Gill & Ors and Wildnight Pty Ltd - [2008] WASAT 84

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)

CITATION: GILL & ORS and WILDNIGHT PTY LTD [2008] WASAT 84

MEMBER: DR B DE VILLIERS (MEMBER)

HEARD: 19 AND 20 FEBRUARY 2008

DELIVERED : 17 APRIL 2008

FILE NO/S: CC 1302 of 2006
CC 1298 of 2006
CC 1300 of 2006
CC 1301 of 2006
CC 1303 of 2006
CC 1304 of 2006

BETWEEN: SANTHOK SINGH GILL
CHARNJIT KAUR GILL
LIN LI ZHANG
CHENG LI
PHU LUONG
THUY TIEN LUONG
HUA ZHANG
QING LIN
PENG PENG YENG
Applicants
AND
WILDNIGHT PTY LTD
Respondent

Catchwords:

Commercial tenancies Lettable area Operating expenses Relevant proportion Material changes in the total lettable area Does a change in the operating expenses statement constitute compliance with the statutory requirement to inform tenants of "details of any material changes" in the total lettable area Who is responsible for payment of repair and maintenance of airconditioning units Does an operating statement which contains itemised expenditure for only a part of the accounting period comply with the provisions of the Act

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 3(1), s 12, s 16(1)
State Administrative Tribunal Act 2004 (WA), s 66, s 83(7)

Result:

Questions answered and orders made

Category: B

Representation:

Counsel:

Applicants: Mr C Martin
Respondent: Mr D Tong

Solicitors:

Applicants: Chris Martin & Associates
Respondent: Vincent Partners

Case(s) referred to in decision(s):

Nil

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

The questions arising from these applications can be summarised as follows:
(a)was the alteration made to the 2005/2006 operating statement of the International Eating House of sufficient "detail of any material change" in the total lettable area, to comply with the requirements of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CT Act);
(b) can the reparations and maintenance made to the air‑conditioning units be claimed by the respondent as part of the operating expenses;
(c)does the written statement for the year 2004/2005 which contains only 10 months of itemised expenditure, comply with the CT Act; and
(d)what is the "relevant proportion" of each tenancy in the retail shop?
In response to each of these questions, the applicants contend as follows:
(a)The respondent did not provide them with sufficient detail in regard to its decision to change part of the lettable area, known as the bakery, into common area. According to them, the mere inclusion of the lettable area within the operating statement for the common area does not constitute "details of any material change" in the total lettable area as required by the CT Act.
(b)The type of work done to the air‑conditioning units should be classified as of capital expenses to "plant or equipment" which is the property of the respondent. It is therefore also the responsibility of the respondent to repair and maintain it, and the costs cannot be charged as an "operating cost" to applicants.
(c)In regard to the financial statements for the period 2004/2005, the respondent is obliged to provide an itemised account for the entire accounting period and cannot escape that responsibility due to the fact that he was proprietor for only 10 of the 12 months.
(d)The "relevant proportion" of each tenancy should be as per the "Millar Drawings" on page 38 of the applicants' bundle of documents. This takes into account that the bakery is a lettable area.
In its response to the questions, the respondent contends as follows:
(a)It had never intended to use the so‑called bakery as a lettable area. The area may have been used previously as a bakery, but since the retail shop was acquired by the respondent in October 2004, it only served as a store room for cleaning material. Tenants were also welcome to use it for storage of their own goods. It was therefore logical for the area to be included in the general common area for which the tenants are responsible to pay outgoings. The applicants were given sufficient detail of the change through informal discussions and the change in the 2005/2006 statement of operating expenses.
(b)In regard to the air‑conditioning units, the type of work undertaken forms part of general repair and maintenance, and should therefore be included in the operating statement pursuant to the respective leases.
(c)In regard to the financial statement for the period 2004/2005, the respondent had done what it reasonably could to obtain from the previous proprietor more detailed and accurate records for the two months, but to no avail. The respondent however only seeks that the applicants pay for the actual expenses incurred during the period of 10 months which had been accurately accounted for.
(d)The "relevant proportion" of each tenancy should be as per the respondent's submissions. This takes into account that the bakery is not a lettable area and should be treated as part of the common area.
The Tribunal found as follows in response to the questions:
(i)The bakery area cannot be treated as part of the common area of the shopping centre since no statement had been issued in compliance with s 12(1a)(b) of the CT Act.
(ii)The parties are in agreement that a change of the bakery area into a common area would amount to a "material change of the total lettable area" as provided for in s 12(1a)(b) of the CT Act. The Tribunal concurs with the analysis of the parties.
(iii)The applicants are not required to contribute towards the operating expenses of the bakery area since those expenses are not referrable to the shops of the applicants, nor do the applicants derive any benefit from the bakery area.
(iv)The amounts paid in 2004 and 2006 for the purported repair and maintenance of the air‑conditioner units are not recoverable from the tenants.
(v)The operating expenses statement for the period 2004/2005, provided by the respondent to the applicants on 1 March 2007, is in compliance with s 12(1)(d)(ii) of the CT Act. The applicants are required to contribute to itemised expenditure incurred by the respondent during the accounting period and the applicants are entitled to a refund, if any, by the respondent of contributions they made that are not substantiated by the statement of 2004/2005.
(vi)In light of the findings made by the Tribunal in regard to the bakery, the parties must finalise the "relevant proportion" of each tenancy and, if necessary, amend the respective leases, in accordance with the Millar Drawings.

Background

The applications were lodged on 6 August 2006. The applicants are all tenants of International Eating House situated in East Victoria Park. The applicants, together with other tenants, operate stalls within a food hall. There are 10 such eateries.
The applications were consolidated since they were all affected by the same facts and questions arising from the respective leases. The matter of Gill & Anor and Wildnight Pty Ltd (SAT file number CC 1302 2006) was designated as lead matter for convenience.
At the directions hearing of 7 September 2006, the matters were adjourned for mediation to be conducted by a Member of the Tribunal. The mediation was, despite several attempts, not successful and the applications were re‑listed for a directions hearing on 1 February 2007.
Due to the well‑motivated requests by the parties for the matters to be adjourned to allow further private negotiations, the Tribunal gave more time than it normally would for negotiations to continue. The parties reported on several occasions that they were making good progress and that only one or two minor issues remained in dispute.
Ultimately, however, the private negotiations failed and the parties requested that the matter be heard.
The Tribunal gave leave on 22 November 2007 for the applications to be amended. The applicants filed amended applications on 29 November 2007 and the respondent filed its reply on 6 December 2007. The applicants also filed a bundle of witness statements on 7 February 2008. Included in the bundle were the statements of Hua Zhang, Cheng Li, Lin Li Zhang, Santhok Gill, Thuy Luong and Vicky Sze.
The respondent filed two witness statements of Antonio Guerrini (director of the respondent) on 1 February 2008.
The matters were heard on 19 and 20 February 2008.
The hearing commenced with a site inspection which gave the Tribunal the opportunity to view the area the subject of the application. After the site inspection, the proceedings continued at the Tribunal hearing room. All the witnesses gave evidence during the proceeding and were cross-examined. The Tribunal took an active part in putting questions to the respective witnesses.
The parties were given opportunity to file written closing submissions by not later than 29 February 2008.
The decision was reserved on 7 March 2008.

Orders sought by the applicants

In their amended application, the applicants formulated four questions arising from the lease, and suggested four orders the Tribunal should make if the applications were successful.

Question (a)

In respect of the operating expenses statement provided by the respondent on 9 October 2006 and 2004/2005 (in respect of the 2005/2006 outgoings year) pursuant to s 12(1)(d)(ii) of the CT Act, the applicants raise questions concerning the accounting for this period as follows:
"(i)whether the area at the rear of the shopping centre (food hall), formerly let as a bakery, is part of the common area of the shopping centre (food hall) (as asserted by the respondent in its accounting for 2005/2006), having regard to the fact the bakery was treated as lettable area in the 2004/2005 estimate of expenditure and no statement had issued subsequently notifying any material change as required by s 12(1a)(b) of the CT Act;
(ii)whether a change in the treatment of the bakery would amount to a material change in the lettable area of the centre in terms of s 12(1a)(b) of the CT Act requiring the applicants to be provided with the particulars required by s 12(1a)(b) of the CT Act;
(iii)whether, in any event, because of s 12(1e)(a) and s 12(1e)(b) of the CT Act, the respondent could require the applicants to contribute towards the operating expenses of the bakery, having regard to whether those expenses are specifically referable to any of the applicants' retail shops, and whether any of the applicants derive any benefit resulting from that operating expense; and
(iv)whether the amounts certified as recoverable by the auditor for the television set and for the air‑conditioning units are, in fact, recoverable, having regard to the objections made by the applicants to the effect that they each paid the respondent in cash for the television set, and the other items were not recoverable as being capital items not recoverable under the leases and/or the CT Act.

Order

The respondent provide an amended operating expenses statement for each of the lease years July 2004 to June 2005 and July 2005 to June 2006, amended (in respect of the statement for 2005/2006) to delete the items objected to in question (a), and otherwise (in respect of both outgoings years) accounting to each of the applicants on the basis of the lettable areas in the chart at page 38 of the applicants' document bundle.

Question (b)

In respect of the operating expenses statement provided by the respondent on 1 March 2007 (in respect of 10 months of the 2004/2005 outgoings year) purportedly pursuant to s 12(1)(d)(ii), does the provision of such a statement amount to compliance with the requirements of the CT Act?

Order

The respondent to provide an operating expenses statement for the 2004/2005 outgoings year which fully complies with the CT Act.

Question (c)

What is the "relevant proportion" of each applicant's tenancy, having regard to s 12(3) of the CT Act?

Order

(a)There be a declaration that the "relevant portion" of each of the applicant's shops is in accordance with the chart at page 38 of the applicants' document bundle.
b)Upon the respondent providing operating expenses statements for the whole of 2004/2005 and for 2005/2006, amended to delete the items complained of in question (a), and providing each of the applicants with a statement apportioning to the shopkeeper concerned, outgoings on the basis of the lettable areas in the chart at page 38 of the applicants' document bundle, the applicants do pay to the respondent any amount owing to the respondent in respect of that year, or the respondent repay any overpayment, as the case may be, but without interest in either event.

Question (d)

Ought the respondent be required to pay compensation to the applicant pursuant to s 87(3) of the State Administrative Tribunal Act 2004 (WA) (SAT Act), having regard to the conduct of the respondent, as found in these proceedings, and being conduct in the operation of the shopping centre (food hall)?

Order

The respondent pay the applicants' costs of this application, to be determined (in the absence of agreement within 14 days of this order) by the Tribunal."

Television

The dispute in regard to the contributions received for the television was settled during the final stages of the hearing when Mr Guerrini admitted under cross‑examination that he had sought and received cash contributions from each of the applicants towards purchasing a television. He admitted that no further claims for such monies ought to have been made by the respondent.
The Tribunal expressed its displeasure that this particular dispute, which had been the subject of extensive evidence and cross-examination, had not been dealt with earlier by the respondent. Mr Guerrini was present in the hearing room while the applicants were cross‑examined in regard to the television, but it was only after his evidence had become the subject of cross‑examination that he made the admission for the dispute to be removed.

Statutory framework

The applications were brought pursuant to s 16(1) of the CT Act which allows for questions arising from a retail shop lease to be directed at the Tribunal.
"16. Reference of questions to State Administrative Tribunal
(1)Subject to section 11(5), a party to a retail shop lease may refer to the Tribunal any question between the parties which he believes to be a question arising under the lease and the Tribunal shall -
(a)determine whether or not the question referred to him is a question arising under the lease; and
(b)if it is such a question, hear the question with a view to achieving a solution acceptable to the parties to the lease.
(2)The matter for determination referred to in subsection (1)(a) -
(a)may be determined by the Tribunal in such manner as it thinks fit, subject to each party being given an opportunity to make a written submission
…"
Section 16(1) of the CT Act rests on two pillars ‑ firstly, the Tribunal must be satisfied that the questions raised by the applicants are indeed questions arising under the lease. Secondly, the Tribunal must hear the matter and make a determination "in such manner as it thinks fit" (s 16(2)(a) of the CT Act).
In these proceedings, the parties were in agreement that the questions do arise from the lease, and the Tribunal is therefore satisfied that the questions could be heard.
The Tribunal will refer to the relevant parts of the CT Act when the particular questions are considered.

Questions arising from the lease

For the sake of convenience, the Tribunal will deal with each of the questions the subject of the application separately.

5.1) Was sufficient notice given to the applicants that the rear area of the retail shop known as the bakery, was changed from a lettable area to common area?

The essence of the dispute revolves around the proper classification of the rear part of the food hall and the notice that had to be given for such classification to change. The area is generally referred to, for purposes of identification, as the "bakery area".
The parties agree that, at some time prior to the respondent becoming owner of the property, the area the subject of the application was used as a wholesale bakery. In fact, an advertisement remains on the roof of the retail centre with the now outdated details of the bakery.
Reference was therefore made in the submissions, witness statements and during the hearing, to the area as a "bakery". This was merely done for purpose of common terminology and does not constitute acknowledgement by the respondent that the area remains a bakery, or that it is a lettable area, or a contention by the applicants that the area can only be used as a bakery.
In these reasons, the Tribunal will therefore also refer to the area the subject of the dispute as the "bakery".
If the bakery area is a lettable area, the tenant (or if it is not tenanted then the respondent as owner/tenant) is responsible to contribute to the general outgoings of the retail shop in relative proportion to the size of the tenancy. All general outgoings for the retail shop would then be divided among 11 tenants.
If, however, the bakery is not a lettable area but part of the common area, the 10 tenants would be responsible for general outgoings in regard to the bakery since it would form part of the common area. The tenants would in such a case also be able to use the bakery as part of the common area. All general outgoings for the retail shop would then be divided among the 10 tenants.
The answer to the question as to what is the proper classification of the bakery area lies in s 12(1a)(b) of the CT Act, which provides that an operating statement of a retail shopping centre:
"must include a statement of the current total lettable area of the retail shopping centre and details of any material change in that total lettable area during the period to which the statement relates;" (Tribunal emphasis).
As already mentioned, the parties agreed at the hearing that the bakery area used to be a lettable area.
The applicants contended that any change to the bakery area from a lettable area to a common use area would constitute a "material change" to the "total lettable area" as envisaged by the CT Act. The nature of such change and detail thereof must therefore, according to the applicants, be explained as part of the operating statement.
The applicants acknowledged that the CT Act in principle allows for a situation where the total lettable area of a retail shopping centre could be materially changed, provided that the requirements of the CT Act are complied with.
The respondent admitted that the bakery area used to be a lettable area prior to it having acquired the premises. The respondent initially took issue with the question whether the change could be regarded as "material", but during the hearing, the respondent conceded that the change of the bakery area from a lettable area to a common use area would constitute a "material change" as envisaged by s 12(1a)(b) of the CT Act. However, the respondent contended that it complied with the notification provisions of the CT Act.
In its closing submissions, the respondent contended in the alternative that the bakery had not, during the "material times", been lettable and has, in other words, since the respondent became proprietor, been part of the common area.
Mr Guerrini explained that the respondent became the proprietor of the premises in October 2004. The acquisition was subject to the existing individual leases. The premises comprised a food court with 10 stalls offering meals to the public. At that stage, the bakery had already closed down, and the bakery area was locked and used as a storage facility by the cleaners.
According to Mr Guerrini, he did clearly disclose the proper details of the material change in the operating expenses statement for 2005/2006 by showing that the number of lettable areas had been reduced from 10 to 11. That change in the operating expenses statement, as well as the informal notification he personally gave to the tenants, constituted compliance with the CT Act.

Mr Guerrini explained that during the period of 1 July 2004 to 30 June 2005 immediately before he acquired the property, the variable outgoings estimate showed the Building Outgoings to be shared between 11 tenants and the Common Outgoings to be shared by 10 tenants. The reason for this arrangement, as he understood it, was that the previous owner made a voluntary contribution towards what was called the Building Outgoings, while the tenants had to pay for all user fees or, as it was called, Common Outgoings. The previous owner apparently made this contribution out of kindness and not due to a legal obligation.
The Tribunal notes, however, that neither the previous owner nor the previous managing agent was called to give evidence to support this explanation by Mr Guerrini.
Mr Guerrini decided, after he acquired the premises, that he was not willing to continue to make such a voluntary contribution to operational expenses. He therefore notified all tenants informally and by way of the operating expenses statement for 2005/2006 of the change in lettable area. He contended that the fact that he provided the tenants with a single outgoings budget, in which the bakery area was included in the total common area, was in compliance with the CT Act.
Mr Guerrini contended that by providing the single budget of estimated outgoings for 2005/2006 and by dividing it through 10, the tenants were properly notified that:
(a)the material change of the lettable area;
(b)the bakery area had become available for common use; and
(c)the respondent would cease to make a contribution, as an eleventh tenant, to some expenditure as the previous owner had done.
A dispute was declared by the applicants and they commenced with a boycott of payments towards operating expenses. Although some payments have now been made, Mr Guerrini estimates that approximately 20% remains to be withheld.
Mr Pratt, for the respondent, also contended in his closing submission that the bakery did not constitute a "retail floor area" as envisaged by s 3(1) of the CT Act since it is not an area designed for, or available for, the use of carrying out a business of a retail shop.
If the question is determined in favour of the respondent, the practical effects of the purported change in lettable area would be threefold.
•Firstly, the operating expenses would be shared by 10 and not 11 tenants. The contribution to operational expenses by each of the tenants would therefore increase.
•Secondly, the bakery area would no longer be regarded as a lettable area, and as a result, the total area of common use would increase. As a consequence, the costs of operational expenses to an enlarged common area would increase, with a subsequent increase in contribution by each tenant.
•Thirdly, the tenants would be able to use the bakery area for purposes of storage as part of the common area.
The Tribunal agrees that such a change would indeed be regarded as a "material change" under the CT Act.
The applicants contended that the purported notice of a change of the lettable area did not comply with the requirements of the CT Act. They also gave evidence that the bakery area has not been made available to them as part of the common area. Their conclusion is that the bakery remains a lettable area and should be treated as such. All operational costs should therefore be shared by 11 tenants. The respondent should, therefore, as owner/tenant of the bakery area, contribute towards operational expenses of the centre.
The evidence of the applicants and Mr Guerrini was contradictory as to whether he had given them notice of the change of the lettable area and the availability of the bakery area for storage. The parties were also in dispute as to the extent, if any, to which the bakery area is currently being used by the applicants for storage purposes.
In essence, Mr Guerrini said that, at the time when he became the proprietor of the premises, the bakery had been used as a storage facility for cleaning materials by the cleaners. The door had been locked and the tenants did not at the time have access to the area. Only Mr Guerrini and the cleaners had a key for the door leading to the bakery. During early 2005, he unlocked the door and informally notified the tenants that they could use the area for general storage. In June 2007, he commenced renovations, which included demolishment of the wall that separated the bakery from the general storage area. As a result, the bakery area became even more accessible for use by all the tenants. According to him, the decision whether a tenant actually used the area for storage was for the shop owner to exercise, but that does not diminish the fact that it is a general storage area available for common use.
The applicants, with slightly different emphasis in some instances, all contradicted the evidence of Mr Guerrini. The applicants were in agreement that:
(a)they had not been told informally by Mr Guerrini that the bakery area forms part of the common area and that the lettable area had therefore decreased, with subsequent financial implications to them;
(b)they had not been told or encouraged at any stage by Mr Guerrini that they may use the bakery area for storage purposes;
(c)they do not derive any benefit from the bakery area since they each have their own storage facility;
(d)the door to the bakery had been locked until late 2006 or early 2007, at which time some buildings works started. If Mr Guerrini had unlocked the door in 2005, he never told them about it;
(e)the items currently in the area, such as the bain-marie, chairs and tables, do not belong to the applicants and are not used by the applicants; and
(f)the applicants do not have a key to the back door of the bakery area and they have never used the loading bay for any purpose, nor have they used the back door to take delivery of goods.
One applicant, Mr Cheng Li, acknowledged that he had stored a box with some pots and plants in the bakery area after he sought permission from Mr Guerrini. Mr Guerrini, did not, however, tell him that he could store anything there or that there was no need to seek permission in future to store items in the area. Ms Sze in turn explained that she had disposed of gas cylinders which were then moved to the bakery area by somebody ‑ she presumed the cleaner. She did not, however, store the items there and never understood that tenants could, by right, store items in the area.
Mr Pratt, for the respondent, raised the issue of credibility of the witnesses in his closing submission. He contended that the evidence of Mr Guerrini should be preferred to those of the applicants for the following reasons:
•Firstly, the applicants had a poor command of English, and as a consequence, they were not "truly aware" of the content of their statements.
•Secondly one of the witnesses, Mr Zhang, had material errors in his statement which were identified in cross‑examination, and as a result, his evidence should be rejected in its entirety.
•Thirdly, large portions of statements were identical and copied from other statements.
•Fourthly, much of the evidence was based on hearsay.
The Tribunal does not accept that the evidence of the applicants should be rejected in such a generalised, sweeping and dismissive manner as proposed by Mr Pratt.
The Tribunal acknowledges that the applicants in general were not fluent in English, but the Tribunal is satisfied that:
(a)the applicants showed a very clear understanding of the issues at stake and their evidence withstood cross‑examination by Mr Pratt and questions by the Tribunal;
(b)Mr Pratt had ample opportunity to examine any aspect of the witness statements or to object to parts of the statements being taken as read into evidence;
(c)the applicants appeared to be very sincere, credible, consistent and spontaneous in their evidence;
(d)the witness statement of Mr Zhang did contain some errors, and that was immediately acknowledged and corrected. The remainder of his evidence and his replies under cross‑examination were consistent with his witness statement. Even if lesser weight is attached to his evidence, the evidence of the other witnesses is compelling;
(e)the applicants are small‑business persons, and it is completely inaccurate and an exaggeration to suggest that they were not "truly aware" of the proceedings or the content of their statements; and
(f)the evidence of the applicants in regard to the actions of Mr Guerrini or the use of the bakery area was not based on hearsay but on their personal experiences.
Mr Guerrini, on the other hand, appeared to be less than open in his evidence. He spoke in a guarded manner, was sometimes evasive and became argumentative. He was often less than cooperative and forthcoming, and the Tribunal had to encourage him more than once to fully respond to questions. His lack of cooperation was reflected in his decision, only in the final stages of the hearing, to acknowledge the payments he received for the television. He only made this concession after the all applicants had been subjected to intense cross‑examination on the very topic.
Mr Guerrini's explanation that he told the applicants informally that they could use the bakery for storage is not supported by any evidence other than his own. He could not refer to specific dates or occasions when he had the purported discussions, and he did not produce evidence from other tenants, who were not part of the application, to support his contention.
Mr Guerrini also failed to produce a statement or other evidence from the previous owner or the previous management agent in support of his contention that it was only through an act of "kindness" that the previous owner made a contribution to some outgoings. Although he mentioned that his contract for sale referred only to a 10 tenancy property, Mr Guerrini failed to provide to the Tribunal a copy of the contract or other documentary evidence in support of his contention. He also did not provide the Tribunal with any evidence to show how the bakery area was described in the contract for sale.
In summary, Mr Guerrini's uncorroborated recollection of events was in such stark contrast to those of the applicants that the Tribunal cannot but come to the conclusion that their evidence should be preferred.
The Tribunal therefore rejects the contention that the evidence of Mr Guerrini should be preferred to those of the applicants. On balance, the applicants were, within the limitations of their command of English, very reliable, consistent and sincere in their evidence. Their recollection of events is therefore preferred to that of Mr Guerrini.
The position of the respondent in regard to the bakery was ambivalent throughout the proceedings. At first, it contended that no material change had occurred during the ownership of Mr Guerrini.
However, during the hearing, it was contended that Mr Guerrini had given proper notice of the "material change" of the lettable area.
Mr Pratt acknowledged during the hearing that the change of the lettable area to include the bakery as part of the common area was a "material change" under the CT Act. He contended, however, that proper and sufficient notice was given by Mr Guerrini during informal discussions with the applicants and by the 2005/2006 statement of estimated operation costs.
This again highlights the inconsistency of Mr Guerrini's contentions and evidence. Why would he have given informal notice of a material change of the lettable area if the change did not occur during his ownership but prior to him becoming owner?
In light of the evidence before the Tribunal and the consideration thereof, the Tribunal makes the following findings in regard to the first question:
(a)The Tribunal accepts the evidence of the applicants that they had not been told, be it formally or informally, by Mr Guerrini that they could use the bakery area for storage; that the area had become part of the common use area; that the area had been set aside for use of the tenants; or that there had been a material change to the lettable area.
(b)The Tribunal accepts the evidence of the applicants that, up to late 2006, the door leading to the bakery had been locked, with none of them having had a key to get access to the area. The Tribunal rejects Mr Guerrini's evidence that the bakery area "has never been locked nor has the tenant's access" ever been restricted. (par 61(c) Affidavit 1 February 2008). The Tribunal further accepts the evidence that none of the applicants uses or used the bakery area as storage, and even if they did, they would only do so after permission is obtained from Mr Guerrini. There is no evidence to support a finding that tenants could use the bakery area as of right, due to it being part of the common area.
(c)The Tribunal does not accept the evidence of Mr Guerrini that he had informed the applicants that the bakery area formed part of a common area which could be used by them, nor does the Tribunal accept that he informed the applicants of a material change in the lettable area. The Tribunal further accepts the evidence of the applicants that none of them used the back door, which gives access to the bakery, for loading or unloading purposes.
(d)The Tribunal does not accept the evidence of Mr Guerrini that the chairs and tables currently stored in the bakery area are for regular use in the food hall. This evidence was contradicted by several witnesses, and for reasons set out above, the Tribunal prefers the evidence of the applicants.
(e)The Tribunal does not accept the contention by Mr Pratt that "there are no details of a material change required", since no change had taken place during the "material time" since the respondent became proprietor. The annual estimates for the year 2004/2005 provided for by the previous owner treated the bakery as a lettable area ‑ hence the contribution made to operational expenses by the then landlord. The signage on the roof of the centre, which states "Manufacturers and Wholesalers of Quality European Cakes, Pastries and Continental Breads", is evident of the previous use of the bakery. The respondent was, or should have been, aware of the 2004/2005 estimates, and if Mr Guerrini had uncertainty about anything arising from that statement, he should have clarified it with the previous proprietor.
(f)The Tribunal does not accept that the operating expenses statement 2005/2006 is in itself a sufficient "statement of the current lettable area of the retail shopping centre and details of any material change to that total lettable area …" (s 12(1a)(b) of the CT Act). The Legislature clearly had in mind that tenants of a retail shopping centre must be protected against sudden and inexplicable changes to the lettable area in a manner that is prejudicial to them. A landlord could otherwise do cost‑shifting, whereby the costs for the operating expenses of a lettable area are simply moved to tenants by reclassifying the area as "common area" without any explanation or warning to them. The requirements of the CT Act expect more notification and explanation than the type of "notification" done by Mr Guerrini. He thought that, by changing the heading of the operating statement, he had given a "statement" of the proposed changes. The Tribunal does not accept such a minimalist approach. It would undermine the very protection the CT Act attempts to afford tenants. The Tribunal therefore finds that Mr Guerrini did not discharge his duties under s 12(1a)(b) of the CT Act.
(g)The Tribunal accepts that the change of the baking area to a common area would constitute a "material change" in the lettable area and that as a consequence, the notification requirements of the CT Act must be complied with.
(h)There is no obligation on the applicants to contribute towards the operating expenses of the bakery, since such expenses must be borne by the landlord while the area remains untenanted. The applicants can further not be held liable for any of the costs of the respondent in regard to the bakery since, pursuant to s 12(1e)(a) and s 12(1e)(b) of the CT Act, the expenses by the landlord are not "specifically referable" to any of the shops operated by the applicants (s 12(1e)(a) of the CT Act); they do not derive any benefit from the bakery; nor is any of the applicants required to contribute to the operating expense an amount in excess of the proportion that their tenancy bears to the aggregate of the centre.
(i)The mere fact that the bakery area was not tenanted does not in itself mean the notification requirements of the CT Act have been complied with or that the area is not available to be tenanted. The fact that the door has been removed also does not mean the area has lost its "lettable" status. The applicants were all aware of some buildings works taking place within and alongside the bakery, but they were not privy to the plans of the respondent. As far as they were concerned, the respondent has been seeking a tenant for the area. The bakery area was previously rented and the back door was used to on-and off-load bread products, and there was, as far as the applicants were concerned, no reason why it could not again be rented out for another purpose.
(j)The Tribunal does not accept the contention that the bakery does not constitute a "retail floor area". The facts show that the area had been used previously as a bakery ‑ it has an external door which leads to a loading bay and a rear alleyway. The mere fact that the bakery is currently subject to renovations and is unutilised as a retail shop does not, in itself, mean that it does not constitute a retail floor area.
The Tribunal concludes, on the basis of the foregoing analysis, that the operating expenses statement 2005/2006 does not comply with the requirements of s 12(1a)(b) of the CT Act, and that the bakery area should therefore be treated as a lettable area and not as part of the common use area.

Answer to question 1

In reply to the specific questions raised by the applicants in regard to the bakery area, the answers are:
(i)The bakery area cannot be treated as part of the common area of the shopping centre since no statement had been issued in compliance with s 12(1a)(b) of the CT Act.
(ii)The parties are in agreement that a change of the bakery area into a common area would amount to a "material change of the total lettable area" as provided for in s 12(1a)(b) of the CT Act. The Tribunal concurs with the analysis of the parties.
(iii)The applicants are not required to contribute towards the operating expenses of the bakery area.

5.2) Are the amounts spent on fixing the air‑conditioning units recoverable from the applicants?

The respondent claimed for costs it had incurred to undertake repairs to the air‑conditioning units following fire damage in 2004 and replacing two units in 2006.
The applicants contended that the expenditures were of a capital nature to "plant or equipment" that belongs to the respondent, and therefore do not form part of the normal maintenance costs that can be reclaimed by the respondent.
The applicants further contended that, even if the respective leases required a contribution towards maintenance of air‑conditioners, such air‑conditioning units should be regarded as "plant or equipment" which falls within the definition of s 12(2)(c) of the CT Act, and as a consequence the respondent should be responsible for the costs.
The respondent contended that the work in 2004 was necessary to bring the air‑conditioner back to operational standard after it had been damaged by fire, and should therefore be treated as part of repair and maintenance. The work done in 2006 was to replace two faulty units.

The Tribunal is guided in its response to this question by the provisions of the respective leases, as well as s 12(2)(c) of the CT Act. The CT Act provides as follows:
"A provision in a retail shop lease in respect of premises in a retail shopping centre to the effect that the tenant is obliged to make a payment to or for the benefit of the landlord, whether by way of contribution to a sinking fund or otherwise, for or in respect of the amortisation of all or part of the costs of or incidental to ‑
…
(c)any plant or equipment that is or becomes the property of the owner of the retail shopping centre,
is void."
It appears from the CT Act that if the air‑conditioning units are classified as part of "plant or equipment" that is the property of the respondent, the responsibility is on the respondent to maintain, repair, and if necessary, replace it. Even if a lease places a tenant under an obligation to contribute to the cost of maintenance, such a clause would be void.
The parties agree that the air‑conditioning units were damaged by a fire in October 2004. The respondent took steps to repair and replace the units and attributed the cost of the work to the applicants. The invoice for the repairs in 2006 notes the purpose of the work was to "replace two existing units". The amounts for the respective works were $3,967 and $4,460.
The auditor appointed by the respondent in its letter of 14 June 2007 attributed the costs to the applicants on ground that the air‑conditioning units "had broken down and needed to be partly replaced". The auditor referred to the terms of the leases to justify its opinion that the costs should be treated as an "outgoing expense and not a capital expense." The auditor acknowledged, however, that in normal circumstances, such repairs would be part of capital expenditure of the landlord.
Mr Guerrini gave evidence that the air‑conditioning units were for the benefit of the food hall, and that two of the units had to have their motors replaced. This work should, according to Mr Guerrini, be treated as normal repair and maintenance and thus part of operational costs. The costs should therefore be borne by the applicants pursuant to their respective leases.
The applicants explained in evidence that they were surprised that they had to pay for the work on the air‑conditioners since the repairs in 2004 had to be done after some fire damage. The damage should have been the subject of an insurance claim. The work in 2006 was, as they saw it, part of the normal repair and maintenance responsibilities to equipment that belongs to the landlord.
The leases drafted by Mullins Handcock provide in cl 3.8(a) that certain utility and services would be paid by the tenants. The leases drafted by Vincent Partners provide in cl 40.2 that the lessee "shall enter into a maintenance contract with a qualified airconditioning expert and shall pay all costs associated with the running maintenance service and repair of the Air Conditioning Plant …", but it excludes repairs and maintenance that are of a "structural" or "capital" nature (cl 41(f)).
The Tribunal accepts the evidence and submissions of the applicants that the nature of the work required on the air‑conditioning units after the fire cannot be equated with daily maintenance or operational costs as was suggested by the respondent.
The damage suffered in 2004 was to a fixture that belongs to the respondent, and in the normal course, recovery would be the subject of an insurance claim. Further, the Tribunal regards the nature of the airconditioning units as a "plant or equipment that is the property of the owner" within the provisions of s 12(2)(c) of the CT Act. Even if the leases placed an obligation on the applicants to pay into a fund for the maintenance of such equipment, such a provision is void.
The Macquarie Concise Dictionary (3rd ed, Sydney, 2004) defines "plant" as "the equipment, including the fixtures, machinery, tools etc, and often the buildings, necessary to carry out any industrial business". The air‑conditioning units are fixtures that form part of the property of the respondent. As such, the respondent is responsible for the maintenance, repair and upkeep thereof.
The Tribunal concludes that the costs for work done on the air‑conditioning units were of a capital expenditure to property of the respondent. The air‑conditioning units form part of a "plant or equipment" as per s 12(2)(c) of the CT Act. The costs arising from the repairs must therefore be for the account of the respondent. Even if the repair work fell within the definition of "maintenance" set out in the respective leases, the provisions of s 12(2)(c) of the CT Act make such a definition void, since any requirement in a lease for a tenants to make a payment towards "any plant or equipment that is the property of the owner" is void.

Answer to question 2

In reply to the question raised by the applicants, the Tribunal finds that the amounts in 2004 and 2006 claimed for the repair and maintenance of the air‑conditioner units are not recoverable from the tenants.

5.3) Does the operating expenses statement for the 10 months of 2004/2005 comply with s 12(1)(d)(ii) of the CT Act?

The question arises from the purported refusal by, or inability of, the respondent to provide to the applicants a statement as required by s 12(1)(d)(ii) of the CT Act for the entire accounting period 2004/2005.
Section 12(1)(d)(ii) of the CT Act requires the following:
"If provision is made in a retail shop lease for payment by the tenant, in addition to rent, of all or any of the operating expenses of the landlord ‑
…
(d)the retail shop lease shall be taken to provide that -
…
(ii)the landlord is required to give to the tenant a written statement in accordance with subsection (1a) (an 'operating expenses statement') that details all expenditure by the landlord in each accounting period of the landlord during the term of the lease on account of operating expenses to which the tenant is required to contribute."
The respondent provided an audit report by DB Yagmich and Co which covers the 12 months 2004/2005. The report, however, only contains itemised expenditure for the last 10 months of the accounting period and not for the first two months. The audit report, therefore, shows two columns; namely, one for "actual expenses for 10 months" and one for "estimated budget expenses for 12 months". The 10 months represent expenditure for the period since the respondent became proprietor of the shopping centre. The respondent contended that the operating statement is in compliance with the CT Act, and it therefore only claims for the actual expenses it incurred for the 10 months since it became the proprietor.
The applicants contended that the respondent has treated them with "disdain" by not providing them in time with the necessary financial statements as the CT Act requires. It was only after several attempts that the required information had been submitted to them.
In regard to the operating expenses statement of 2004/2005, the applicants contended that the respondent should have made more effort to obtain the information of the itemised expenses for the two months not covered in the statement. They do not accept the explanation of Mr Guerrini that he had made reasonable efforts to obtain the information but that he has been unsuccessful. They further contended that the provisions of the CT Act to provide a detailed, itemised account of all expenditure during the accounting period cannot be taken to have been met after "best endeavours".
The applicants further contended that the explanations Mr Guerrini gave during evidence and questioning by the Tribunal for the reason why he was not able to account for the entire period were not satisfactory. Further, the applicants contended that if the previous managing agents had not performed to the required level of professionalism, a complaint could have been lodged against them with the Real Estate and Business Agents Board.
Mr Pratt emphasised that the respondent was not seeking to be refunded for the two months July 2004 and August 2004 for which an itemised statement of expenditure could not be provided. The respondent only claimed for the 10 months for which itemised records had been produced as per the independent audit report.
Mr Guerrini, in evidence, explained the efforts he has made to obtain the itemised financial statements from the previous proprietor for the months July to August 2004. The budget for the period 2004/2005 was prepared by the previous proprietor. Mr Guerrini explained that he was unable to obtain a detailed account of expenses for the two months before he became the proprietor since the managing agent, Rayner, only provided him statements that showed lump sum payments. Regardless of his efforts to obtain more detail in regard to the breakdown of such payments, he had been unsuccessful.
Mr Martin, for the applicants, contended that the explanation offered by Mr Guerrini ought to be rejected by the Tribunal on grounds that it "falls short of the statutory obligation".
The Tribunal understands the dissatisfaction expressed by the applicants in regard to the inability of the respondent to provide full details of expenditure.
Section 12(1)(d)(ii) of the CT Act sets a clear standard for accounting of a year's expenditure by a landlord.
A landlord is required to give a "written" statement that "details all expenditure" for the "accounting period" for the expenses to which the tenant "is required to contribute".
Section 12(1a)(e) of the CT Act further provides that the statement must be prepared by a registered company auditor, and such a person must certify how the actual operating expenses compare to the estimated expenses that were given to tenants at the beginning of the accounting period.
The purpose of these provisions is obvious. Tenants are entitled to know what they will be contributing to during an accounting period; whether their contributions are being utilised for a lawful purpose; and, if there were any deviations from the budget, what those deviations were and whether it was indeed within the obligations of the tenants to pay for it.
The importance of receiving an itemised account of all expenditure to which a tenant must contribute during the accounting period is therefore obvious.
The statutory duty is on the landlord to comply with the provisions of the CT Act. This duty equally applies to an incoming landlord who acquires a property during an accounting period. There is nothing in the CT Act to suggest that a new proprietor only needs to account for the shorter period in which he was the owner of the premises. It is a new owner's duty to familiarise himself with the statutory obligations under the CT Act and to ensure that he obtains the necessary information from the previous owner, or that he is indemnified to enable him to comply with his statutory duties towards tenants at the end of the accounting period.
The Tribunal notes, however, the words "to which the tenant is required to contribute" (s 12(1)(d)(ii) of the CT Act). These words are repeated in s 12(1a)(e) of the CT Act which sets out the requirements of the statement.
The meaning of the words "to which the tenant is required to contribute" must be that the landlord cannot make bulk claims for expenditure and expect a tenant to contribute to it. If the landlord fails to keep proper records of expenditure, it is therefore his loss.
In these proceedings, the respondent says it is only claiming for the amounts that can be sustained through the itemised statement. That is consistent with the provisions of the CT Act.
The same interpretation applies when, during an accounting period, ownership of a retail shop changes. The new owner is under the same reporting obligations as the previous owner. In essence, it means the new owner can only claim for such expenses incurred during the entire accounting period (including the period of the previous owner) that can be properly itemised in accordance with the CT Act. If the new owner fails to obtain itemised records from the previous owner, tenants cannot be expected to contribute to the expenses incurred by the previous owner. Tenants would therefore be entitled, at the end of the accounting period, to a refund of non‑itemised expenditure they may have contributed to in pursuance of the budget.
In these proceedings, the respondent says that it is only claiming for the amounts that can be substantiated through the itemised statement of 2004/2005. That is, according to the Tribunal, consistent with the CT Act. It also means, however, that in the absence of itemised accounts for the first two months of the accounting period, the respondent must refund, if necessary, as successor to the previous landlord, the applicants for contributions they have made to the previous owner for expenditures that are not properly accounted for.
The Tribunal therefore concludes as follows in regard to this question:
(a)The written statement for the accounting period 2004/2005 provided to the applicants by the respondent is in accordance with s 12(1a)(c) of the CT Act although an itemised account was only given of 10 months of the accounting period. The applicants are therefore only required to contribute towards those itemised expenditures.
(b)The applicants are entitled to be refunded for any contribution they may have made that cannot be substantiated by an itemised account. That applies to expenses by the previous and the current proprietor. The respondent cannot escape his obligation to refund the applicants due to the lack of information obtained from the previous owner. The CT Act regards a new landlord as the successor of obligations of the previous landlord. If that was not the case, tenants would be exposed to serious risks and uncertainty when ownership changes during an accounting period.
(c)The respondent should have acquainted itself, prior to the acquisition of the shopping centre, of its legal obligations under the CT Act, and it should have obtained all the necessary information from the previous proprietor to ensure that, as new owner, it would comply with his obligations under the CT Act. It appears to the Tribunal as if Mr Guerrini entered into the deal without proper cognisance of the company's responsibilities towards the tenants of the centre.
(d)The CT Act does not allow a new proprietor to escape obligations of his predecessor. Nor does the CT Act allow tenants to be required to make a contribution towards costs that are not properly accounted. Mr Guerrini cannot evade his responsibilities merely on the grounds of the purported difficulty he has had to obtain proper records for the two months. The Tribunal does not accept that Mr Guerrini has taken all the necessary or reasonable steps to obtain the relevant information from the previous owner. Mr Guerrini did not call any witness to support his contentions; he did not request the Tribunal to summon the previous management agent or the previous owner, pursuant to s 66 of the SAT Act, to give evidence in these proceedings; nor did he take any other enforcement steps under the deed of sale to require from them the necessary information. He may have made some attempts as reflected in his evidence, but that falls far short of complying with his statutory duty towards the applicants.
In summary, the Tribunal concludes that:
(a)the respondent is entitled to be refunded only for the itemised expenditure set out in the statement of 2004/2005; and
(b)the applicants are entitled to be refunded by the respondent for any contributions they may have made in the first two months of the accounting period to the previous owner for which there is no itemised statement of expenditure.

Answer to question 3

The response of the Tribunal to the question is that:
(a)the operating expenses statement for the period 2004/2005 provided by the respondent to the applicants on 1 March 2007, is in compliance with s 12(1)(d)(ii) of the CT Act;
(b)the applicants are required to contribute to itemised expenditure incurred by the respondent during the accounting period; and
(c)the applicants are entitled to a refund, if any, by the respondent of contributions they made that are not substantiated by the statement of 2004/2005.

5.4) What is the "relevant proportion" of each applicant's tenancy, having regard to s 12(3) of the CT Act?

The applicants contended that if the questions were answered in the way proposed by them, the "relevant proportion" of each tenant's tenancy should be in accordance with the Millar Drawings, as per page 38 of the applicant's bundle of documents dated 25 October 2007.
The respondent did not, during the hearing or in closing submissions, provide to the Tribunal any proposal for calculating the relevant proportion should the questions be determined in favour of the applicants. The respondent made a submission in its reply of 6 December 2007, but it was based on the assumption that the Tribunal would find that the bakery forms part of the common area.
The Tribunal is not in a position to make a final determination of the "relevant proportion" of each of the tenants. The tenants not involved in these proceedings may have views of their own in regard to their respective tenancies, and it is therefore not appropriate for the Tribunal to make a determination as to the "relevant proportion" of each tenancy without all the affected tenants being heard.
The Tribunal is of the view that the tenants and respondent should, now that the question of the bakery has been dealt with, be in a position to finalise any questions regarding the relevant proportion of each tenancy. The Tribunal will therefore leave it to them to settle on the basis of the above findings, as well as the guidance given by the Millar Drawings.

Answer to question 4

From the evidence before the Tribunal, it appears as if the best estimation of "relevant proportion" is found in the applicants' bundle of documents on page 38 headed "Millar Drawings". In light of the findings made by the Tribunal in regard to the bakery, the parties may now be in a better position to finalise the "relevant proportion" and, if necessary, to amend the respective leases.

Summary of answers

The answers to the questions raised by the applicants are as follows:
(i)The bakery area cannot be treated as part of the common area of the shopping centre since no statement had been issued in compliance with s 12(1a)(b) of the CT Act.
(ii)The parties are in agreement that a change of the bakery area into a common area would amount to a "material change of the total lettable area" as provided for in s 12(1a)(b) of the CT Act. The Tribunal concurs with the analysis of the parties.
(iii)The applicants are not required to contribute towards the operating expenses of the bakery area since those expenses are not referrable to the shops of the applicants nor do the applicants derive any benefit from the bakery.
(iv)The amounts paid in 2004 and 2006 for the purported repair and maintenance of the air‑conditioner units are not recoverable from the tenants.
(v)The operating expenses statement for the period 2004/2005, provided by the respondent to the applicants on 1 March 2007, is in compliance with s 12(1)(d)(ii) of the CT Act; the applicants are required to contribute to itemised expenditure incurred by the respondent during the accounting period, and the applicants are entitled to a refund, if any, by the respondent of contributions they made that are not substantiated by the statement of 2004/2005.
(vi)In light of the findings made by the Tribunal in regard to the bakery, the parties must finalise the "relevant proportion" of each tenancy and, if necessary, amend the respective leases in accordance with the Millar Drawings.

Orders

1.The respondent must, by not later than 1 July 2008, provide to all tenants amended operating expenses statements for the accounting periods 2004/2005, 2005/2006 and 2006/2007, whereby effect is given to all the answers by the Tribunal to the questions arising from the leases. In particular:
(i)the bakery area must not be treated as part of the common area; and
(ii)the works on the air‑conditioner units must be excluded from the operating expenses statements.

2.The parties must, by not later than 1 June 2008, finalise the relevant proportion of each of the respective tenancies pursuant to the Millar Drawings and, if necessary, amend the respective leases.
3.After compliance with order 1 and order 2, the parties must, within 30 days, pay to each other as the case may be, any amounts that may be owing as a result of the new statements.
4.Leave is granted for the applicants to apply for costs arising from these proceedings. The hearing in respect of costs will take place at 10 am on 25 May 2008. The applicants must, not later than 9 May 2008, file and serve submissions and documents in support of their cost application. The respondent must, not later than 16 May 2008, file and serve its written response to the cost application.

I certify that this and the preceding [118] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
DR B DE VILLIERS, MEMBER