Hale v ISPT Pty Limited

[2001] NSWADT 153

CITATION:

Hale -v- ISPT Pty Limited [2001] NSWADT 153

DIVISION:

Retail Leases Division

PARTIES:

APPLICANT
Graeme Laurence Hale

RESPONDENT
ISPT Pty Limited

FILE NUMBER:

015003

HEARING DATES:

08/08/2001, 09/08/2001

SUBMISSIONS CLOSED:

08/09/2001

DATE OF DECISION:

09/18/2001

BEFORE:

Donald B - Judicial Member

APPLICATION:

Claim for payment of money

MATTER FOR DECISION:

Principal matter

LEGISLATION CITED:

Retail Leases Act 1994

CASES CITED:

Alessa Pty Ltd v. Total and Universal Pty Ltd No. 015080 of 2001

REPRESENTATION:

APPLICANT
R Speirs, solicitor
RESPONDENT
J Orsborn, solicitor

ORDERS:

1. Applicant’s Application dismissed; 2. Respondent's Cross Claim upheld. Applicant to pay the Respondent the sum of $18,828.35 within 14 days; 3. Costs reserved.

1 Mr. Hale, the Lessee, leased Shop 31 of The Southgate Shopping Centre in Sylvania from ISPT Pty Ltd , the Lessor, to carry on his business "Fantasia Gifts". The Lease commenced on 22 November 1999 and was for a five year term with no option. The Lease document appears to have been formally executed on or about 14 February 2000. The annual rent was $39,987.50 subject to a percentage rent for sales over a certain level as specified in the formula within the Lease.

2 There was an agreed fitout period of one month under a Tenancy Fitout Guide provided to the Lessee. Clause 32 of the Lease expressly set out the Lessor’s work during the fitout which included "provide a machine coat finished concrete floor to a standard approved by the landlord's architect".

3 Before the Lease commenced it was apparent that there was a damp problem on the rear wall on the other side of which was the cool room for the adjoining fish shop. The Lessor had undertaken to repair this damp problem immediately prior to fulfilling its obligation to lay the concrete floor in Shop 31. However the Lessee decided to install the concrete floor itself before that preparation work could happen (being subsequently reimbursed with the cost of the floor by the Lessor) and at the time of fitting out the shop agreed that the damp problem could be addressed at a later time.

4 One of the air-conditioning units for the shopping centre was located directly above the ceiling of Shop 31 and the Disclosure Statement included a special condition that the Lease was "subject to noise levels from the air-conditioning unit above the tenancy being satisfactory to the tenant prior to the Commencement Date.” While this did not become a special condition of the Lease as such, the executed lease acknowledged the Disclosure Statement and the disclosure of matters therein.

5 Access to this air-conditioning unit for servicing was through a manhole directly outside Shop 31 which required the placing of a ladder outside the display window of Shop 31 to reach the manhole. The evidence established that considerable work was required during the initial months of the lease to complete the upgrade and installation of the air conditioning system and its integration with existing plant.

6 The permitted use set out in the Lease was "retail sale of dolls, bears, collectibles and wood-mounted stands." In addition, the shop stocked from the outset a range of specialty paper products marketed from a purpose designed showcase mounted against the side wall.

7 In his first approach for lease of premises in the Centre by letter of 14 April 1999, Mr. Hale stated, "We also conduct classes in 'stamping' which attracts a wide range of customers from all over Sydney." There was no provision in the Lease referring to stamp classes but by arrangement with the Lessor, space was provided in the nearby common areas of the Centre for the Lessee to conduct stamp classes on a weekly basis. In addition the Lessor provided tables and chairs for those classes.

8 An item of ceiling damage and electrical problems had been drawn to Centre Management's attention by letter from the Lessee of 31 January 2000.

9 On 20 May 2000 the Lessee wrote to the Centre Manager raising three outstanding building matters including the water damage to the rear wall, un-remedied damage to the ceiling and certain electrical fitting problems. The letter also sought reimbursement of the floor installation. It did not mention noise problems with the air-conditioning, trading problems resulting from the positioning of the ladder for ceiling access and associated noise from maintenance work. Nor did it refer to trading problems resulting from the damp on the rear wall.

10 There appear to have been delays in paying the June and July rent for which late payment letters were sent by Centre Management.

11 In mid-October 2000 a dispute arose as to the conduct of the Lessee and his staff in relation to the stamp classes and the equipment as a result of which, by letter of 16 October 2000, the Lessor advised that it proposed "to remove your privileges in supplying you with this equipment, effective Wednesday 22 October 2000 … after this date your staff will be required to arrange their own equipment."

12 The Lessor at about that time also informed the Lessee that due to Christmas decoration installations, the part of the common areas where the stamp classes were held would not be available during November and December 2000.

13 By this time, the Lessee had become seriously concerned at the trading results in Shop 31 and on 7 November 2000 he had a meeting with the Centre Manager in which the possible assignment of the Lease was discussed. By letter of 8 November 2000 the Centre Manager confirmed that the Lessor would be agreeable to the Lessee proceeding to try to find an assignee and referred to the specific terms of the Lease as to the process for approval of assignment. Then by letter of 25 November 2000, the Lessee confirmed "experiencing serious trading difficulties" and specified that it had "incurred trading losses of $3,000 per month since opening in December 1999". The letter added:

Our difficulties at Southgate are compounded by the additional burden of our Darling Harbour and Liverpool store which also are trading at a loss.
It has become apparent that the concept of dolls, bears and collectibles and paper craft does not meet the needs of the shopping public at Southgate and there is little prospect of succeeding in the current performance.


14 The letter sought a concession on rent but by reply of 28 November 2000, any such concession was declined on behalf of the Lessor.

15 By notice dated 20 December 2000 pursuant to s.129 of the Conveyancing Act the Lessor's solicitors made a formal demand for unpaid rent and outgoings.

16 On 22 December there was water penetration into Shop 31 from the ceiling which was promptly attended to by the Lessor.

17 On or about 23 December 2000 the Lessee advised the Centre Manager that he had referred the issues under the Lease to the Retail Tenancy Unit.

18 On 9 January 2001 Mr. Hale made an urgent application to the Tribunal seeking orders for damages for cost of fitout and loss of trade together with "termination of lease without penalty". These were sought on the grounds of:

1. failure to provide quiet enjoyment;
2. misrepresentation;
3. interference with the essential business activities of Fantasia;
4. obstruction to shop front and access to premises.


19 The matter was heard urgently on 12 January 2000 and by consent the Tribunal made interim orders that the Lessor was restrained from taking any further steps, on the undertaking that the Lessee agreed to vacate the premises by 31 January 2001 and to pay a sum of rent for the interim period. The Lessor expressly reserved all its rights.

20 Then by letter of 28 January 2001 the Lessee wrote to the Centre Manager, for the first time in writing mentioning air-conditioning problems and noise.

21 The Lessee duly vacated on 3 February with some rubbish and tools being removed two days thereafter. The Lessee did not seek to remove the substantial fitout of Shop 31 including the shop front, plaster ceiling, the wall plaster and the concrete floor covering.

22 The Lessor re-let the premises from about 21 June 2001.

23 By Amended Application of 26 April 2001, the Lessee expanded its grounds of claim and heads of damage which were then the subject of evidence in writing and before the Tribunal in full hearing. I will now deal with each in turn.

24 Damp rear wall
The Lessee claims that the damp rear wall caused a substantial trading loss because he was unable to stock the full range of paper products against that wall.

On the evidence, while it is clear that by the time the premises were ultimately vacated the damp problem was severe, the failure of the Lessor to have repaired it was initially delayed by agreement following the Lessee installing the floor himself. There was a request on 20 May 2000 for rectification but no written complaint about impact on trading. At or about that time the Lessee agrees that he said to the Centre Manager, "It's not that bad because the racking is off the wall”; he also agreed that it was likely that he may have said, "We are fortunate because it hardly damaged anything." Mr. Hale also agreed that at about this time he probably said to the Lessor words to the effect, "We are going to re-jig the store".


On the evidence the particular racking on which the paper products were displayed for sale was only ever installed as one unit on the side wall and while the Lessee gave evidence that in his other shops, a greater number of such units were used to ensure the full range of paper stock, it was clear that at no point was that range of stock attempted in this location. Even on the Lessee’s evidence, there was no further complaint about rear wall water damage until at least 23 December 2000 at a time when he was well overdue on the rent and shortly before he agreed to the termination of the Lease.


In those circumstances I am not satisfied that he has substantiated a claim that the damp problem in the rear wall has caused damage that can be calculated for the purposes of recovery.


25 Air-conditioning noise
The Lessee gave evidence by reference to extracts from his diary that on a number of occasions he had complained to the Lessor about the air-conditioning including the noise levels. He said that there had been two or three occasions when customers had complained about the noise. A staff member gave evidence that the air-conditioner was noisy and the Lessee stated that he had installed a music sound system to mask the noise. In response the Lessor’s managers stated their opinions that the shop was no more or less noisy than any other shop in the Centre and they did not recall a level of complaint about noise from the Lessee or his staff. Certainly there was no written complaint about noise until 28 January 2001 following the decision to vacate the premises. The Lessee had apparently commissioned a noise survey on 17 January 2001 by an acoustic expert who gave evidence that the noise levels in Shop 31 from the air-conditioning system "far exceeds the recommended interior noise levels for specialty shops, as given in AS 2107, which is considered unacceptable."


However there was no comparison evidence of the noise levels in this shop with other shops in the Centre nor any evidence from which it could be properly concluded that the excess noise level in this particular shop had caused a measurable loss of trading from which compensation could be calculated.


For those reasons I am of the opinion that the Lessee has not made out a quantifiable claim for damage from excess noise.


26 Ladder interference
The Lessee claims that the problems with the air-conditioning unit, which required regular access through the manhole in front of his shop and the consequent placing of a ladder for substantial periods of time in front of his display window, entitle him to compensation for lost trade. There was a considerable amount of evidence from the Lessee as to the likely dates and times for which the ladder was present and the relative likely impact of the ladder in that corridor space on the flow of customers Shop 31. In response the Lessor provided tabulated evidence of sales and customer numbers for comparison against days when it would appear established that the ladder was present for some or all of the day.


There was evidence of oral complaints to the Centre Manager about the presence of the ladder but the only examples of diarised records locating the ladder in front of the shop were in the Lessee’s entries of 22 and 23 December 2000.


It is clear that the air-conditioning unit in its early months required a substantial amount of work and that the positioning of a ladder in front of the window for any period of time was certainly less than desirable for a retail trading operation. The Centre Manager agreed with this proposition.


The problem for the Tribunal is to determine the extent to which this less than satisfactory conduct relating to the Lessor's obligations has caused quantifiable loss to the Lessee in circumstances where it was not the subject of any written formal complaint from the Lessee to the Lessor until these proceedings were underway in January 2001.


Having considered all the evidence I am not satisfied that the positioning of the ladder for manhole access has caused quantifiable loss to the Lessee.


27 Water leak from ceiling
It is admitted by the Lessor that an amount should be allowed in respect of this event on 22 December 2000. In my view the Lessee has not established that its loss from this cause went beyond stock damage and damage to the display table but as it is likely that there will have been disruption to the shop during the attention to the problem, the total sum that should be allowed in this regard I determine to be $1,500 being approximately $1,200 for direct loss at hand and $300 for disruption. The Lessor did not challenge such an allowance at the hearing


28 Loss from stamp classes
While there was no provision in the Lease for the carrying on of the stamp classes, the Lessee claims a collateral contract not only permitting it to carry on those classes but under which the Lessor would continue to provide tables and chairs.


All that is established on the evidence is that before entering into the Lease, the Lessee made a reference to the carrying on of such classes but that reference did not deal with the location of the classes. There was no provision in the Lease and while a practice developed of weekly classes for which the Lessor would regularly provide equipment, it is very difficult to see that the practice had become a contractual obligation upon the Lessor. Certainly it could not properly be concluded that any arrangement for use of common areas would not be subject to other competing uses for the common areas for example during the Christmas period. In any event the Lessor did not prohibit the Lessee carrying on the classes absolutely (except for the Christmas months of November/December); all it did was to withdraw the offer of assistance with a provision of furniture.


The Lessor led evidence comparing sales on days when stamp classes were held as opposed to days when they were not.


Considering all of the evidence and the circumstances I am not satisfied that the Lessor is in breach of an obligation sufficient to give rise to liability. Nor do I consider there is proven damage.


29 Loss of fitout
The Lessee claims that it is entitled to recover the written down cost of certain items of its fitout in these circumstances.


It is apparent that the Lessee decided not to seek to remove that fitout which included the shot front (including window), a roller shutter, the electrical wiring and certain finishes to walls and floors including the vinyl; (the concrete floor having been reimbursed). Obviously these items would have virtually no value if removed from the premises and the real issue between the parties is whether the fact that the value of these items is available to the Lessor for purposes of re-letting the premises, means that there is a legal entitlement to compensate a lessee who abandons them in these circumstances.


The Lessor responds that, not only have they been abandoned in circumstances where the Lessee voluntarily terminated the Lease but also that the value of them has yielded a benefit for the Lessee. This benefit arises from the fact that the fitout facilitated the re-letting in terms of the timeaken for a new tenant to begin paying rent. It also resulted in a greater yield to the landlord in mitigation of the Lessee's damages for early termination of the Lease because the incoming tenant did not seek a contribution to fit out cost and because the level of rent will have reflected no cost to the incoming lessee in fit out.


In my view there is no legal entitlement in the Lessee that he be compensated for this fitout where the Lease was voluntarily terminated. I have rejected the Lessee’s case that the Lease was terminated for breach by the Lessor. In addition I accept the submission on behalf of the Lessor that the Lessee is receiving the benefits of that fitout being left in place in the speed in which the premises have been able to be re-let and probably also the yield to the Lessor, thus reducing the damage otherwise payable by the Lessee for early termination.


30 Cross-Claim
It follows from my opinion that the Lessee was not entitled to terminate the Lease for breach by the Lessor that the Lessee remains exposed to a claim in respect of damages for early termination. I am satisfied that the claim for unpaid rent and loss until reletting, after adjustments and deductions, is $20,328.35. Given my decision on liability and rejection of a set off for fitout, the Applicant did not challenge this calculation. From this the allowance of $1500 for water damage is to be deducted leaving an amount payable by the Applicant of $18,828.35.


31 Costs
I stand over the question of costs for written submissions to be filed by either side within 14 days of the date of this decision following which I will make a ruling. I observe that under s.88 of the ADT Act, costs are only awarded in special circumstances. I have just ruled in Alessa Pty Ltd v. Total and Universal Pty Ltd No. 015080 of 2001 that the test to be applied is that the circumstances must be seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair to a party to proceedings before the Tribunal not to be awarded some or all of its costs where it has been successful.