Helou & ors v Bong Bong Pty Limited & anor trading as Regional Retail Properties
[2006] NSWADT 128
•05/01/2006
CITATION: Helou & ors v Bong Bong Pty Limited & anor trading as Regional Retail Properties [2006] NSWADT 128 DIVISION: Retail Leases Division PARTIES: APPLICANTS
George Helou
George Mhanna
Toni Mhanna
RESPONDENTS
Bong Bong Pty Limited & Gowing Bros Limited trading as Regional Retail PropertiesFILE NUMBER: 055130 HEARING DATES: 20/02/06 SUBMISSIONS CLOSED: 03/24/2006
DATE OF DECISION:
05/01/2006BEFORE: Chesterman M - ADCJ (Deputy President); Fairweather R - (Advisory) Non Judicial Member ; Tyler T - (Advisory) Non Judicial Member CATCHWORDS: Claim for declaration of rights, obligations and liabilities under a lease - Damages - Unconscionability MATTER FOR DECISION: Preliminary matter LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Conveyancing Act 1919CASES CITED: Arjay Investments Pty Ltd v Morrison’s Outdoor Catering Pty Ltd, Unreported, Supreme Court of NSW, 1 May 1995, Young J
Aspromonte Pty Ltd v Zagari [1999] NSWSC 831
Burbridge v Vosedo Pty Ltd [2004] NSWADT 8
Conoid Pty Ltd v International Theme Park Pty Ltd [2000] NSWCA 189
Egan v de Goede [2003] NSWADT 18
Goodlink Pty Ltd v Sing [1999] NSWADT 71
Lin v State Rail Authority of NSW [2005] FCA 1137
Masters v Cameron (1954) 91 CLR 353
Protogeros v Fouzas [2004] NSWADT 62
Puya v Coranton Pty Ltd [2000] NSWADT 161
Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4
Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17
Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521REPRESENTATION: APPLICANTS
RESPONDENTS
D Maddox, barrister
D Ronzani, barristerORDERS: 1. The Tribunal declares as follows:-; (a) A lease of retail shop premises by the Respondents to the Applicants, governed by the provisions of the Retail Leases Act 1994, commenced on 8 March 2005 for a term of five years; (b) This lease relates to premises constituting part of the ground floor of 328 – 332 Bong Bong Street, Bowral and delineated in a plan attached to a letter dated 22 February 2005 from the Respondents to the Applicants; (c) The terms and conditions of the lease are those contained in the letter of 22 February 2005; (d) The Tribunal has jurisdiction under the Retail Leases Act 1994 to determine the matters in dispute between the parties; 2. The matter is set down for further directions at 9.30 a.m. on 8 May 2006.
Introduction
1 In this judgment, the issues dealt with are (a) whether a lease governed by the Retail Leases Act 1994 (‘the Act’) was created between the Respondents, as lessor and the Applicants, as lessees; (b) whether the Tribunal therefore has jurisdiction to determine the dispute between them; and (c) what is the term of any such lease.
2 In their Amended Application and an accompanying document headed Points of Claim, both filed on 10 October 2005, the Applicants claimed that a lease for a term of five years was created by these means. They sought a declaration to this effect, coupled with an order that the Respondents pay compensation to them under s 10 of the Act for pre-lease misrepresentations. In the alternative, they sought a finding that the Respondents had engaged in unconscionable conduct as defined in s 62B(3) of the Act, together with appropriate relief under s 72AA.
3 Because all relevant events occurred before 1 January 2006, their claim falls to be determined by the Act in the form that it took before the commencement of the Retail Leases Amendment Act 2005.
4 The Applicants are Mr George Helou, Mr George Mhanna (‘Mr Mhanna’) and Ms Toni Mhanna. The two Respondent companies, Bong Bong Properties Pty Ltd and Gowing Bros Pty Ltd, carried out the transactions involved in this matter under the guise of Regional Retail Properties Joint Venture, which they formed in November 2004. Their agent throughout was Mr Paul Berkelouw, a director of Bong Bong Properties Pty Ltd.
5 Since the Amended Application includes a claim of unconscionable conduct, the Tribunal must be constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.
6 It was agreed between the parties that the issues defined above at [1] should first be determined as preliminary matters. At the hearing on 20 February 2006, the evidence relating to these issues was taken. Subsequently, in accordance with directions given on that day, Mr Maddox, counsel for the Applicants, and Mr Ronzani, counsel for the Respondents, filed written submissions. This judgment also takes account of two documents, entitled ‘Applicants’ Points of Claim’ and ‘Respondents’ Points of Defence’, that were filed before the hearing.
7 The Applicants based their claim that a lease had been granted to them on two separate sets of events. The first of these comprised two meetings during September 2004 between them and Mr Berkelouw. The second was a series of discussions between the same parties during the first three months of 2005, in the course of which a letter dated 22 February 2005 was delivered by the Respondents to Mr Mhanna and returned with signatures on behalf of the Applicants.
The Applicants’ entry into the premises
8 The premises to which these proceedings relate (‘the Premises’) are Shops 2, 3 and 4 of a property known as Gibraltar Square, Bowral. Through dealings concluded on 25 June 2004, the Respondents acquired this property subject to a number of tenancies. One of these was a monthly tenancy of the Premises to Highlands Fresh Pty Ltd (‘Highlands Fresh’), determinable by either party on one month’s notice. This ‘holding over’ tenancy had arisen under clause 12.4 of a five-year registered lease from the previous owners of the property to Highlands Fresh, which had expired on 5 October 2003. The monthly rent was $5,830.
9 The permitted use of the Premises under this lease was ‘retail sale of fruit and vegetables’. Highlands Fresh carried on a business of this nature at the Premises under the business name ‘Bowral’s Fresh Fruit World’. It is common ground that the lease was a ‘retail shop lease’ within the definition in s 3 of the Act.
10 On 18 August 2004, the Respondents lodged a development application relating to the whole property with the Wingecarribee Shire Council (‘the Council’). It envisaged demolition of the existing improvements to the buildings on the site.
11 On 18 September 2004, Highlands Fresh sold its business at the Premises as a going concern to the Applicants. Mr Mhanna had been the manager of this business. The agreement for sale stated that the purchase price of $210,000 comprised $110,000 for goodwill and $100,000 for fixtures, fittings etc. It also effected an assignment of the business name to Mr George Helou and Ms Toni Mhanna.
12 The Applicants took possession of the Premises on or soon after 18 September 2004 and continued the fruit and vegetable retail business that had been conducted there by Highlands Fresh.
The meetings during September 2004
13 Between 1 and 17 September 2004, there occurred the two meetings at which, according to the Applicants, Mr Berkelouw, on behalf of the Respondents, promised to grant a lease of the Premises to them. The Applicants and Mr Berkelouw disagree as to what was said at those meetings. None of them took any notes at the time.
14 The first meeting was arranged by Mr Jamie McDonald, who was the principal director of Highlands Fresh, and held, according to Mr Berkelouw’s diary, on 1 September. It took place in the Premises. Those present were the Applicants, Mr Berkelouw and Mr McDonald.
15 Mr Berkelouw and the Applicants agree that Mr Berkelouw made the following statements: (a) that on the sale of the business, the Applicants could take over possession of the Premises from Highlands Fresh, paying the same monthly rent as Highlands Fresh; (b) that the Respondents were planning to enlarge the building on the property and had lodged a development application with the Council; (c) that on account of the redevelopment the Applicants might be required to vacate the Premises for some period of time; and (d) that no new lease could be granted to the Applicants until after the application had been approved.
16 Mr Mhanna said in cross-examination that before the meeting Mr McDonald had told him that Highlands Fresh occupied the Premises on a monthly tenancy following expiry of a lease.
17 According to the affidavits of the Applicants, and to their evidence in cross-examination, Mr Berkelouw also made statements to the effect that he did not want to evict the Applicants, or to do anything to ‘hurt’ them, and that after he obtained the Council’s approval he would grant them a lease.
18 According to Mr Berkelouw’s affidavit and evidence in cross-examination, he made none of these statements. Instead, he indicated that after the Council had given its approval and various other issues relating to the redevelopment had been resolved, the Respondents would consider whether there would be an appropriate location for the Applicants’ business and, if so, would consider negotiating a new lease. He told the Applicants that if they purchased the business from Highlands Fresh without the security of a new lease, they did so at their own risk.
19 Mr McDonald, although present at this meeting, was not called as a witness in these proceedings.
20 With regard to what was said at the second meeting, which appears to have occurred about a week later and did not include Mr McDonald, there was a similar conflict of testimony between the Applicants and Mr Berkelouw. According to Ms Rita Helou, who is the wife of one of the Applicants, this meeting was held because the Applicants were worried about paying $210,000 for the business without having a certain lease.
21 Mr Mhanna testified that at one or other of these two meetings there was discussion with Mr Berkelouw about getting more space for the Applicants’ shop. The other witnesses did not confirm or deny this.
22 The witnesses disagreed as to what Mr Berkelouw said on the following topics: when approval by the Council might be forthcoming, when the Applicants might have to vacate their shop on account of the proposed redevelopment and for how long they might be out of possession. These matters need not be resolved in this judgment.
23 After completion of the sale of the business to the Applicants, notification was sent to Mr Berkelouw. The Applicants paid monthly rent to the Respondents in accordance with the terms on which Highlands Fresh had been a monthly tenant.
24 None of the Applicants made any inquiries at the Council. On 25 November 2004, the Council notified the Respondents that it had approved the development application.
The letter of 22 February 2005 and the circumstances surrounding its delivery to the Applicants
25 The Respondents subsequently lodged an application for approval of an amendment to the proposed development, involving demolition. Ultimately the Council gave approval to this second application, but only on conditions relating to loading and unloading goods that the Respondents considered to be unpalatable. In the period from January to March 2005, Mr Berkelouw believed that there were no issues of dispute between the Respondents and the Council.
26 During January and February 2005, Mr Berkelouw and Mr Mhanna had discussions about a possible new lease to the Applicants within the proposed redevelopment. According to Mr Berkelouw, he explained to Mr Mhanna that the success of the redevelopment depended on a satisfactory letting of what he described as the central part of the building, which he was trying to arrange with a deli/café and a coffee roasting facility. He showed plans to Mr Mhanna which, according to Mr Mhanna, indicated that the area proposed to be leased to the Applicants was the same as the Premises, which they already occupied.
27 By mid-February, Mr Berkelouw believed that, in view of his discussions with the prospective tenants of the central part of the building, he could ‘resolve the problem of the letting’ of this part. He therefore prepared and delivered a five-page letter dated 22 February 2005, on the letterhead of Regional Retail Properties. It was addressed to ‘Mr George Mhanna, Bowral Fresh Fruit World’. Mr Berkelouw said that he delivered letters in similar terms at about the same time to the owners of the deli/café and the coffee roasting facility. It did not bear any signature on behalf of Regional Rental Properties.
28 The heading of the letter was ‘Re: 328 – 332 Bong Bong Street Bowral’. The text commenced as follows: -
- Thank you for your expression of interest in the premises identified herein. Outline herein are the terms and conditions upon which you offer to lease the premises. Upon execution by you (lessee) and acceptance by REGIONAL RETAIL PROPERTIES (lessor), this will form the basis for the agreement to lease and lease.
29 The letter dealt with many of the matters that a lease or a disclosure statement might be expected to cover. Most of it was arranged in a formal manner, using numbered clauses set beside subheadings. It identified the premises to be let by annexing a marked floor plan and specified the area as ‘Approx. 207 sq. metre (subject to survey)’. It specified the gross rent for the first year as $100,000 per annum (exclusive of GST), payable monthly in advance; the commencement date as ‘At handover, estimated to be in the last three months of 2005’; and the term of the lease as five years, with an option to renew for a further five years. It provided for a fixed rent increase of 4% per annum, with a market review ‘at the commencement of each new option’. It required the lessee to provide a bank guarantee and to take out public risk insurance. It indicated that the Act ‘will apply’. It set out a list of ‘lessee fit out works’ and indicated that the lessor would make contribute $30,000 towards the cost of them. It contained a special condition to the effect that ‘during construction of the new premises’ the lessee would have to vacate the premises for a period between two and six weeks to enable them to be refitted.
30 Beside the subheading ‘Security Deposit’, a clause in the letter provided that the lessor required the amount of $5,000 ‘to be held as deposit’. The clause went on to state: -
- If you proceed with the lease this payment will be credited to your rental account. The deposit … will be forwarded to the lessor for deposit in their account. If the lessee does not proceed, this amount shall be refunded less any costs the lessor incurs in relation to this agreement.
31 The letter also contained two separate clauses apparently designed to defer the creation of legal obligations between the parties until formal lease documents had been prepared and signed. It is sufficient to quote one of them, which appeared beside the subheading ‘Documentation’: -
- Acceptance of this offer by the lessor will not in any circumstances create a legally enforceable lease between the parties. The lease will be prepared by the lessor’s Solicitors, incorporating the above terms and conditions and no agreement will be legally enforceable unless acceptable and executed by both parties.
32 A further clause, appearing under the heading ‘Acknowledgement’, stated: -
- Occupation of the premises will not be granted until the lease documentation has been completed to the satisfaction of the lessor’s solicitors, provision of bank guarantee, public risk insurance and all fees paid by the lessees.
33 Finally, another clause under the same heading purported to preclude the lessee from relying on any promise or representation by the lessor that was not recorded in ‘this application to lease’.
34 Following further discussion with the Applicants, which according to Mr Berkelouw took place on 8 March 2005, he agreed to amend the annual rent review percentage from 4% to 3%. He amended the letter to this effect and initialled the amendment.
35 According to Mr Tanios Mhanna, a relative of Mr Mhanna who was present during this discussion, it also dealt with the size of the shop (in the course of which Mr Berkelouw spoke of possibly increasing its size), the issue of access to it and the Respondents’ foreshadowed contribution of $30,000 to the fitout costs.
36 According to Mr Berkelouw, he told the Applicants that the letter was not legally binding and that if the Respondents accepted the offer that it contained, it would form the basis of a lease and he would ask their solicitors to draw up a lease. The Applicants disputed this. Mr Mhanna alleged that at the conclusion of the meeting the parties shook hands and Mr Berkelouw said: ‘You’re in.’ Mr Tanios Mhanna said that in addition he and Mr Mhanna gave Mr Berkelouw some fruit.
37 Before the meeting ended, Ms Mhanna and Mr Helou, as the registered owners of the business name, signed the letter and handed it to Mr Berkelouw. Mr Helou also gave him a signed cheque for $5,000 in favour of Regional Retail Properties, representing the ‘security deposit’. Mr Berkelouw deposited the cheque in a bank account of the Respondents.
38 On 14 and 15 March 2005, Mr Berkelouw received advice from the owners of the deli/café and the coffee roasting facility respectively that they would not proceed with any lease. According to his version of events, he told Mr Mhanna in a telephone conversation soon after that for this reason the Respondents would have to defer their plans for redevelopment. According to Mr Mhanna, Mr Berkelouw said that the Respondents had encountered further problems with the Council.
39 Both these witnesses agree that during this conversation Mr Berkelouw suggested that the $5,000 deposit should be returned to the Applicants and invited them to deduct it from the next instalment of rent. The next invoice for rent issued to the Applicants included a deduction of $5,000 beside the words ‘Less – deposit paid 8/3/05’. The Applicants acquiesced in this course of action and paid the reduced amount of rent for that month.
40 During the ensuing months, there were further discussions between the parties. Mr Berkelouw said that in none of these discussions did the Applicants claim to have a lease in terms of the letter of 22 February 2005. Ultimately, the Respondents served a Notice to Quit dated 31 August 2005 on the Applicants. For the purposes of this judgment, it is not necessary to investigate these matters further.
41 As indicated above at [6], the Applicants’ claim that a new lease was granted to them was based on the two separate sets of events that have just been outlined. It is convenient to deal with them separately.
The question whether a lease was granted in September 2004
42 As the above account shows, there was a significant conflict of testimony as to what Mr Berkelouw said to the Applicants during the meetings of September 2004 regarding the possible grant of a new lease.
43 It is not necessary, in this judgment, to resolve this conflict because in the Tribunal’s opinion even the version most favourable to the Applicants does not constitute a sufficient foundation for inferring that a new lease was granted.
44 Mr Maddox’s argument on this issue was based on two propositions, as follows. First, Mr Berkelouw clearly promised at the meetings in September 2004 that the Applicants certainly would, not might, obtain a new lease from the Respondents once the development application to the Council had been approved. The Applicants agreed to accept such a lease. These conclusions followed from the Applicants’ evidence (which should be preferred) and from the fact that without such an assurance it was inconceivable that they would have paid the purchase-price of $210,000 for the business. Secondly, what Mr Berkelouw meant by a ‘new lease’ was a lease with the same duration (five years) and substantially the same terms and conditions as the expired lease to Highlands Fresh, not just a monthly tenancy such as Highlands Fresh held at the time of the meetings.
45 If the evidence of the Applicants were to be preferred in all respects over that of Mr Berkelouw, it would provide a sufficient basis for the first proposition. But a further possibility, arising from the fact that English is not the first language of any of the Applicants, is that they misunderstood him. They took him to be promising a new lease when he was merely promising to enter into negotiations for a new lease.
46 In any event, however, the Applicants’ own evidence is insufficient to establish the second proposition. Nothing in their accounts of what he said suggests that he promised, even by implication, that the Respondents would grant a future lease incorporating without significant variation the same terms as the expired lease to Highlands Fresh. The mere fact that the current monthly tenancy by way of holding over incorporated many of those terms is not enough, in the Tribunal’s opinion, to warrant drawing this inference.
47 An important consideration in this context that the expired lease to Highlands Fresh had been prepared by former owners of the property, not by the Respondents, and that it commenced more than six years earlier. A further reason why Mr Berkelouw should not be held to have implicitly promised that this lease would simply be replicated in a future lease to the Applicants is that, according to Mr Mhanna’s own evidence, the possibility of altering the area leased was discussed during one or other of the meetings of September 2004.
48 The Tribunal’s conclusions, therefore, are as follows. Even if Mr Berkelouw’s statements during the meetings of September 2004 conveyed a promise to grant a new lease once the Council had approved the development application, he did not indicate, expressly or by implication, either (a) that the terms and conditions would be the same as those of the expired lease to Highlands Fresh, or (b) what other terms and conditions would apply instead (except perhaps that the rent should be paid monthly and should be calculated by reference to the rent currently paid by Highlands Fresh). Any implied contract or agreement for a future lease between the parties was accordingly void for lack of certainty as to a number of its key terms.
49 This conclusion, it may be added here, is sufficient to oust the operation of s 8 of the Act so far as the events of September 2004 are concerned. The terms and effect of this provision are discussed below.
50 As argued by Mr Ronzani in the Respondent’s Points of Defence, the absence of any written record of the alleged agreement for a future lease, as required by ss 23C and 54A of the Conveyancing Act 1919, might constitute a further ground for rejecting this line of argument by the Applicants. But it is not necessary to decide this point.
51 For these reasons, the Tribunal’s conclusion regarding the effect of the discussions between the Applicants, the Respondents and Mr McDonald during September 2004 is that on the sale of the business of Highlands Fresh to the Applicants, they became assignees, with the consent of the Respondents, of the monthly tenancy previously held by Highlands Fresh. By virtue of s 6(1)(a) of the Act, the tenancy thereby acquired by the Applicants fell outside the provisions of the Act. So much is apparent from Lin v State Rail Authority of NSW [2005] FCA 1137, a case cited by Mr Ronzani.
The question whether a lease was granted in February or March 2005
52 The effect of the letter of 22 February 2005, together with surrounding discussions, at common law. Although probably not meriting the label ‘disclosure statement’ for which the Applicants contended, this letter clearly contained sufficient terms and conditions of a five-year lease to obviate any concerns about lack of certainty. The only issue that it expressly left at large was the commencement date.
53 On 8 March 2005, when the letter, containing Mr Berkelouw’s notation amending the rate of annual increase of the rent, was returned to him bearing signatures on behalf of the Applicants and accompanied by a cheque for the ‘security deposit’, the Applicants and the Respondents had clearly agreed that the terms and conditions set out in the letter should form the basis of a lease. So much is clear from the evidence of Mr Berkelouw himself.
54 Mr Ronzani argued however that the letter, according to its terms, only constituted an offer made by the Applicants to the Respondents, not the other way around. It was never signed on behalf of the Respondents. It followed, he said, that the signatures on the Applicants’ behalf were insufficient to give it the status of a binding contract.
55 In the Tribunal’s opinion, this feature of the letter would not be sufficient, standing alone, to prevent a binding agreement arising. As Mr Berkelouw stated, it was he, not the Applicants, who prepared the letter. In his discussions with them, he indicated that these terms were satisfactory to the Respondents.
56 A further submission by Mr Ronzani of greater significance was based on the clauses in the letter (see [31 – 32] above) stating that no legally enforceable agreement would come into existence until an acceptable lease incorporating the letter’s terms and conditions had been prepared by the Respondents’ solicitors and executed by both parties. It followed, he said, that even if the Respondents both accepted the Applicants’ offer contained in the letter and received the security deposit from them, there would still not be an enforceable lease between the parties.
57 This argument receives strong support from the well-known judgment of the High Court in Masters v Cameron (1954) 91 CLR 353. The Court there said that while clauses of this nature in a document may be open to the interpretation that the parties intend to be immediately bound to the performance of the accompanying terms and conditions, the question whether this interpretation should be adopted ‘depends upon the intention disclosed by the language the parties have employed’, since ‘no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape’ (see p 362). The clauses in the letter, according to their natural meaning, did seek to postpone the advent of contractual liability under the proposed lease until it attained its ‘ultimate shape’.
58 In Arjay Investments Pty Ltd v Morrison’s Outdoor Catering Pty Ltd, Unreported, Supreme Court of NSW, 1 May 1995, Young J said: -
- Where one has a lease of commercial premises one normally expects that the lease will only come into existence after there has been an exchange of formal documents… if one can see in the negotiations that the parties had in mind the preparation of a more formal document by a solicitor, one tends to thinks that they did not intend to be bound until the more formal document was produced and exchanged.
59 In his submissions, Mr Maddox did not specifically address this issue.
60 In the Tribunal’s opinion, the terms of the relevant clauses in the letter should be interpreted according to their natural meaning. The consequence is that even after allowance is made for the factors, outlined above, suggesting that the parties had reached a consensus as to the terms and conditions of a lease, the preparation, delivery, signing and return of the letter, accompanied by a cheque for the ‘security deposit’, were still not sufficient under general principles of contract and property law to create a binding lease.
61 Submissions and case-law relating to ss 7 and 8 of the Act. These sections are as follows: -
- 7 This Act overrides leases
This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease.
8 When the lease is entered into
(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).
(2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease.
Note. Therefore, if the lessee starts to pay rent as lessee or enters into possession as lessee, the lease is considered to have been entered into even if neither party has executed the lease at that time. Money paid in advance (purportedly as rent) as a deposit to secure premises for a proposed lease does not constitute rent paid as lessee under the lease.
62 Mr Maddox’s submissions placed significant reliance on s 8. He argued that this was a case in which, to follow the wording of s 8(1), the Applicants both ‘entered into possession of the retail shop as lessee under the lease’ and began ‘to pay rent as lessee under the lease’. He applied this description of events to the situation when the Applicants first moved into the Premises, adding that the Respondents’ acceptance of the security deposit of $5,000 provided clear evidence that they intended to grant a lease to the Applicants. It followed, he said, that a lease governed by the Act was created between the parties even though no formal lease document was ever executed.
63 In making this submission, Mr Maddox relied on two authorities interpreting s 8: Aspromonte Pty Ltd v Zagari [1999] NSWSC 831 and Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4.
64 Mr Ronzani argued that the facts in these two cases were ‘materially different’ from those of the present case because in neither of them had the tenant bought a business from a previous tenant who ‘only occupied the premises on the basis of a monthly holding-over’. The only case that he cited dealing specifically with s 8 was Goodlink Pty Ltd v Sing [1999] NSWADT 71.
65 In the Tribunal’s opinion, the resolution of this issue, which is not at all straightforward, requires consideration of a line of authority commencing with a decision preceding those cited by counsel, namely, Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521.
66 In that case, the owner and the holder of a pre-existing licence to occupy a retail shop reached agreement on or about 6 July 1994 as to the terms of a lease. The lessee remained in occupation, paying rent at an increased rate, but a formal agreement of lease was executed in October 1994. Hodgson CJ in Eq held that s 8 applied in this situation by virtue of the following reasoning: -
- In my opinion, s 8(1) of the Retail Leases Act does operate in this case to deem to ( sic ) the relevant retail shop lease to have been entered into no later than about 6 July 1994. In my opinion, the plaintiff did begin then to pay rent as lessee under the lease which was eventually formalised in the agreement of October 1994. It would be possible to give a construction to s 8(1) to the effect that there cannot be entry into possession as lessee unless a lease, or payment of rent as lessee under a lease under the lease is already in existence in the full sense of the word; that is, unless there had already been a formally executed lease or at least a concluded agreement. However in my opinion that construction of Section 8(1) should be rejected, particularly having regard to the terms of Section 8(2). Section 8(2) deals with a situation where both parties execute the lease before the lessee enters into possession under the lease, or begins to pay rent under the lease. Those words, in my opinion, clearly contemplate the possibility that the lease may not be executed by both parties until and after the lessee has entered into possession under the lease, or has begun to pay rent under the lease. That means in my opinion that the word ‘under the lease’ in both sub-sections should not be given a narrow and restrict (sic) construction, but rather should be considered to be satisfied where there is entry into possession or payment of rent pursuant to a consensus as to terms which is subsequently given effect by an executed lease. That is a situation which happens very commonly, and in my opinion, that is the situation which the section is intended to deal with.
67 In Aspromonte Pty Ltd v Zagari [1999] NSWSC 831, Hodgson CJ in Eq found that the defendant entered into possession of retail shop premises in March 1998 and commenced to pay rent. At this time, there was no agreement as to the term of the proposed lease, but a consensus emerged that the lease should be for six months with an option to renew for a further six months. Subsequently, the parties signed a lease expressed to commence on 1 July 1998. At [51], his Honour quoted the above passage from his judgment in Whiteway House case. At [52 – 53], he said: -
- 52 I remain of the view that Section 8(1) discloses an intention that there can be entry into a retail shop as lessee and payment of rent as lessee under a lease, where these events occur at a time when there is consensus as to the terms of such a lease but not yet any written lease entered into.
53 In my opinion the effect of those views in this case is that under s 8(1) there must be considered to have been a lease effected by the Act commencing in about mid-March 1998…
68 In Goodlink Pty Ltd v Sing [1999] NSWADT 71, the applicants entered into possession of premises owned by the respondents following negotiations which they claimed to have given rise to a lease under the Act. The applicants, but not the respondents, executed the lease, which stipulated that the permitted use was as a real estate agency. The respondents’ solicitors had stated that execution by both parties was a pre-condition to the lease becoming binding. The respondents evicted the applicants, who sought relief under the Act in this Tribunal. Their application was dismissed, on the ground that the premises were not retail shop premises within the meaning of the Act. At [4], however, Judicial Member Donald observed that s 8 of the Act would have rendered the lease binding on the parties, ‘as it deems a lease to commence on entry into possession regardless of non-execution’.
69 None of these three cases dealt directly with two issues arising in the present case. These are (a) whether, for the purposes of s 8, a person who is already in possession of retail shop premises pursuant to a pre-existing tenancy not covered by the Act, or in some other capacity, may be said notionally to ‘enter into possession… as lessee under the lease’ without vacating and re-entering the premises, once an agreement for a new lease falling within the Act is concluded, and (b) whether the commencement of a lease by virtue of entry into possession or payment of rent may occur under s 8(1) even though no deed or agreement of lease is ever executed.
70 Both of these questions were however given consideration in Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4. Here the applicant occupied premises owned by the respondent under a five-year lease governed by the Act. About one month after the expiry of the lease, the respondent served a notice to quit on the applicant. The applicant remained in occupation nonetheless and in the course of correspondence over the next few months the parties reached agreement on the terms of a new lease. The respondent’s solicitors submitted to the applicant a document of lease containing these terms, ‘subject to the final approval of the document’ by the respondent. This lease provided for an increased rent, which the applicant paid and the respondent accepted.
71 The primary issue to be resolved by the Tribunal, constituted by Judicial Member Molloy, was whether or not the applicant’s claim that a lease had been created between the parties should be upheld. In making this claim, the applicant placed reliance on s 8 of the Act.
72 At [18], the Tribunal rejected the respondent’s contention that the applicant was merely holding over under the expired lease, saying that this was incompatible with the payment and acceptance of an increased amount of rent. At [20], it expressed agreement with a concession by the applicant that the effect of the notice to quit was actually to make her a trespasser.
73 At [22], the Tribunal dealt in the following terms with the first of the two questions posed in the present judgment at [69]: -
- If one takes the view that the exchange of correspondence creates a Section 8 lease then I think it is available to me to conclude that there was a notional ‘entry into possession’ consistent with that exchange of correspondence even though factually the Applicant never left the premises. Although I understand that there was some old Landlord and Tenant Law to the effect that in relation to controlled residential tenancies the tenant had to actually vacate the premises and then move back in again under a new uncontrolled lease for there to be the legal effect of de-controlling otherwise controlled residential premises, I do not think that situation is determinative of the way in which Section 8 should be interpreted having regard to the legislative purpose of Section 8 and in the peculiar circumstances of this case.
74 At the beginning of an extended discussion of s 8, the Tribunal then quoted the passage from the Whiteway House decision that is reproduced above at [66]. It then proceeded, at [26 – 28], to deal in the following terms with the second of the two questions posed above at [69]: -
- 26 If that quoted paragraph is relied upon to support the proposition that where there is no subsequently executed lease then Section 8 does not apply, then in my opinion that submission should be rejected. What His Honour was referring to was the facts as put before him in that case, facts that are not unusual and where a lessee is allowed into possession by a lessor prior to the entry into of an executed lease. There is no question that in those circumstances Section 8 applies (although it did not apply in that case because the lease in fact commenced prior to the commencement of the Act) and where it applies (and is not otherwise the subject of exclusion) then the lease is subject to a minimum term of five years (Section 16). In my opinion the submission goes against the definition of "lease" in Section 3 of the Act where it is defined as meaning:
- "any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop ...."
- "I remain of the view that Section 8(1) discloses an intention that there can be entry into a retail shop as lessee and payment of rent as lessee under a lease, where these events occur at a time when there is consensus as to the terms of such a lease but not yet any written lease entered into."
- “Is there an agreement; if so what are the terms of the agreement; and has the lessee entered into possession of the retail shop as lessee under the agreement or has the lessee began to pay rent as lessee under the agreement (whichever happens first)?”
75 The Tribunal then discussed, at [29 – 31], the requirement of ‘consensus as to the terms of a lease’. It stated: -
- 29 Hodgson CJ in Eq in Aspromonte expressed the view that there must be “consensus as to the terms” of the lease. I am not entirely sure precisely what is meant by the use of the word “consensus”. If it is intended to mean that there must be, as a pre-condition to the operation of Section 8, an agreement by the parties to each and every term of the lease, then I would respectfully differ from His Honour’s view. The whole purpose of Section 8 is to create a statutory lease if the circumstances fall within the terms of the Section. After all, the terms of the Section are really quite simple and in my view there is a clear legislative intent that there will be created a statutory lease where a person enters into possession of a retail shop as lessee, or begins to pay rent as lessee, in circumstances where there is an agreement between that person and the person having the right to grant possession or receive rent whereby that person grants or agrees to grant to the other person for value a right of occupation of the premises for the purposes of the use of the premises as a retail shop.
30 There is nothing in the combination of Sections 3 and 8 that requires the person granting or agreeing to grant the right of occupation to agree with the occupier or proposed occupier to all the terms of the right of occupation. The definition of “lease” in Section 3 (set out in paragraph 26 above) is in very simple terms and the legislative intent of Section 8 is to create a statutory lease in the particular circumstances such that the occupant is protected by a statutory lease. Once that interpretation is accepted then there is no requirement for there to be “consensus” as to the terms of, or each and every term of, the right of occupancy simply because the statute creates the lease (Section 3). Once the statutory lease is created then the only question is: what are the terms of that lease? In order to answer that question one needs to look at the extrinsic evidence that is available in order to establish the other terms of the agreement between the parties.
31 It is not my understanding that the law requires there to be a concluded agreement between the parties before Section 8 applies. Mr Jacobs for the Respondent has strongly urged that proposition and for the reasons that I set out later in this Judgment I am of the view that the combination of Section 8 and the definition of “lease” in Section 3 is supportive of a different legislative regime designed to protect persons who enter into occupation or pay rent of defined premises such that the section “fills in the blanks” (so to speak) of contract law which would deny a concluded contract in circumstances where the evidence showed that there had not been agreement as to all the terms and in those circumstances would deny the occupant of retail shop premises the protection offered by Section 8.
76 At [32], the Tribunal held that the correspondence following the notice to quit, coupled with the payment of rent at the increased rate, constituted a commercial agreement between the parties to enter into a formal lease in the terms of the expired lease subject to the variations as negotiated and specified in that correspondence.
77 At [38], the Tribunal returned to the question of what kind of agreement was required under s 8: -
- 38 There is perhaps an alternative argument available to the Applicant, although not agitated before me. In the definition of “lease” the legislature has seen fit to use the word “agreement” in contradistinction to the word “contract”. Although not expressing a final view on this aspect, it may well be that the use of the word “agreement” imports something less than a full-blown contract but is rather directed to the parties reaching an agreement such that the Lessor permits the lessee into occupation of the lessor’s premises (a rather dramatic event in reality) or accepts rent for those premises and in either case thereby creates a lease under Section 8.
It seems to me that the legislature has deliberately used the general word “agreement” and avoided the more legal word “contract”. There is good reason for this. The Retail Leases Act is, in many of its provisions, purposive and protective. It is directed, in this aspect, to the commercial reality of Lessors and Lessees “agreeing”, as distinct from “contracting”, such that upon “agreement” plus entry into possession or payment of rent the Act creates a statutory lease and a statutory regime for captured leased premises. It is protective because it creates a statutory minimum term and regime to protect the parties, in particular the lessee.
Indeed, I would venture that generally, but not exclusively, the overall purpose of the Act is protective, within its terms, of lessees. Regard may be had, for example, to the concept and content of disclosure statements and the “penalties” that flow from non-disclosure, penalties that seem to affect lessors rather than lessees. Lessors need to be very careful before they permit persons into occupation of their premises or accept rent relating to those premises, because without prior contractual documentation the premises are more than likely to be caught by the statute.
Persons in their ordinary activities can reach “agreement” about numerous matters without being contractually bound by that agreement. In simplistic terms (for example) a person can agree to take another to the theatre but will not be contractually bound to carry out that promise. However, what the Retail Leases Act does is effectively create (in my view) a statutory contract where the circumstances envisaged by Section 8 apply. Section 8 itself refers to “the lease” (twice) and “the lease” is the lease defined in Section 3. There is nothing (it seems to me) in the Section 3 definition that requires agreement to be reached between the parties on all terms. And, for the reasons set out in paragraph 27 above, the manner in which the parties actually reach agreement can be varied and the terms of the agreement can even be (theoretically) can be implied and oral and (in my view) it is not necessary for the terms to be all inclusive.
78 In Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17, the Tribunal, constituted by Judicial Member Donald, discussed the interplay between s 7 and s 8 of the Act. It said at [28]: ‘As the statutory provisions protect the parties and override subsequent written provisions, the purpose of s.8 is to ensure that the parties have the benefit of the statute from the moment their lease relationship commences even if a lease document is not immediately signed.’
79 In Egan v de Goede [2003] NSWADT 18, the respondents agreed orally with the applicant that he could occupy premises owned by them in order to carry out a business falling within the scope of the Act. He entered into occupation and paid them four weeks’ rent. The preparation and execution of a lease document were discussed, but never occurred. The Tribunal, constituted by Judicial Member Montgomery, held that by virtue of the oral agreement a lease was created through the operation of s 8.
80 In Burbridge v Vosedo Pty Ltd [2004] NSWADT 8, the applicant went into occupation of a retail shop which the respondent owned, as assignee from a previous lessee whose lease had about two months to run. There were negotiations with the respondent for a new lease to the applicant, but no lease was executed. The Tribunal, constituted by Judicial Member Rickards, referred at [38] to the statement in Aspromonte Pty Ltd v Zagari that s 8(1) would apply where a prospective lessee had entered into a retail shop and paid rent, so long as there was ‘consensus’ as to the terms of the lease. It held, however, at [44] that no such consensus existed because the parties had failed to agree on whether the applicant should have a rent-free period and on the amount of a bond to be furnished by the applicant. At [47 – 50], it held, citing Masters v Cameron (1954) 91 CLR 353, that this was a case where the parties’ intention was not to make a concluded bargain unless and until a formal lease was executed.
81 In Protogeros v Fouzas [2004] NSWADT 62, the respondents signed a document whereby premises owned by the applicant were leased to them for the purposes of a business falling within the scope of the Act. They entered into occupation two days later. The applicant never signed the lease. The Tribunal, constituted by Judicial Member Montgomery, held that by virtue of the agreement constituted by the lease document and the respondent’s entry into occupation, a lease was created through the operation of s 8. Having quoted relevant passages from Aspromonte Pty Ltd v Zagari and Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2), it declared itself satisfied, at [34], that ‘there was “consensus as to the terms” of the Lease and those terms are reflected in the Lease document’.
The Tribunal’s conclusions.
82 In the Tribunal’s opinion, the foregoing cases establish the following propositions regarding s 8(1). First, a person who is already in possession of retail shop premises pursuant to a pre-existing tenancy not covered by the Act may be said notionally to ‘enter into possession… as lessee under the lease’ without vacating and re-entering the premises, once an agreement for a new lease falling within the Act is concluded. Secondly, the commencement of a lease by virtue of entry into possession or payment of rent by the lessee may occur under s 8(1) even though no formal deed or agreement of lease is ever executed, so long as the parties have reached ‘consensus’ as to the terms of the lease. Thirdly, in order to reach this ‘consensus’, so as to give rise to the requisite ‘lease relationship’, it is not necessary that the parties reach agreement on all the terms of the right of occupation. This is an implicit consequence of the broad definition of ‘lease’ in s 3, embracing ‘any agreement’, express or implied, and whether oral, in writing, or partly oral or partly in writing, ‘under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop’.
83 Applying these propositions to the facts of the present case, the Tribunal reaches the conclusion that on 8 March 2005 the parties attained a sufficient consensus to attract the operation of s 8(1) and the Applicants notionally entered into possession of the Premises within the meaning of this subsection. This, it will be recalled was the day on which the letter of 22 February 2005, containing Mr Berkelouw’s notation amending the rate of annual increase of the rent, was returned to him bearing signatures on behalf of the Applicants and accompanied by a cheque for the ‘security deposit’. This conclusion must be drawn even though the terms of the letter stated (and, according to Mr Berkelouw, he expressly told the Applicants) that no binding lease would come into existence until a formal document of lease had been prepared and executed.
84 It should perhaps be added that at no stage did the Applicants ‘begin to pay rent as lessee under the lease’, within the meaning of s 8(1). The reason is that before the next instalment of rent fell due on 1 April 2005, Mr Berkelouw indicated to them that on the Respondents’ view of the situation no new lease had been created and the Applicants were still in possession by virtue of the monthly tenancy acquired from Highlands Fresh. It would appear that the Applicants also believed this to be the state of affairs. But this of itself would not be sufficient to deprive them of the rights that they had acquired through the operation of s 8(1).
85 The outcome is that a lease of the Premises by the Respondents to the Applicants, substantially incorporating the terms of the letter of 22 February 2005, commenced on 8 March 2005. It further follows that the Tribunal has jurisdiction to determine the dispute between the parties.
The duration of the lease between the parties
86 As stated above at [29], the term of the lease specified in the letter of 22 February 2005 was five years, with an option to renew for a further five years. But no commencement date was specified. Instead the letter stated that the lease would commence ‘At handover, estimated to be in the last three months of 2005’.
87 As has just been indicated, however, the lease created under s 8(1) commenced on 8 March 2005. Mr Maddox argued that its duration was determined by further provisions of the Act, which by virtue of s 7 would override any contrary stipulation in the agreement that the parties had reached.
88 These provisions are subsections (1), (2) and (3) of s 16, which state as follows:
- 16 Minimum 5 year term
(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.
(2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section.
Note. For example, if a lease is entered into for a term of 3 years, its term is extended by 2 years to 5 years. If a lease is entered into for a term of 2 years with an option for a further 1 year after that initial 2 years, the term of the lease is extended to 4 years (with the option for a further 1 year after that initial 4 years).
(3) This section does not apply to a lease if a lawyer, or a licensed conveyancer, not acting for the lessor certifies in writing that he or she has, at the request of the prospective lessee, explained the effect of subsections (1) and (2) to the prospective lessee and that the giving of the certificate will result in this section not applying to the lease.
89 In four cases, outlined above, in which a lease was held to arise under s 8(1) (Aspromonte Pty Limited v Zagari [1999] NSWSC 831, Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4, Egan v de Goede [2003] NSWADT 18 and Protogeros v Fouzas [2004] NSWADT 62), it was held further that the lease was governed by s 16(1), which by virtue of s 7 was an overriding provision. The result was that the duration of the lease was five years.
90 In support of his argument that s 16(1) was applicable to the parties, Mr Maddox cited the first two of these authorities. In seeking to avert this conclusion, Mr Ronzani referred to two further cases.
91 In the first of them, Conoid Pty Ltd v International Theme Park Pty Ltd [2000] NSWCA 189, the Court of Appeal held that where a lessee of retail shop premises under a monthly tenancy granted subleases of fifteen months, the sublessees could not rely on s 16(1) in order to claim that their subleases lasted for five years. This decision is expressly based, however, on s 16(5), which states that s 16 ‘does not apply to a lease to the extent that its application would be inconsistent with the terms of any head lease under which the lessor holds the retail shop’.
92 In the second case, Puya v Coranton Pty Ltd [2000] NSWADT 161, the only issue arising under s 16 was whether s 16(1) would be breached by a lease which provided for a three-year term and an option to renew for a further three years. The Tribunal held that such a lease conformed with the requirements of s 16(1).
93 In the opinion of the present Tribunal, neither of these cases, nor any other case of which it is aware, casts doubt on the ruling given in the four authorities cited above at [89]. This is that in the absence of a certificate under s 16(3) (and, it may be added, of circumstances attracting s 16(5)), a lease created through the operation of s 8(1) will fall within s 16(1) and will have a minimum term of five years.
94 It follows that the lease of the Premises between the parties in this case, commencing on 8 March 2005, has a term of five years.
95 Although no formal document incorporating the terms of the letter of 22 February 2005 was ever prepared and executed, the provision in that letter for an option to renew for a further five years may nonetheless apply by virtue of s 8. This issue was not, however, addressed in the submissions and is not covered by the orders made in this decision.
96 The Tribunal’s orders are in accordance with the conclusions reached in paragraphs [85] and [94] of these reasons. In addition, the matter is set down for further directions.
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