Hanna v Saracoglu
[2005] NSWADT 227
•07/10/2005
CITATION: Hanna v Saracoglu [2005] NSWADT 227 DIVISION: Retail Leases Division PARTIES: APPLICANTS
Anthony Hanna
Allan Hanna
RESPONDENTS
Tekin Saracoglu
Hatice SaracogluFILE NUMBER: 055103 HEARING DATES: 28/09/2005 SUBMISSIONS CLOSED: 28/09/2005 DATE OF DECISION:
07/10/2005BEFORE: Fox R - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease - Claim for the doing of work or provision of services MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Leases Act 1994 CASES CITED: REPRESENTATION: In person
In personORDERS: I make the following Orders, pursuant to S72 1(f) (iii), (c)(i), (2), (3), and (4); 1. Option validly exercised, term ends 7 November 2007; 2. Rent applicable from 8 November 2004 is $2,206.67 per month (plus GST if lessor has ABN) until market valuation process is completed, note that neither party has yet nominated a Valuer in accordance with clause 9 (4) (e) of Lease; 3. Premises include garage at rear of shop; 4. Lessee not liable to pay water rates until separate water meter installed at Lessors’ cost; 5. Lessee must carry out further roof repairs by 30 November 2005; 6. Lessor to establish by 30 November 2005 to satisfaction of Lessees, that bond of $4,827.55 is held in interest bearing deposit on Lessees’ behalf ; 7. Matter listed for further Directions 8 December 2005 at 3.15 pm, but only in relation to Orders 5 and 6 above; 8. The parties were not represented, no Order for costs is appropriate.
REASONS FOR DECISION
1 The Applicants Anthony Hanna and Allan Hanna seek Orders pursuant to Section 72 of the Retail Leases Act, in respect of premises known as 279 Cleveland Street, Redfern, being a pizza shop and garage to rear, for a declaration:
2 The Applicants appeared for themselves but in the past, in relation to this long running dispute with the Lessor, have employed Phillip King Solicitor of 238 Alison Road, Randwick, and a volume of his correspondence on behalf of the Applicants was placed in evidence by them.
1. That they have a three (3) plus three (3) Lease commencing 4 February 2005.
2. That the Lease extends to both shop and garage.
3. That they are not liable for excess water usage bills.
4. That a leaking roof over a side passageway be repaired.
3 The Respondent lessor did not, at first, appear, and I proceeded to deal with the matter ex parte, however, before Mr Allan Hanna’s sworn evidence had been completed, Mr Tekin Saracoglu appeared, and conducted the proceedings unrepresented on behalf of himself and his wife.
4 It is clear that relations between the Applicants and the Lessor are far from calm, especially now that the Lessors have taken occupation of the flat above the shop.
THE GARAGE
5 The premises in question are a lock up shop and are part of Folio Identifier 3/632372. As I understand the evidence the shop faces Cleveland Street, there is a garage to the rear which has entry to James Lane, and a residential flat upstairs, which is accessed by a stairway which opens out into the garage at rear.
6 The lease which commenced the tenancy was in evidence before me, it created a three (3) year lease with a three (3) year option, commencing on 8 November 2001 and showed the Applicants to be the Lessees, and the Respondents Tekin and Hatice Saracoglu to be the Lessors. It was in printed registrable form, duty stamped, although not apparently registered. The description of the premises on the first page of the Lease is “PART FOLIO IDENTIFIER 3/632372 BEING SHOP 279 CLEVELAND STREET, REDFERN” to which has been added in handwriting “and single car space”. There is other handwriting on the first page, being the words “8 November 2001” immediately above the printed words “2. COMMENCING DATE:”.
7 Each page of the Lease (including the first page) bears four (4) signatures at bottom, and the same four (4) signatures, or initials not unlike them, appear in two (2) places on the first page near the two (2) handwritten additions which I have referred.
8 Despite Mr Saracoglu’s denial, I have absolutely no doubt and find as fact that the words “and single car space” were part of the document when it was initially signed, and am satisfied and find that the premises let by the Lease are both the lock up shop and the garage at rear.
9 The garage is not separated by any wall from the residential flat access stairway, but there does appear to be some kind of separate doorway at the side of the roller shutter which seals the garage entrance of James Lane. I find that the use of the words “single car space” is an attempt at separating the flat entrance from the rest of the garage. The fact remains that, subject to there being proper access to the residential flat stairway, the premises occupied by the Applicants pursuant to the Lease, are the lockup shop and the garage to rear.
10 There was an issue about repairs to the kerb to allow easier access to the garage, but from the photograph shown to me, and from the other evidence, it is clear that the difficulty arises from the nature of the kerb, and of course the kerb is not within the landlords’ close and so cannot be the subject of any order by me.
OUTGOINGS
11 It is clear from Mr Saracoglu’s assertions that a major cause of dispute was the Applicants’ refusal to pay for excess water bills.
12 The Lease is quite clear:
13 There is no separate water meter, and I cannot understand how it would be suggested that, in view of the clear words of the Lease, the tenant would be liable until there be a meter installed. If Mr Saracoglu wishes to be recompensed for the water used by the tenant, then it is clearly within his capacity to install a meter which separately meters the water used by the tenant, but until such installation is actually effected, there is no liability in the Applicants for water charges.
“Rates, taxes and outgoings
11. (1) The landlord will pay all rates, taxes and outgoings, however should a separate water meter be installed for the leased premises then the Tenant shall be liable for all water rates associated with that meter.”
14 I note that there is a grease trap associated with the drainage arrangements for the premises, and that the evidence is that the tenant pays for all charges relating to the clearance of the trap.
15 The evidence further establishes that there is an ongoing dispute in relation to the gas supplied to the premises, because it is not separately metered either, and there is no way of establishing how much of the gas bill arises from the Applicants’ use, and how much arises from the residential use upstairs. The Lease in this regard states:
16 I make the same comment in this regard as I made in relation to the water – I cannot see any reason which prevents the tenant from rearranging the gas supply in such a way that there is separate metering.
“Services
13. (1) The Tenant is to pay punctually for all water usage, gas, electricity, telephone, heat and other utilities which are provided to the Property Leased.”
REPAIRS
17 In relation to the roof repairs, the evidence satisfies me that there is some kind of fibreglass or plastic sheeting over part of the premises, and that there is leakage in that regard. I was shown a photograph of an attempt at repairing with a mastic compound of some sort, and I accept the Applicants’ evidence to the effect that the repair was not successful. The Lessors will have to make a further attempt at the repair, and I cover that in my orders.
THE LEASE
18 I turn now to the major issue in dispute between the parties.
19 I am satisfied that the option in the Lease was properly and validly exercised by letter dated 25 May 2004 signed by both Applicants, and forwarded to Kelly and Sons Real Estate Agents at 104 King Street, Newtown, they being the managing agents of the property at the time. I accept Mr Hanna’s evidence to the effect that he was told by the managing agent that a Lease would be submitted shortly. It is also clear that there was no agreement in relation to the new rent, and of course in that regard the Lease contained the more or less usual requirement that there be a “review to market”.
20 On 24 December 2004, a month or so into the new term of the Lease, Kelly and Sons wrote to the Applicant in the following terms:
21 By letter dated 26 November addressed to the Applicants and signed by Tekin and Hatice Saracoglu, the Applicants were notified of the fact that from 30 December onwards the premises would be managed by Landmark Management (NSW) Pty Ltd Real Estate Consultants of Parramatta Road, Stanmore, under the direct supervision of Tekin Saracoglu’s sister, a lady by the name of Tulay. The letter bore the following paragraph:
“We no longer manage the property which you rent at 279 Cleveland Street, Redfern. The bond paid by you on commencement of the Lease has been in an investment account. The amount is now $4,686.97. We have drawn a cheque in favour of the owners Tekin and Hatice Saracoglu for this amount as per terms of your Lease”.
22 There was correspondence from Landmark Management dated 22 December 2004 which sought to address the question of the gas and water meter, the rear entrance, the roof leak and which bore the following words:
“Tulay will contact you prior to that date (30 December) to arrange future rental payments and discuss the preparation of a new Lease as requested by you”.
23 By letter for 4 February 2005 Landmark wrote:
“At the same time we will meet with you to address the Terms and Conditions of a proposed 3 x 3 year Lease”.
24 It was the Applicants’ assertion that they had accepted this offer, and so were entitled to 3 plus 3 lease. Clearly, without anything more, in consequence with the definition of “Retail Shop Lease” in Section 3 of the Retail Leases Act that might be a proper claim, if there was some evidence of acceptance by the Applicants.
“James Dean Pizza Café
279 Cleveland Street
REDFERN NSW 2016
Attention: Allan & Anthony Hanna
Dear Allan & Anthony,
RE: RENEWAL OF LEASE FOR 279 CLEVELAND STREET, REDFERN
We write to confirm that we have negotiated the following Terms of Settlement and Conditions with the Landlord to renew your Lease for the above captioned property.
1. Term of proposed Lease 3 years with a 3 year option.
2. Base rent $26,480.00 (plus GST if the Landlord is liable to account for GST).
3. Rent review – Annually at 3% or C.P.I. whichever be the lesser plus GST applicable.
4. Option period rent review – Annually at 3% or C.P.I. which ever is the lesser plus GST if applicable.
5. Outgoings
Water: Excess water charges
Gas: Pay all gas charges to the premises. The landlord will rebate the Leasee $140.00 per quarter from the gas account within 7 days of receiving same from the Leasee.
6. Bond – The existing bond of $4000.00 will be applied from the old Lease to the new Lease.
7. Commencement Date – As the old Lease is in a holding over phase the new lease will be applied from 8 February 2005…”
25 It should be noted that the base rent proposed ($26,408.00) plus GST was the same as the rent which had been paid during the last year of the preceding term. The evidence is clearly that the rent has continued to be paid at that particular rate, but because it is the same rent as was paid in the previous year, and because of the provisions of 9 (5) of the Lease:
26 The payment is no evidence of acceptance of the 4 February offer. Had there been some kind of increase in the rent, and proof of that payment, the story might well have been different.
“until the review of the annual rent is complete, the tenant is to continue to pay rent at the rate of the annual rent as it then is. When the review is complete, any necessary adjustment is to be made on the day on which the rent is next due”
27 On 30 March 2005 Phillip King, on behalf of the Applicant wrote to the Commercial Property Manager Landmark Management in the following terms:
28 On the next day Phillip King wrote to Messrs Klonis & Co, who, at the time, were the solicitors for the Saracoglus. That letter read:
“RE: ALLAN HANNA AND ANTHONY HANNA LEASE FROM SARACOGLU
PREM:SHOP 279 AND SINGLE CARSPACE AT 279 CLEVELAND STREET REDFERN
I act for the lessees of the above property, and note that you are the managing agents acting for the lessor.
I am instructed that my clients have exercised their option to renew the lease which commenced on 8 November 2001.
I have been handed a copy of your letter dated 4 February 2005 to my clients.
My clients instruct that they do not agree with the proposals in relation to payment of outgoings for excess water and gas referred to in your letter.
Would you kindly forward a copy of the latest water rate invoice in order that my clients can propose a reasonable apportionment of excess water usage between the premises occupied by my clients, and the upstairs residential flat.
My clients also instruct that they would accept a rebate of $700.00 per quarter in relation to the gas account. It is noted that there is no separate gas meter for the premises occupied by my clients and the upstairs residential flat.
My clients also instruct that despite the provisions of Clause 47 of the existing lease, a copy of which is enclosed, the lessor still has not attended to the repairs to the leaking roof guttering and the walkway behind the toilets. Please arrange for the lessor to attend to these matters without further delay.
My clients further instruct that in breach of Clause 43 of the lease, the lessor has denied the lessees “quiet enjoyment” of the premises by attending thereon without notice and engaging in abusive and threatening behaviour. Please request the lessor to refrain from further breaches of the lease in this regard.
At this time, the lessees reserve all their rights against the lessor with respect to the lessors breach of the lease provisions for “quiet enjoyment” as per Clause 43 of the lease and the relevant provisions of the Retail Leases Act.”
29 I am satisfied that this correspondence amounted to a counter offer and so ended the offer of 4 February 2005. There appear to have been continuing difficulties in relation to the Saracoglus’ use of the car space, and that resulted Phillip King writing a letter of 4 April 2005. That letter, complaining of the car space use, contained the following words:
“RE: ANTHONY HANNA & ALLAN HANNA LEASE FROM TEKIN SARACOGLU & HATICE SARACOGLU
PREMISES: LOCK UP & SINGLE CAR SPACE AT 279 CLEVELAND ST REDFERN
I act for the lessees of the above property and understand that you act for the lessors.
I am instructed that my clients exercised their option to renew the lease on the premises in April 2004. I understand from Mr Steele Augustine, who is the property manger with Landmark Management (NSW) Pty Limited, that you have been instructed to prepare a new lease in accordance with the provisions referred to in a letter dated 4 February 2005, copy of which is enclosed.
Please also find enclosed a copy of my letter dated 30 March 2005 to Landmark Management (NSW) Pty Limited which I wrote on the instructions of my clients.
Please let me have your client’s instructions in relation to the enclosed letter”.
30 This demand is correct, all that remained to the Applicant was the further term created by the exercise of the option – from 9 November 2004 to 8 November 2007.
“I note that in further breach of the lease your clients have refused to arrange for the issue of a new lease consequent upon my clients exercise of their option to renew. Please find enclosed copy of letter dated 25 May 2004 which my clients forwarded to the then managing agent confirming their exercise of the option of the lease. Please forward the further lease to my office without further delay”.
31 There followed a letter of 8 April 2005 written by Phillip King:
32 If the substantial paragraph was an attempt at accepting the 4 February 2005 offer, then that failed, I see no evidence of that offer having been “rejuvenated”. Klonis & Co responded by letter of 28 April 2005 in which it was alleged that the 4 February other made by Landmark was made without the authority of the Lessors: “In particular Mr Tekin Saracoglu”. Further, that letter went on to observe that the Applicants had a choice:
“RE: ANTHONY HANNA AND ALLAN HANNA LEASE FROM TEKIN SARACOGLU AND HATICE SARACOGLU
PREMISES: LOCK-UP SHOP AND SINGLE CAR SPACE AT 279 CLEVELAND STREET REDFERN
I refer to our telephone conversation of 6 April 2005.
I confirm that my clients have validly exercised their option to renew the lease.
I am instructed that my clients are prepared to accept the lessor’s offer of a new lease in accordance with the terms of the letter dated 4 February 2005 from the lessor’s then managing agent, a copy of which is enclosed.
Please forward the proposed lease for consideration at your earliest opportunity.”
33 That, it seems to me, apart from the confusion about the water meter and the unsupportable denial of the Landmark authority, to come close to stating the contracted facts as they then applied – the option had been exercised, and the new rent was proposed at $27,274.46 plus GST, or, as an alternative, there was an offer of a fresh 3 + 3 term.
“1) Renewed Lease: for the balance of 3 years the rent is assessed at $27,274.46 plus GST from 8 November 2004. Plus the payment of all excess water charge’s which appear to have not been paid by your client for some time. We are arranging for all accounts to be provided to us for the amounts to be paid by your clients.
2) New lease: on the following terms in line with normal commercial practices:
Rent on exercise of option: Current market rent.
Premises: Lock up Shop including car-space at 279 Cleveland Street, Redfern.
Rent: $31,200.00 plus GST.
Rent review: 3% annually.
Term: 3 years with a further 3 years.
Outgoings: 75% of Council, Water and Landtax.
Security Deposit: 3 months rent plus GST.
Use: Pizza Shop.
Insurance: Fire, Burglary, Plate Glass, Workers Compensation and Public Liability in the sum of 20 million.
Redecoration: Every 3 years.”
34 Phillip King, by letter of 4 May 2005, rejected the alternative offer and again demanded the lease of 4 February 2005.
35 Although there was other correspondence, none of that affected the state of the offers between the parties, other than, in response to a request for a mediation, Klonis responded with a without prejudice offer of a lease in not dissimilar terms, but at a substantially higher rent.
36 I find that the option was exercised and that the subsequent negotiations making offers and counteroffers, as above detailed, achieved no binding contract.
THE RENT
37 It follows that the question of what rent is to be paid pursuant to the exercise of the option, is covered by Clause 9 (4) of the Lease. The clause is best regarded as a much longer reversion of that which is “over laid” by Section 31 of the Retail Leases Act, and so amounts to an agreement between the parties for assessment of the market rent. It is not greatly affected by Section 31, other than perhaps, to impose the requirement that the valuers referred to be specialist retail valuers.
38 The lease provides:
“(4) When the Annual Rent is expressed to be reviewed to market in Item 5 of the Reference Schedule, then the current Annual Rent will be varied in accordance with the following procedure:
(a) Within the period commencing three months (or other time agreed by the parties) before a review date and expiring one month (or other time agreed by the parties) later, the Landlord may notify the Tenant of the amount that it reasonably considers is or will be the current market rent of the Property Leased at the review date. ‘Review date’ means the date upon which the reviewed rent is to take effect, as provided in clause 9(1) above.
(b) If the Landlord serves the notice later than the time limit in clause 9(4)(a) then:
39 As an aside I observe that sub clause 6 above quoted is struck down by Section 18(4) of the Act.
(c) If the Tenant does not dispute the amount notified, that amount will be the reviewed Annual Rent.
(i) the notice will be effective as long as it is served before the commencement of the year in which the next variation of rent, by indexation or review as the case may be, is to take place, and
(ii) notwithstanding the provisions of clause 9(i) above, the reviewed Annual Rent will take effect on the next date for payment of the instalment of Annual Rent after the review of the Annual Rent is completed.
(d) If the Tenant does dispute the amount notified, it must notify the Landlord of the dispute within 14 days after receiving notification from the Landlord. It is essential to comply with this time limit. If the Tenant does not do so, it will be treated as not disputing the amount stated.
(e) If the Tenant notifies a dispute, the current market rent of the Property Leased will be determined by valuation, as follows:
And they are to be disregard:
(i) The Landlord and the Tenant may each appoint a valuer and notify the other of the valuer appointed with 21 days after notification of the dispute. The valuers must be members of the Australian Institute of Valuers and Land Administrators Incorporated.
(ii) If neither the Landlord nor the Tenant complies with the time limit of 21 days, both will remain entitled to appoint valuers, however, failure to appoint a valuer will not affect the process of determination under this clause. When a party who has not appointed a valuer receives notice of the appointment of a valuer by the other party, it must appoint its valuer and notify the other of the valuer appointed within 14 days of receiving notice.
(iii) If only one party has appointed and notified its valuer to the other party within time, that valuer alone will determine the current market rent and the amount determined will be the reviewed Annual Rent.
(iv) If both parties have appointed valuers and the valuers have agreed upon the current market rent within four weeks (or other period as agreed by the parties) of the date on which the last appointed valuer is notified to the other party, the amount agreed upon will be the reviewed Annual Rent.
(v) Where both parties have appointed valuers and the valuers have not agreed upon the current market rent within four weeks (or other period as agreed by the parties) of the date on which the last-appointed valuer is notified to the other party, either or both of the valuers and either or both of the Landlord and the Tenant may request the President of the Division of the Australian Institute of Valuers and Land Administrators (Inc) for the state or territory in which the Property Leased are located to nominate a valuer to determine the current market rent. The nominated valuer must give both the Landlord and the Tenant a reasonable opportunity to make submissions and to put before him or her whatever material they think is relevant, but is to determine the current market rent acting as an expert and not as an arbitrator. The current market rent as determined by the nominated valuer will be the reviewed Annual Rent.
(vi) As well as any other way in which they might fail to do so, the valuers appointed by the Landlord and the Tenant will be treated as having failed to agree upon the current market rent if:
(A) either of them has not or both of them have not completed his, her or their valuation within the time limit of four weeks. It is essential to comply with this time limit; or
(B) before completing his or her valuation within the time limit of four weeks, either of them dies, becomes incapable of acting or refuses to act.
(vii) In determining the current market rent, the valuers are to have regard to open market rents current at or about the review date and are to assume that, at the review date:
(A) the Property Leased are vacant and ready for immediate occupation;
(B) the Property Leased are available to be let without a premium by a willing Landlord to a willing Tenant on the terms of the Lease (except the amount of rent) for a term equal to the original term of the Lease together with any options for renewal which remain to be exercised at the review date.
(5) Until the review of the Annual Rent is complete, the Tenant is to continue to pay rent at the rate of the Annual Rent as it then is. When the review is complete, any necessary adjustment is to be made on the day on which rent is next due.
(C) the fact that the Tenant is in occupation of the Property Leased;
(D) the goodwill of the Tenant’s business; and
(E) any improvements to the Property Leased made by the Tenant or its predecessors in title during the term of the Lease or, if the Lease was granted as the result of the exercise of an option for renewal, during the terms of the original Lease and of each successive Lease granted as the result of the exercise of an option for renewal in the immediately preceding Lease.
(6) The Annual Rent will not be reduced as a result of indexation, fixed increase or market review. If the effect of indexation, fixed increase or market review would be reduce the Annual Rent, it will not be varied and will remain unaltered.”
40 The exchange of correspondence referred to earlier in these Reasons establishes that there was no notice indicating the new rent by the landlord until the letter from Klonis & Co dated 28 April 2005, which nominated the rent of $27,274.46 plus GST. I note that to have been rejected by the Phillip King letter of 4 May 2005, thus taking the “machinery” steps prescribed by clause 4 (b) and 4 (d) to bring into effect the provisions of sub clause 4 (e)(ii). This leaves the parties now to either agree, or one of them will have to trigger the valuation process by appointing a valuer.
41 In order to fully resolve all the more obviously outstanding issues between the parties, I also hold that clause 9 (4) (b) (ii), taken together with 9 (5) means that the existing rent of $26,480.00 continues to have effect and be the rent until the valuation process is complete. Whatever rent is found to be the market rent (whether by agreement or valuation) will only be payable for the remainder of the term, and will not “back date” to 8 November 2004.
THE BOND
42 Lastly, in view of the evidence, it is also appropriate that I make the comment in relation to the bond. The evidence given before me strongly suggests that the bond of $4,686.97 forwarded to Mr and Mrs Saracoglu may not have been reinvested in accordance with the requirements of Section 47 of the Act. Had the bond been invested in accordance with the requirements of the legislation from, say, 1 January 2005 onward, I am satisfied that it would have earnt interest and that for calculation purposes a rate of 4% is appropriate. I calculate that amount to be $15.62 per month, and consequently, by the date of the hearing the amount of the bond should have been $4,827.55.
43 If the Respondents do not demonstrate that amount to be held “on behalf of the lessee in an account bearing interest” within 30 days then I specifically give leave to the Applicants to have the matter re-listed on seven (7) days notice before me so that appropriate Orders can be made to rectify this irregularity.
44 Lastly, it is appropriate that I observe that I drew the above conclusions at the close of the sworn evidence of Alan Hanna, and that I accept his evidence without reservation. I did not feel any need to take sworn evidence from Mr Saracoglu because, on the one hand, he had made his position of general denial quite clear from the bar table, and on the other, the Applicant’s evidence had failed to establish the major claim (new 3 + 3 lease from February 2005).
ORDERS
45 Obviously, in order to achieve some finality between the parties, the outstanding matter of roof repairs and bond have to be addressed. If the roof repairs have not been done, and the Applicant brings evidence of the cost of those repairs, then I would propose to make an order relieving the Applicants from the obligation to pay rent for an appropriate number of days, and if the matter of the bond has not been resolved, I would propose to make a similar order in that regard, again simply relieving the Applicant from the obligation to pay rent for the requisite number of days.
46 I make the following Orders, pursuant to S72 1(f) (iii), (c)(i), (2), (3), and (4).
1. Option validly exercised, term ends 7 November 2007.
2. Rent applicable from 8 November 2004 is $2,206.67 per month (plus GST if lessor has ABN) until market valuation process is completed, note that neither party has yet nominated a Valuer in accordance with clause 9 (4) (e) of Lease.
3. Premises include garage at rear of shop.
4. Lessee not liable to pay water rates until separate water meter installed at Lessors’ cost.
5. Lessee must carry out further roof repairs by 30 November 2005.
6. Lessor to establish by 30 November 2005 to satisfaction of Lessees, that bond of $4,827.55 is held in interest bearing deposit on Lessees’ behalf.
7. Matter listed for further Directions 8 December 2005 at 3.15 pm, but only in relation to Orders 5 and 6 above.
8. The parties were not represented, no Order for costs is appropriate.
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