Harrem Pty Ltd v Tebb & Anor

[2007] NSWSC 18

CITATION:	Harrem Pty Ltd v Tebb & Anor [2007] NSWSC 18
HEARING DATE(S):	5 January 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Adams J at 1
EX TEMPORE JUDGMENT DATE:	5 January 2007
DECISION:	1. I declare that the cross-claimants are entitled to vacant possession of the land, being lot caveat number AC746438 registered on folio identifier 31/246838 known as 31-41 Airds Road, Minto; 2. I order and grant an injunction requiring the cross-defendant to vacate and deliver up vacant possession of the premises no later than 27 January 2007; 3. I order that the solicitors for the cross-defendant deliver to the solicitors for the cross-claimants by 1 pm, 8 January 2007 a duly executed withdrawal in registrable form of the caveat number AC746438 registered on 31/246838. In default of which I order removal of the caveat under section 74 MA2 of the Real Property Act 1900; 4. In respect of the amended statement of claim, the claim for an order for specific performance is dismissed; 5. The declaration that the plaintiff is entitled to a formal lease is refused; 6. The claim for equitable compensation is dismissed; 7. The balance of the relief claimed in the amended statement of claim and the cross-claim is stood over to the registrar in equity's list on Monday 8 February 2007 at 9.30 am; 8. In respect of the statement of claim the plaintiff is to pay the defendant's costs; 9. In respect of the cross-claim and cross summons the plaintiff is to pay the defendant's costs; 10. I give liberty to apply on three days’ notice to both parties; 11. Exhibit 3 returned to the defendant, requiring a substitute of a photocopy.
CATCHWORDS:	Equitable lease - negotiations for lease - apparent but not actual agreement on rent and area - whether lease created - refusal to pay "agreed" rent - invitation to lessor to obtain new lessee or sell property - lessor contracts to sell with vacant possession - notice to vacate whether lessee entitled to remain in possession
PARTIES:	Harrem Pty Ltd t/as CTH Transport & Storage - Plaintiff Robert Andrew Tebb - First Defendant Annette Tebb - Second Defendant
FILE NUMBER(S):	SC 5873/06
COUNSEL:	Plaintiff - R. Newell Defendants - J. Whittle SC, J. Redmond
SOLICITORS:	Plaintiff: Robert Tricca & Associates Defendants: Dougherty & Smith

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ADAMS J

FRIDAY 5 JANUARY 2007

005873/06 - HARREM PTY LTD TRADING AS CTH TRANSPORT AND STORAGE v ROBERT ANDREW TEBB & 1 ORS

JUDGMENT

1 HIS HONOUR: Counsel have been very patient with my continual interruptions, designed to move forward a complicated case which was set down for determination before the duty judge in vacation. The time available for the hearing has, accordingly, been somewhat constrained.

2 The matter is urgent because one of the parties has entered into a contract to sell the subject property and has received a notice to complete requiring vacant possession on 8 January next. Accordingly, it is desirable to deliver judgment immediately. I am able to do so since, although the facts are not simple, I have reached a clear view as to the appropriate outcome. I have been much assisted by the approach of counsel to the trial. In he nature of things, the ex tempore judgment will be more brief than would otherwise have been the case. I have eschewed detailed analysis of the oral evidence; nor will I set out fully the arguments pressed on both sides. I shall, however, attempt to cover the crucial matters and explain my conclusions about them.

3 This litigation arises out of a regrettable falling out between persons who have hitherto been friends. Unfortunately, I think that their friendship led them to suppose that they could agree on a complex commercial arrangement which, had their friendship not intruded, would have been the subject of consideration by lawyers at its inception and the problems which have now arisen would probably not have occurred. Be that as it may, it is necessary now to deal with those problems, or at least some of them.

4 Towards the end of 2005 Mr Clarrie Howes, who was the managing director of the plaintiff company, was under considerable pressure to move from his premises in Minto to other premises. His company operated a transport and storage business that utilised containers and for the purpose of moving those containers around his site a container mover. This latter piece of equipment is a gigantic piece of machinery of considerable weight. As it happened he had become an acquaintance, and I think a friend, of Mr Robert Tebb who owned a nearby property in Airds Road, Minto, which was used essentially for distribution and transport. His property was not used for the storage of containers, though from time to time containers were placed on his property en route for other destinations.

5 The property in Airds Road is owned by Mr and Mrs Tebb. A company managed by Mr Tebb, and of which his wife is effectively owner, is Precision Express Freighters Pty Limited (Precision). It occupied part of the premises whilst two other unconnected companies utilised the balance. For reasons it is unnecessary to refer to, those two companies left and, accordingly, Mr Tebb was on the lookout for a replacement tenant. As I have said, at about this time Mr Howes was anxious to find alternative premises from which to operate his business. He was under considerable pressure because there had been litigation in the Supreme Court involving his tenancy. He was at the time on a periodic tenancy from month to month and was being subjected to rent demands which he was finding increasingly difficult, and perhaps impossible, to pay. As he said in his evidence, he was in a desperate position and needed to move urgently.

6 Having regard to the nature of his business it was essential for the plaintiff, if it could, to find accommodation in the Minto area. Of course if it was able to find accommodation in the same street this was most advantageous. On 21 September 2005 Mr Howes inspected the subject property and discussed with Mr Tebb the terms of a potential lease. He put an offer for a lease, the term of which was said to be negotiable, which proposed a rental of $392,350 per annum gross plus GST. It specified the area of the property as 4,474 square metres comprising office space of 824 square metres and warehouse space of 3,650 square metres. (This information came from an Elders’ proposal of 30 August 2005 provided by Mr Tebb to Mr Howes on 20 September 2005.) The bond was said to be negotiable. There was an annual rent review. The commencement of lease was said to be "ASAP". There was to be a delay in payment of rent of two months from the commencement of the lease. There were a number of special conditions as follows:

“1. Landlord to make clean, offices, warehouse, and outside areas.
2. All electrical appliances and equipment to be serviced and operational.
3. Compacted area to north of building to be firm to allow the use of a container handler.
4. Container handler to stay within compacted area unless for unforseen circumstances.
5. Before signing of the lease, the premise will be surveyed, digital photos taken and all damaged areas, pavement ETC to be listed for future reference.
6. If at all possible the tenant to be given permission by the landlord to sub-lease any extra offices to help compensate payments.
7. The tenant will have insurance for accidental damage to the building that may be caused by CTH employees, contractors or agents.”

7 On 26 September 2005 Mr Tebb responded in the following terms:

“Thank you for your proposal dated 22 September 2005. In response, we now offer the following terms for your consideration.
Lease Term Negotiable
Rent $400,000 per annum plus Outgoings plus GST
Area Total under Roof: Awning 700 sqm
Office 824 sqm
Warehouse 3,650 sqm
Total 5,174 sqm
Total site Area 18,300 sqm
Bond An amount always equal to two (20 Months’ rent
Rent Review Minimum 3.5% annual increase, or CPI, whichever is greater
Lease Commencement 15 October 2005
Rent Commencement One (1) month from commencement of lease
Special conditions for Lease:
1. Landlord agrees to make clean offices, warehouse and outside areas before occupation.
2. Landlord agrees that all electrical appliances and equipment be serviced and operational at commencement of lease, and that tenant will then enter into contracts for the continued maintenance of those appliances and equipment.
3. Tenant to be responsible for any damage caused to any concrete surfaces unless identified in pre-occupation inspection.
4. Container handler to operate and remain within compacted area only.
5. The premises to be inspected by the prospective tenant and landlord, digital photos taken and any damage existing before occupation will be listed for future reference.
6. Landlord agrees that the tenant may sub-lease any extra offices to offset their rent commitment but that a rental sub-lease will be drawn up at the tenant’s costs and any possible security issues will be resolved.
7. The tenant will have insurance for accidental damage to the building caused by CTH employees, contractors or agents, or by sub-lessees.
We hope these terms are acceptable, and look forward to discussing them further with you.”

8 In response to that offer on 30 September 2005 Mr Howes sent to Mr Tebb a second proposal specifying in particular a lesser rent and commenting:

“As you know if we can agree on the lease CTH will need entry virtually straight away which will basically also give you income straight away, if you wish the lease can also be discussed after 12 months as an internal review, another concern I have is that the warehouse is only approximately 850-900 sqm larger than what we currently have and at this stage I am not sure if this space will generate the extra revenue we need to support the extra lease value. We also have to take on the extra office space of which roughly 500 sqm will never be used...”

9 The proposal then sent to Mr Tebb was in the following terms:

“Lease Term: Negotiable

$432,000
Rent: $420,000 per annum gross + GST
Rent Area: Office 824 sqm )

Warehouse 3,650 sqm )4474
Awning 700 sqm
Total 5,174 sqm
Total Area: 18,300 sqm

Bond: Bank guarantee to equal 2 months rent

Rent Review: Annually to 3.5% or CPI whichever is greater

Lease Commencement: ASAP

Special Conditions for Lease:

1. Landlord to make clean, offices, warehouse and outside areas.
2. All electrical appliances and equipment to be serviced and operational, CTH agrees to maintain and service equipment when needed, although cannot be held responsible for equipment failures and repairs.
3. Compacted area to north of building to be firm to allow for the use of a container handler.
4. Container handler to stay within compacted area unless for unforseen circumstances.
5. Before signing of the lease, the premise will be surveyed, digital photos taken and all damaged areas, pavement ECT to be listed for future reference.
6. If at all possible the tenant to be given permission by the landlord to sub-lease any extra offices to help compensate payments.
7. The tenant will have insurance for accidental damage to the building that may be caused by CTH employees, contractors, agents or sub-lessees.
8. CTH Transport agrees to maintain in good order the property during the lease period, although cannot be held responsible for every day wear and tear that occurs over time in running a business.
9. CTH Transport and its agents will need to confirm and justify all outgoing that will apply.
Thank you for allowing again our company to submit the above proposal, I would like to meet on Tuesday 4/10/05 to discuss the above conditions, CTH will co-operate in any way possible to help expedite the lease for entry ASAP.”

10 It was clear Mr Howes was very anxious to move as soon as possible and indeed said in an e-mail to Mr Tebb of 4 October 2005:

“I have less than two weeks to move".

11 On 11 October Mr Tebb responded with the following offer:

“Thank you for your proposal dated 30 September 2005. In response, we now offer the following terms for your consideration.
“Lease Term 3 x 3
Rent $432,000 per annum plus GST
Area Total Under Roof: Awning 700 sqm
Office 824 sqm
Warehouse 3,650 sqm

Total 5,174 sqm

Total Site Area 18,300 sqm

Bond An amount always equal to two (2) months’ rent

Rent Review Minimum 3.5% annual increase, or CPI, whichever is greater

Lease Commencement 1 November 2005

Rent Commencement One (1) month from commencement of lease

Special Conditions for Lease:

1. Landlord agrees to make clean offices, warehouse and outside areas before occupation.
2. Landlord agrees that all electrical appliances and equipment be serviced and operational at commencement of lease, and that tenant will then enter into contracts for the continued maintenance of those appliances and equipment.
3. Tenant to be responsible for any damage caused to any concrete surfaces unless identified in pre-occupation inspection.
4. The premises to be inspected by the prospective tenant and landlord, digital photos taken and any damage existing before occupation will be listed for future reference.
5. The owners warrant that the premises are appropriate for transport and distribution activities as carried out by the current tenant.
6. Landlord agrees that the tenant may sub-lease any extra offices to offset their rent commitment but that a rental sub-lease will be drawn up at the tenant’s cost and any possible security issues will be resolved.
7. The tenant will have insurance for accidental damage to the building caused by CTH employees, contractors or agents, or by sub-lessees.
We hope these terms are acceptable, and look forward to discussing them further with you.”

12 On 13 October Mr Howes responded with a document that set out most of the terms and conditions specified in the letter of 11 October, though some were varied, and then stated next to each of those an agreement with what was proposed. There were some variations in the special conditions but I think only two need be discussed. Special condition 5 was varied to:

“The owners warrant that the premises are suitable for transport and distribution activities as carried out by the current tenant, the landlord also acknowledges in good faith of knowing the operations carried out by the tenant".
Clause 8 was inserted as follows:

“Landlord acknowledges that the tenant will be operating a container handler at the northern end of the premises where the concrete finishes and the compacted area is situated".

13 As I have already intimated, the businesses operated on the two premises were significantly different. Mr Tebb's company operated a transport and distribution business which did not require the storage, or indeed manipulation by use of a container handler, of containers, whereas Mr Howes' company did. Mr Tebb said in evidence that he rejected both the suggestions in relation to clauses 5 and 8 because he knew that it was necessary to obtain council approval for utilising his premises in the way envisaged by Mr Howes, although he thought that such approval was very likely to be given having regard to the fact that Mr Howes had indeed used those containers on premises which were close by. Nevertheless, he did not wish to himself be obligated to approach the council or ensure that Mr Howes obtained the necessary consents.

14 There is a difference between Mr Howes and Mr Tebb on this point. For the purpose of this ex tempore judgment I do not intend to set out their evidence. It is sufficient to say that, without suggesting for a moment that Mr Howes' recollection is dishonestly asserted, I prefer Mr Tebb's evidence in this regard since, amongst other things, it conforms with what I believe to be the logic of events. The caution with accepting the proposed changes, which Mr Tebb said he expressed to Mr Howes, was sensible and obvious and I think it most likely that he in fact did reject the variations proposed.

15 Some e-mails then passed between the parties. I have mentioned that Mr Howes' company was involved in litigation in the Supreme Court and he informed Mr Tebb that it would be helpful to his negotiations with the other party in those proceedings if he could give an assurance that he was about to move from the premises. Accordingly, he asked for a letter from Mr Tebb's solicitors that he could show to that party. That letter said that the solicitors understood that negotiations had taken place relating to the property and that a lease document was to be prepared, with a probable commencement date of 21 November 2005. So far as the legal relationship between the two parties to these proceedings are concerned I do not think that this letter is significant.

16 Of considerable importance, however, is a following letter of 25 November 2005 written by Ms Cantore on Mr Tebb's instructions and addressed to Mr Howes. It is in the following terms:

“As you’ve moved in on 18 November 2005, we need to formalise the lease arrangements as soon as possible.
Robert has, as you know, signed leases at Ingleburn to allow the warehouse to be relocated as soon as possible. Unfortunately, we won’t receive the keys until Wednesday, 30 November 2005 due to the Landlord’s Solicitor. The offices will re relocated over Christmas (usually our quiet period). We have, however, had to meet the bond and first month’s rent for the new premises.
Our discussions to date included a month’s lead-in time (worth $36,000 plus GST). As we are still onsite, we feel that it would be advisable for the negotiated 3 x 3 lease at $432,000 pa plus GST, with CTH responsible for insurance, to commence from 18 February 2006.
A tempore/three-month lease at $24,000 per month plus GST should come into effect from 18 November 2005 to 17 February 2006: this would still be worth the saving of $36,000 plus GST to you, but would both help our cash flow and provide for the inconvenience of our later relocation. The bond required now would be for the reduced $52,800, with the increase to $79,200 (ie an additional $26,000) on 18 February 2006 with the commencement of the 3x3 lease.
We also require a certificate of currency for the insurance you negotiated to provide through your Broker.
We hope these terms are acceptable, and look forward to discussing them further with you.”

17 It will be seen that this letter refers to what amounts to two arrangements: the first, an interim arrangement to come into effect from 18 November 2005 for three months, in respect of which it was expected that Precision and CTH would share the usage of the premises making an adjustment of rent which was agreed; and the second, an arrangement for a lease for three years with an option for three years to take effect, it was then expected, on 18 February 2006, but at all events when Precision finally ceased its partial occupation of the premises. This letter was, at least to some degree, after the event, since CTH had moved in to the premises on 18 November 2005. There had been extensive discussions between the parties by that time and it was envisaged by them that despite the apparent simplicity of the proposal of 11 October 2005 it was a complicating feature that Precision could not immediately vacate the property and give the plaintiff complete possession which was essential to Mr Howes. In the circumstances the parties came to what seemed to be a sensible commercial arrangement to deal with this interim period.

18 In a later letter, of 25 May 2006, to which I will need to come in more detail, Mr Howes said to Mr Tebb:

“I appreciate yourself giving us the opportunity to move in as the alternative would have been much worse.”

This was, as was elaborated by Mr Howes in evidence, a reflection of the very considerable commercial pressure that he was under, at the time that he entered into partial occupation of the premises, to move from his then premises.

19 There were, of course, issues which arose out of the complication of sharing: uncertainty as to rent; the mode of calculation of rent; and the extent to which the premises could be used by other parties. In a sensible way Mr Tebb and Mr Howes thought they would be able to settle these issues as they arose, though there was a framework agreed to, as is clear from the letter of 25 November 2005.

20 Of course, the parties envisaged that in due course a lease would be prepared to deal with the occupation of the premises. It is perhaps somewhat uncertain whether it was intended to prepare a lease that needed to cover what I have called the interim period of shared use. There can be no doubt that it was the intention of the parties that a lease was necessary in relation to what I have called the second arrangement. In the events that have occurred, the crucial question for determination is whether the second arrangement created a legally binding contract for the making of a lease or whether it was simply a proposal which the parties hoped and expected would lead to legally binding obligations in the form of a lease, but which did not then comprise a legally binding agreement.

21 In dealing with problems of this kind, the starting point is invariably the judgment of the Chief Justice, and Justices McTiernan and Kitto in Masters v Cameron (1954) 91 CLR 353 at 360.

22 Mr Tebb's evidence was that he thought that when Mr Howes entered into partial occupation of the premises, this amounted to an acceptance of his offer as constituted by the letter of 11 October. Mr Howes' view is that he had not accepted that proposal, except in the varied form which he set out in his letter of 13 October 2005.

23 On a consideration of the whole of the evidence, some of which I will mention in due course, I have concluded that there was in fact no agreement to enter into contractual relations as set out in the letter of 11 October.

24 In my view, the conduct of both parties, but in particular the conduct of Mr Howes, in relation to the payment and calculation of rent demonstrates to a high degree of probability that his acceptance of the rent stipulated in the letter of 11 October was upon the basis that the useable area of the warehouse was not significantly less than that specified as the area of the warehouse in the documentation. Although it took time for this matter to emerge clearly in the course of evidence, it is apparent, and indeed not controversial, that Mr Tebb's view was that Mr Howes had agreed to pay at a rate which covered the entire roof area of the warehouse, including toilets and other such spaces, whilst Mr Howes took the view that he should only pay for that part of warehouse which he could use directly for his business.

25 Mr Howes' position is plainly untenable. But whether untenable or not, it represented such a fundamental difference with the mode of calculation of rent proposed by Mr Tebb, that the only reasonable conclusion is that Mr Howes indeed did not intend to pay rent calculated upon that basis. There were, between the parties, continuous discussions, becoming increasingly acrimonious, about the subject of rent.

26 It is obvious that until the rent could be settled, no lease document could come into existence. It is also obvious, as it seems to me, that until the rent was agreed upon, there could be no enforceable agreement for lease since the amount of rent and the cognate question of the leased area would necessarily require agreement before a contractual relationship could exist.

27 To some extent, this question could be postponed whilst Precision was sharing the premises, because it had been agreed in substance between the parties that during this period each should pay pro rata according to the extent of the property each utilised. However, once Precision moved out of the premises, the question of rent and space became crucial. In the result, Precision moved out, except for some office space, which I will come to in a moment, on 9 April 2006.

28 During what I have called the first arrangement period, which, regrettably perhaps, lasted longer than either of the parties had first envisaged, there were a number of communications between the parties. Oral evidence has been given of them, and I do not propose to deal with that evidence, since it seems to me that although it adds some information and context to the written material, it does not change the essential character of what was demonstrated in the written material.

29 I have not needed, therefore, to resolve the differences in recollections between the parties. However, I feel bound to say that, overall, I am satisfied that Mr Tebb's recollection is the more reliable of the two in areas where there is a significant difference between them.

30 In his e-mail of 27 February 2006, Mr Howes said to Mr Tebb in part in response to invoices which had been left at his desk and about which he was unhappy:

"We need to finalise what is actually to be paid along with other matters that have been present for some time now, along with no discussion on final rent payment as discussed, you have no metreage to follow, as to determine if this is a fair price, the last time we talked I gave you actual figures worked out of on the [sic] you had asked for, since then, I have heard nothing".

31 In part, this is a reference to the interim rent, but I also have no doubt that it was a reference to the rent that was to be paid once Mr Howes had obtained complete possession of the premises.

32 This conclusion is fortified by the following paragraph from the affidavit of Mr Howes:

"From time to time, I made references in my communications with the Tebbs, or the defendants, to 'agreeing rent', or a 'temporary lease', or similar phrases. I say that all of these references were to the fact of the need to adjust rent payable by the Plaintiff pursuant to the lease agreement by reference to 2 considerations. The first is that up to 10 April 2006 … Tebb continued to occupy part of the premises as he had not been able to move in early November 2005. The second is that the warehouse space in fact available to the Plaintiff at the premises was significantly less than that represented by the Defendants and on which the lease agreement was based.”

33 The last sentence in this paragraph is a reference to the distinction which I have already made, between the useable space and the warehouse space, a difference which was never resolved between the parties, and which, as I have mentioned, was, I think, crucial to the creation of binding contractual relations.

34 When Mr Howes referred, as he did continuously both in his evidence and his affidavit, and for that matter in certain of the correspondence in substance, to complying with the agreed lease or the lease conditions, he was referring to calculating rent by a per square metre sum, derived from the amounts and areas specified in the letter of 11 October 2005, but reduced to what he described as the useable space.

35 This ambiguous use of the reference to the lease conditions has, I think, led to an unfortunate ambiguity in the way in which Mr Howes approached his asserted compliance with the arrangement between the parties. He did not perceive, I think, that this difference was fundamental. But as I have said, it was.

36 On 1 May 2006, Mr Howes wrote to Mr Tebb a letter described referring to "matters at hand in regards to your property my company is currently leasing". In his asserting that he had a current lease, I am quite satisfied that he did not, at that time, think that he had a three-year lease. It is obvious that, at this time, he was uncomfortable with not having had a lease document prepared and executed; he felt insecure about the nature of his tenancy, and he wished to obtain Mr Tebb's agreement to terms which would permit a lease to be created. As he himself said:

"We first need to agree on a reasonable rent per month and most of all what you are prepared to do in way of completing the requirements for a lease to be raised, and most importantly the council requirements that will decide whether my company will be able to continue to operate from this site."

37 This sentence raised two important matters. They were, as Mr Howes thought, undetermined. Mr Tebb thought there was an agreement about the rent. He was wrong. There wasn't. Mr Howes thought that the rent should be calculated in the mode to which I have already adverted. Their minds never met on this point. He also thought that Mr Tebb would, or should, agree to arranging for council approval of his utilisation of the site. But as I have said, Mr Tebb had already rejected his responsibility in this regard. In persisting with this obligation, Mr Howes demonstrated that he did not regard the proposal of 11 October 2006 as determining the nature of at least some crucial parts of the relevant contractual relations.

38 Later on in the same letter, Mr Howes said:

"When both of us first agreed on my proposal for lease, it was quite clear the amount of useable space that my company could utilise and therefore pay lease on, the first four months of payments were calculated on these measurements taking into account the dual occupancy, this amount of space was talked about several times and you also supplied myself with an Elder’s real estate flyer, concerning this area and stating measurements. Now after realising that our space was restricted, we measured the actual warehouse space to find that it is some 600 sqm short with the awning also some 200 sqm less than what we were told.”

39 He went on to comment [sic] “… the amount of total space first discussed for lease was not much more than we originally had and that it would be difficult to generate the lease [semble rent] you require although it could be done, now that we discover that it is actually a lot less space it makes meeting our original agreed amount for lease [semble rent] impossible."

40 I do not regard this and other comments to the same effect, as meaning that he accepted that there was a binding lease to pay the agreed rent that he was now seeking to amend. I consider it makes sense only upon the basis that he thought that although the other terms of the lease were agreed, with the possible exception of the council question, rent was not.

41 This matter is made clear, if it were already not so, by the following passage:

"In saying this the rental will be sufficient if agreed on, at the end of the day this is your property and you can do with it what you wish, although if my company is to continue to occupy this premise you will need to commit not only what you have already said you would but to any new agreement we enter into."

42 I think that this means that he had understood that there were proposals in writing that they had agreed to, but that that proposal was subject to continuing negotiation and that in the result it was imperative to him that this continuing negotiation should result in a lesser rent than that at first stipulated.

43 His letter then mentions some modes of calculation of rent, fundamentally inconsistent with that stipulated in the letter of 11 October and goes on to say:

"If for some reason we cannot agree on continuing the lease we will need to discuss the need for relocation and all monies outstanding should be clarified and settled at that meeting.”

44 Although at first blush, I read this sentence as implying that there was a lease in existence which was continuing, I am quite sure that by using this language, Mr Howes meant no more than either “continuing with our proposal to lease”, or “continuing to occupy the premises”. This follows, I think, from the terms of the letter of 1 May taken as a whole, but it is made crystal clear by a letter of a little more than three weeks later, dated 25 May 2006. Again, there had been disputes about payment of rent, Mr Tebb insisting on proposing rent in accordance with the calculation of 11 October, though making an allowance for the continuing occupation of office space, and Mr Howes rejecting that as appropriate.

45 On 19 May 2006, Mr Tebb wrote to Mr Howes agreeing to the payment of rent to 17 May 2006 at the sum of $30,000 plus GST describing this as "not negotiable" and as I understand it, reflecting a concession that he had made to Mr Howes' request to reduce the rent demanded.

46 Mr Tebb's letter stated that "from 18 May 2006, the rent will be $33,000 plus GST as shown on the attached invoice...”

47 The $33,000 represented $36,000 calculated as the monthly rate payable in respect of the annual rent of $432,000 stipulated in the letter of 11 October, less $3,000 for the use of the office space.

48 Mr Tebb's letter summarised previous discussions, and I think fairly, in the following way:

"After our discussion earlier this week, together with previous meetings, conversations and correspondence, it is apparent that these premises do not suit your needs. Please advise us of your proposed vacation date so that we can find alternative tenants. We are in the process of contacting real estate agents to place the premises either for lease or sale".

49 Mr Howes’ response 25 May was this:

“I have received your letter along with adjoining invoices dated 19/5/2006, you have asked to be advised of a vacation date and as agreed at our meeting last month I will try to explain the current situation, we discussed several matters at this meeting and were not able to agree on any, the only thing that came out of the meeting was that you require more money and I require more space to be able to pay that money.”

The money required by Mr Tebb, as I have mentioned, was the money stipulated on 11 October 2005, and the effect of what Mr Howes said, elaborated later in the letter, was that he was not only unwilling but was unable to pay that money. It is also clear that he understood perfectly well that Mr Tebb intended to sell or lease the property and that therefore he should regard his occupation of it as limited, since it is clear that, once Mr Tebb had obtained either a purchaser or lessee, occupation of the property would have to be given up.

50 Mr Howes, having mentioned that he was attempting to find new premises, and to vacate the property, and had made arrangements to inspect other properties, said:

“I believe my figures stated in my previous response to be correct and I also would think some money is better than no money at all, as I have previously stated it is you who has the upper hand and if you are able to find another lessee or buyer for this property then there is nothing I can do about it. I have done everything I can to try and explain our situation to you but at the end of the day we can not pay something we have not got, the price per square metre is fair for the age of the building and location, the property I will be looking at is brand new and at $90.00 per sqm."

51 Mr Howes made certain other references to his intention to remove but insisted that he was unable to pay the request for rent "without a lot more workable space". The option which he proposed was, of course, in substance for lesser rent but this Mr Tebb was not disposed to agree to. Mr Howes concluded this part of the letter:

“If you do not wish to accept this option there is no harm done and I will vacate as soon as possible. I do not wish to argue the matter or confuse the issue further and as I stated previously I appreciate yourself giving us the opportunity to move on as the alternative for us would’ve been much worse. In saying this and the option is denied the outstanding accounts will need to be worked out, I have spent a great deal of money on rent and on the premises since arriving and we will need to determine what credits should be raised if any.”

52 It seems to me that this letter is fundamentally inconsistent with the notion that Mr Howes considered that he had a binding agreement. It has been submitted to me, and indeed Mr Howes has said in his evidence, that he thought that he had a binding agreement but in the absence of a lease he was unable to enforce it or establish that he did have such an agreement. I think that this is a reconstruction of the facts and I think it is unlikely to be true. Had this been so it is impossible to think that he would not at least have protested that he did have a binding agreement, that Mr Tebb was reneging on it, and that he was forced into the position of accepting such time as Mr Tebb was minded to give him by Mr Tebb's unfair denial of the existence of a lease agreement which Mr Howes maintained was in existence. He would not have used language like that. I think if he had actually thought that there was a binding contractual arrangement the nature of the discussion in this letter, the way in which he would have attempted to deal with the negotiation of the rent and the available space would have been of a fundamentally different character.

53 The fact is there never really was an agreement on rent. Nor was there agreement on the responsibility of the landlord in relation to council requirements. Mr Howes, by his entry, was not accepting the conditions specified in the letter of 11 October 2005. He regarded that letter as a proposal for entering into a lease in due course which would create legally binding relations. I think these matters were assumed by Mr Howes as capable – because of the commercial and friendly relationship between him and Mr Tebb – of being settled in due course. It is clear that he thought that his notion of a fair rent was an appropriate way of calculating it and that Mr Tebb should come around to understand that he was being no more than reasonable. However, entry into negotiations, however reasonable they might be, is not the same as entering into contractual obligations.

54 There is further correspondence and further oral communications but I do not think, for present purposes, it is either necessary or desirable for me to refer to them. It is however necessary to point out that, in the absence of a lease, the payment of monthly rent invariably implies, in the absence of any other agreement, a lease from month to month and I am quite satisfied that the contractual arrangements between the parties never amounted to more, in the circumstances, than a lease from month to month.

55 Accordingly, when on 18 October 2006 the solicitors for the Tebbs gave notice to CTH that it was required to vacate the premises by 18 November 2006 and make good any repairs resulting from the use and occupation of the premises, it was the conventional notice to quit given where a lease was at the time from month to month.

56 At this time, if there was any agreement as to rent, it is also clear that the rent proffered by Mr Howes was less than that which was due. Accordingly, on this view, CTH was in breach of its obligations to pay rent. The non-payment of rent would also have justified termination of the tenancy. The notice does not specify a ground and it is unnecessary for me to consider the matter further, except to say that it seems to me that the Tebbs were entitled to terminate the tenancy for want of payment of the rent stipulated.

57 On behalf of CTH Mr Newell, who has said everything on behalf of his client that could be said, has intimated that an undertaking would be forthcoming in the event that forfeiture for non-payment of rent was the basis for the notice, that an amount could be paid in court, or some other appropriate arrangement made for the payment of the difference between the rent stipulated and the rent appropriate. That is not altogether a simple calculation but no doubt such a calculation could be made.

58 I am of the view that in the circumstances such a payment could not answer the notice to quit. Firstly, as I have said, it was a notice to quit bringing to an end a monthly tenancy. Even if I were wrong about that it could not restore the lease since the Tebbs have, as I mentioned at the outset, in the meantime entered into a binding contract for sale of the property requiring vacant possession.

59 It is clear that they had been seeking to do so for some time and that they notified this intention, as already appears, to CTH. Moreover, in the letter of 25 May 2006 Mr Howes invited Mr Tebb to obtain either a lessee or a purchaser. Mr Tebb having done so and having entered into a binding contract of sale requiring vacant possession I do not see how it would be just or equitable to permit Mr Howes at this stage to attempt to restore the forfeited lease by proffering the outstanding rent.

1. I declare that the cross-claimants are entitled to vacant possession of the land, being lot caveat number AC746438 registered on folio identifier 31/246838 known as 31-41 Airds Road, Minto.
2. I order and grant an injunction requiring the cross-defendant to vacate and deliver up vacant possession of the premises no later than 27 January 2007.
3. I order that the solicitors for the cross-defendant deliver to the solicitors for the cross-claimants by 1 pm, 8 January 2007 a duly executed withdrawal in registrable form of the caveat number AC746438 registered on 31/246838. In default of which I order removal of the caveat under section 74 MA2 of the Real Property Act 1900.
4. In respect of the amended statement of claim, the claim for an order for specific performance is dismissed.
5. The declaration that the plaintiff is entitled to a formal lease is refused.

6. The claim for equitable compensation is dismissed.

7. The balance of the relief claimed in the amended statement of claim and the cross-claim is stood over to the registrar in equity's list on Monday 8 February 2007 at 9.30 am.
8. In respect of the statement of claim the plaintiff is to pay the defendant's costs.
9. In respect of the cross-claim and cross summons the plaintiff is to pay the defendant's costs.

10. I give liberty to apply on three days’ notice to both parties.

11. Exhibit 3 returned to the defendant, requiring a substitute of a photocopy.
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