure of the water proofing to the floor.

TERMINATION OF THE LEASE

110 On 14 October 2003, at the request of Deans Property, Mr Bleakley’s managing agent, Mr Fares turned off the water supply and the refrigerators in his premises. He was forced to cease trading without being able to have water supply or refrigeration.

111 On 16 October 2003, Mr Fares wrote to Deans Property informing them that he had shut off the water supply and requested that the waterproofing be repaired by the Landlord to enable him to resume trading.

112 Various observations were made by Mr Steiner, on or about 17 October 2003. He viewed water leaking through core holes in the concrete slab on the southwest side of the restaurant’s kitchen near the sink and dishwasher.

113 At the request of Mr Bleakley’s Solicitor to obtain access to carry out further investigations, Mr Fares’ Solicitor advised by letter of 14 November 2003, that access would be permitted.

114 The parties being in dispute as to the responsibility for the water leaks, no action was taken by either to carry out the repairs and as at the date of the hearing of the these matters, the repairs had not been undertaken.

115 By letter dated 21 January 2004, to Mr Fares and his partners, Notice was given pursuant to Section 129 of the Conveyancing Act of the breach of Article 7.17 of the Lease:

“OPENING OF DEMISED PREMISES

The LESSEE shall at all times during the term of this Lease keep the DEMISED PREMISES open for trade during the usual business hours for the type of business to be conducted by the LESSEE and conduct his business therein at all times in good faith in accordance with the best methods and in a reputable manner”.

116 The Sub-Lessor required that the breach be remedied by opening the premises for trade.

117 The premises at the time of issue of the Notice under Section 129 were not capable of use as the water leak had not been repaired. Mr Bleakley gave evidence that he would undertake the repair work if Mr Fares indicated that he would return to occupation of the premises.

118 It is submitted by Mr Southwick that it was clear that Mr Fares could not continue to operate the restaurant. Mr Bleakley, through his Managing Agent, had requested that the water be turned off to the premises. Mr Fares complied with this request. Mr Southwick submits that the Section 129 Notice was incapable of being complied with and that the termination based on that Notice was wrongful.

119 Whether the breach notified under the Section 129 Notice is capable of remedy or not, does not effect the validity of the Notice. Mr Fares could not remedy the alleged breach because he could not operate his business without having water available on the premises. Water availability was fundamental to the conduct of his business. He was ordered by the Sub-Lessor not to turn the water on to prevent water leakage through his premises to the Aveda tenancy.

120 If Mr Fares remedied his water leaks, there were still the underlying problem that the water leaks, through unsealed conduits, core holes and the failed waterproof membrane would still occur.

121 It is common ground that Shala took possession of the premises on 16 March 2004.

122 Article 17.3(a) permits the Lessor to re-enter the premises where in the case of default made in the performance or observance of any term covenant and the Lessee does not perform or observe that covenant or condition, and that default continues for 14 days after the Lessor gives notice of the default, the Lessor is permitted to re-enter the premises.

123 I find that the Lessor terminated the Lease upon re-entry to the premises on 16 March 2004.

124 Mr Fares stopped paying rent on 16 October 2003 after he was requested to turn off the water to his premises. Article 3.5 provides:

“If the whole or part of the DEMISED PREMISES shall be destroyed or damaged by ....other disabling cause so as to render the DEMISED PREMISES substantially unfit for the use and occupation of the Lessee.....

a)....the rent ....and outgoings suspended until...made fit for occupation”.

125 I have found that the principal disabling cause for the premises to be the failure of the waterproofing between the premises and the premises below. Mr Fares is entitled to an abatement of rent until the premises were restored or the lease was terminated.

126 Mr Southwick has submitted on Mr Fares’ behalf that no request was made by Mr Bleakley to rectify the water problems. Mr Fares was requested by Mr Bleakley’s agent to switch the water off to the premises which he did. Investigations were then taken on Mr Bleakley’s behalf to identify the cause of the problem. I have found that until such time as the repairs were carried out by Mr Bleakley the premises were unusable by Mr Fares.

127 Mr Fares was incapable of remedying the basis of the breach set out in the Notice issued under Section 129 of the Conveyancing Act.

128 Mr Warren on behalf of Mr Bleakley has submitted that Mr Fares is not entitled to rely on his own default in order to rescind or terminate the lease. He submits that it is incumbent on Mr Fares to repair his own fault. This is his obligation under the lease. However, the greater difficulty is that there is an inherent problem with the premises through the failure of the water proofing. It was open to Mr Fares to give notice under Section 36(1)(d) of the Retail Leases Act requiring the Lessor to repair the damage. It has been submitted that the application to this Tribunal dated 11 November 2004 gave such a notice. In which case Mr Fares would be entitled to terminate the lease if the damage was not repaired within a reasonable time. I agree with Mr Warren’s submission that the application of 11 November 2004 was not a notice for the purposes of Section 36(1)(d).

129 The effect of Section 36(1)(a) of the Retail Leases Act removes the Lessee’s liability to pay rent for any period during which the shop cannot be used under the lease or is inaccessible due to that damage.

130 I find that Mr Fares’ rent abates from 15 October 2003 until Shala took possession of the premises on 16 March 2004.

131 Shala at the date of the hearing had not made the premises fit for occupation and accordingly, I find that Shala is not entitled to rely on its default under the lease in order to recover rent from the date of termination of the lease until its termination date.

132 As I have found that there was no representation made with knowledge that it was false or misleading entitling Mr Fares to damages under Section 10(1) of the Retail Leases Act. It is not necessary for me to make findings in relation to the evidence before the Tribunal as to how those damages would be assessed if Mr Fares had been successful in his applications. As to his claim for loss of income when the premises could not be used as a restaurant, this was not pressed and there is certainly no evidence that the business ever traded at a profit.

CALCULATION OF REFUND OF OUTGOINGS

133 Mr Fares has paid his proportion of outgoings based on the restaurant premises being 12.65% of the Verona Centre.

134 I have found that the lettable area of the premises is 260.3m² and that the total area is 2136.7m². This represents 12.18% of the Verona Centre.

135 At 12.65% the outgoings are $2,470.03 per month, at 12.18% they are $2,378.26 per month.

136 Outgoings are payable by Mr Fares from 1 April 2002 to 16 October 2003 being 18 months and 15 days at $2,378.26 making a total of $43,997.81. He has paid to Shala $47,520.00 and is entitled to be repaid the difference being $3,22.19.

ORDERS

Matter 035135
1. That the Applicant’s application:
(i) for damages for false and misleading representations by the Respondents;

(ii) for damages for loss of sale of the business;

(iii) for damages for loss of income when the premises could not be used as a restaurant:

is dismissed.

2. I declare that:

(i) no rent is payable from 15 October 2004 until 31 March 2005;

(ii) the lease terminated on 16 March 2004;

3. That the Respondent’s pay to the Applicant’s:
(i) the security deposit held by them in full; and

(ii) the sum of $3522.19 being the refund of overpaid outgoings.

Matter 045036
I order that the application is dismissed.
Costs
1.The parties may make written submissions in relation to costs within 28 days of this decision.

2.If no submissions are made, then there will be no order as to costs.