Heriot Pty Ltd v Williams

[2024] NSWCATCD 35

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Heriot Pty Ltd v Williams [2024] NSWCATCD 35

Hearing dates:

29 January 2024

Date of orders:

13 March 2024

Decision date:

13 March 2024

Jurisdiction:

Consumer and Commercial Division

Before:

G Ulman, Senior Member

Decision:

(1)   Within seven (7) days, the applicant file and serve an affidavit setting out interest calculations on the make good claim, re-leasing claim and unpaid rent claim at the rate prescribed by clause 11.4 of the lease from the commencement of these proceedings to 29 January 2024.

(2) Upon the filing of the affidavit, final orders will be made on the papers as permitted by section 50(2) of the Civil and Administrative Tribunal Act 2013, unless persuaded that there should be oral submissions.

(3)   Costs are reserved.

Catchwords:

Retail lease – damages claim for lost rent and expenses - no rent payable in the first year of the new lease – whether lessor has mitigated the loss – whether lessor entitled to recover GST – whether lease permits entitlement to interest when no demand made for payment made – costs

Legislation Cited:

Civil and Administrative Tribunal Act 2013

Civil and Administrative Tribunal Rules 2014

Retail Leases Act 1993

Retail Leases Regulation 2022

Cases Cited:

Karacominakis v Big Country Developments Pty Ltd & Big Country Developments Pty Ltd v Chadlace Pty Ltd & Ors J W Wall Investment Co Pty Ltd & Ors v Big Country Developments Pty Ltd & Ors Hollingsworth & v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313

Texts Cited:

Prof B Edgeworth Butt’s Land Law (7th ed)

Category:

Principal judgment

Parties:

Heriot Pty Ltd – Applicant
Andrew Charles Williams - Respondent

Representation:

Counsel: Mr T Bateman for the Applicant
Solicitors: Baron & Associates
No appearance by the respondent

File Number(s):

2023/00379427

Publication restriction:

Nil

REASONS FOR DECISION

Background

1. The applicant is the owner of Shops 5 and 6, 152-156 Campbell Parade, Bondi Beach (shops 5 and 6). It seeks an order pursuant to section 72(1)(a) of the Retail Leases Act, 1994 (Act) that the respondent pay the sum of $627,232.30 said to be owed by the respondent as guarantor of the lease obligations of Bertha Two Pty Ltd (lessee) under a lease of shop 6 (premises).

2. In July 2013, the applicant leased Shops 5 and 6 to the lessee for a term of five years, from where the lessee operated a Hungry Jacks restaurant (2013 lease). The respondent was the guarantor of the lessee’s obligations under the 2013 lease.

3. In addition to the respondent’s guarantee, as security for the lessee’s obligations under the 2013 lease, the applicant held a bank guarantee in the amount of $72,049.99 issued by Suncorp Bank at the request of the lessee (bank guarantee).

4. The applicant and the respondent subsequently entered into a new five year lease of the premises that commenced on 1 July 2018 and was due to end on 30 June 2023 (lease). There was no option to renew. The lease was again guaranteed by the respondent, and the lessee continued to operate a Hungry Jacks restaurant from the premises.

5. The applicant also continued to hold the bank guarantee as additional security for the lessee’s obligations under the lease.

6. From January 2022, the lessee started to fall behind in its rental payments due under the lease. Various invoices were subsequently issued by the lessor for monthly rent, and while some payments were made by the lessee, the outstanding rent continued to accrue.

7. On 14 September 2022, liquidators were appointed by court order to the lessee.

8. On 20 September 2022, the applicant’s solicitors, Baron & Associates, sent a letter of demand to respondent claiming an amount of $123,211.20 for rent said to be owed by the lessee and therefore owing by him pursuant to the personal guarantee he gave under the lease. The amount represented rent arrears between January and August 2022 after allowing for the full amount of the bank guarantee which at that time had not yet been called by the applicant.

9. The lessor re-entered the premises in late September 2022 and terminated the lease.

10. On about 17 May 2022 the applicant entered into a heads of agreement with Betty’s Burgers Australia Pty Ltd (Betty’s Burgers) to take a lease of the premises and the adjoining shop 5.

11. On about 26 September 2022, the applicant entered into a lease and incentive deed with Betty’s Burgers in respect of shops 5 and 6 (BBA lease and BBA incentive deed, respectively).

12. The BBA lease was for a term of 10 years, commencing on 26 September 2022 and terminating on 25 September 2032. There was an option to renew for another five years. Under the BBA incentive deed, Betty’s Burgers was entitled to an incentive amount of $400,000 plus GST, which was to be provided as a twelve month rent-free period from the date of commencement of the BBA lease.

13. In October 2022, the applicant’s solicitors, on behalf of the applicant, called on the bank guarantee and, on 31 October 2022, the applicant received $72,049.99 from Suncorp, which was the full amount of the guarantee.

14. Following an unsuccessful mediation, the applicant filed the application on 18 August 2023, which is now the subject of these proceedings.

Claim

15. The applicant says that as a result of the lessee’s failure to pay rent, the lessee repudiated the lease, entitling the applicant to terminate the lease. Further, the applicant says that it is entitled to recover from the respondent damages to the full extent of its loss on the basis that the respondent, as guarantor of the lessee’s obligations under the lease, is jointly and severally liable for all money owed by the lessee to the applicant.

16. The applicant claims $627,232.30 from the respondent. The amount is made up as follows:

Outstanding rent, inclusive of GST	$192,249.96
Rent for the remaining 10 months of the lease term had the lease not been terminated, inclusive of GST	$291,500.00
Cleaning and make good costs inclusive of GST	$29,040.00
Re-leasing costs inclusive of GST	$73,654.38
Interest up to 29 January 2024	$112,837.95
Less the bank guarantee proceeds	$72,049.99
Total claimed	$627,232.30

17. The applicant also claims from the respondent its costs of these proceedings.

Lease

18. In summary, these are the relevant provisions of the lease:

1. Reference schedule:

1. Item 1: The rent in year one of the lease was $250,000 plus GST.

2. Item 2: The rent is to be paid in equal monthly instalments on the first day of each month.

3. Item 3: The permitted use of the premises is “Takeaway food shop and restaurant.”

4. Item 6: the rent commencing 1 July 2021 was $289,000 and from 1 July 2022, $318,000, plus GST.

2. Clause 3.1: The lessee is required to pay rent in the amount set out in item 1 of the reference schedule and in the manner set out in item 2. By clause 13.1, the rent payable by the lessee is to be reviewed on each of the dates and to the amount set out in item 6.

3. Clause 3.2: The lessee is required to pay all cleaning costs in respect of the premises.

4. Clause 9.2: Prior to the determination of the lease, the lessee is required to remove its fixtures, fittings, plant and equipment that it has brought onto the premises, and restore the premises to the condition they are in prior to any alterations or additions carried out by the lessee, not cause any damage to the premises in doing so, and make good any damage caused.

5. Clause 11.1.1: The applicant is entitled to exercise any of the rights in clause 11.2 if any of the rent is in arrears or unpaid for a period of 14 days (whether or not formally demanded) and time is of the essence.

6. Clause 11.2: If there is an event specified in clause 11.1 (which includes the event specified in clause 11.1.1), the applicant may, without notice or demand, re-enter the premises, and in doing so, the lease will be automatically determined. The lessee will, however, remain liable for all rents due to the date of re-entry and for all other monies due under the lease.

7. Clause 11.4: If the lessee fails to pay any money which it is required to pay under lease, then the lessee is to pay to the applicant interest at the annual percentage rate equivalent to the prime overdraft rate for the time being applied by the Commonwealth Bank of Australia in respect of an overdraft limit in excess of $100,000 plus 2%, on monies due to the applicant on any account whatsoever pursuant to the lease and unpaid for 14 days.

8. Clause 12.5.1: The lessee agrees to pay to the applicant all reasonable legal costs and disbursements incurred by the applicant in connection with any breach of any of the terms of the lease by the lessee, and in connection with any proceedings for enforcement of the payment of rent or any other terms of the lease.

9. Clause 12.14.3: If rent due under the lease remains unpaid for more than fourteen days, after a formal demand has been made for payment, then that will, if the applicant elects (and the applicant will be deemed to have elected if it exercises a right of re-entry pursuant to clause 11.2), constitute a repudiation by the lessee of the lease entitling the applicant, without prejudice to any other rights it may have, to recover damages from the lessee for the full extent of its loss arising out of that repudiation.

10. Clause 12.16.1: The lessee acknowledges that if its conduct constitutes a repudiation of the lease or a breach of the lease, it agrees to compensate the applicant for any loss or damage suffered by reason of or arising out of the repudiation or breach.

11. Clause 12.18: The applicant is required to take reasonable steps to mitigate its loss and to endeavour to re-lease the premises at a reasonable rent and on reasonable terms.

12. Clause 12.19: In the event of the lease being terminated following any breach of a fundamental or essential term, the applicant is entitled to recover from the lessee the difference between the aggregate of the annual rent and other rents on monies payable by the lessee for the unexpired residue of the lease term, less any amount the applicant is able to obtain or could, in its reasonable opinion, reasonably be expected to obtain, by observing the provisions of clause 12.18.

13. Clause 18.1.1: The respondent jointly and severally and unconditionally guarantees to the applicant the payment, when demanded from him, all money that may become payable by the lessee to the applicant pursuant to the lease.

14. Clause 18.1.2: The respondent jointly and severally indemnifies the applicant and keeps it indemnified from and against all claims.

Jurisdiction

19. Item 3 of the reference schedule to the lease prescribes the permitted use of the premises as: “Takeaway food shop and restaurant.” The respondent operated a Hungry Jacks restaurant from the premises, a business that I accept falls within the use prescribed by the lease.

20. In order for the Tribunal to have jurisdiction to hear the applicant’s claim and make the orders that it is seeking, the lease must nevertheless come within section 3(1) of the Act, and, relevantly, be:

1. a lease under which a person grants to another person, for value, a right of occupation of premises for the purposes of using those premises as a retail shop;

2. used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses prescribed under clause 4 in Schedule 1 of the Retail Leases Regulation 2022 (RL Regulation). Included in the list of prescribed businesses found in the schedule are:

1. Restaurants, cafeterias, coffee lounges, food courts and other eating places; and

2. Takeaway food shops.

21. I am comfortably satisfied that the applicant granted the lessee the right to occupy the premises as a retail shop, and the lessee’s use of the premises fell within either or both of the descriptions to which I have referred in the preceding paragraph, being prescribed businesses set out in Schedule 1 of the RL Regulations. Accordingly, I find that I have jurisdiction under the Act to hear the application now before the Tribunal and make orders under the Act, including an order under section 72 (1).

Hearing

22. At the hearing, Mr Bateman, of counsel, appeared for the applicant. There was no appearance by or on behalf of the respondent.

23. The respondent briefly appeared at an online direction hearing on 19 September 2023 and then, according to the notes of the presiding Senior Member, he disappeared. The note goes on to say that efforts were made by the Tribunal and the solicitor for the applicant to call him (the note incorrectly records the solicitor as the respondent’s solicitor). He did not, however, appear again, and the directions hearing proceeded in his absence.

24. The Senior Member then made what I would describe as the standard orders requiring the parties to complete various interlocutory steps in preparation for the hearing. The written orders are set out in a letter from the Tribunal to the respondent dated 19 September 2023. The letter concludes by stating that a separate written notice of the new hearing date will be sent to the respondent in the near future.

25. The respondent has not actively participated in these proceedings since his fleeting appearance at the directions hearing. He has not filed points of defence, any affidavit evidence, or any other documents, and he did not attend the hearing before me on 29 January 2024.

26. At the commencement of the hearing, I asked the applicant’s instructing solicitor, Mr Palmer, to call the respondent’s name three times in the reception area outside the hearing room. Mr Palmer reported back that he complied with the request and there was no one in the reception area.

27. The application filed by the applicant commencing these proceedings contains a postal address for the respondent. It is the same address that is in the Tribunal’s Notice of Order dated 19 September 2023 that is addressed to the respondent. It is also the same address contained in the Notice of Hearing dated 29 September 2023 and addressed to the respondent. The notice specified the location, date and time for the hearing.

28. The respondent’s stated address in the application, notice of order, and notice of hearing was also the same address that was recorded for him in an ASIC search of the lessee dated 29 September 2023, a copy of which is contained in the exhibit to the affidavit of a Mr Jaff that has been filed on behalf of the applicant.

29. Based on the respondent’s brief appearance on 19 September 2023, I am comfortably satisfied that he had notice of the application filed with the Tribunal by the applicant that commenced these proceedings.

30. I am aware that it is the usual practice of the Tribunal to post notices to parties whose email addresses are not specified. No email address was specified for the respondent in any of the notices to which I have referred. There was also no indication in the Tribunal’s file that the notice of order and the notice of hearing had been returned unclaimed by Australia Post.

31. In the circumstances, I was satisfied that the respondent was aware of these proceedings brought by the applicant and that he had been given notice of the hearing before me on 29 January 2024.

32. I was also of the opinion that justice of the case required the hearing to proceed in the absence of the respondent having regard to the guiding principle in section 36 (1) of the Civil and Administrative Tribunal Act, 2013 (CAT Act), the respondent’s failure to comply with the Tribunal’s directions made on 19 September 2023 and his absence from the hearing, without explanation, despite having been given notice of it.

Applicant’s evidence

33. The applicant’s evidence consists of the following affidavits together with the documents that are exhibited or annexed to them:

1. Affidavit of Anthony Jaff sworn 24 October 2023 (Mr Jaff’s affidavit);

2. Affidavit of Clancy Heather Petersen sworn 22 January 2024 (Ms Petersen’s first affidavit); and

3. Affidavit of Clancy Heather Petersen sworn 29 January 2024 (Ms Petersen’s second affidavit).

34. Leave was given at the hearing for the filing of Ms Petersen’s second affidavit.

35. In his affidavit, Mr Jaff describes himself as the financial officer of the applicant and says he is authorised to make the affidavit on the applicant’s behalf. Mr Jaff resides in London. He was available at the hearing to give evidence by telephone but was not required.

36. Mr Jaff’s affidavit evidence was, unless otherwise stated by him, based on his own knowledge and on the basis of a review of the files and records maintained by the applicant, in particular the accounts and bank statements that were held on behalf of the applicant.

37. In summary, Mr Jaff gave the following unchallenged affidavit evidence that I consider to be relevant to the applicant’s claim, and which I accept:

1. The applicant and the lessee entered into the lease around 1 July 2018 and pursuant to the terms of the lease, the respondent was the named guarantor of the lessee’s obligations under the lease.

2. The bank guarantee that was provided in respect of the previous lease between the applicant and the lessee was to remain in place to secure the lessee’s obligations under the lease.

3. From around 1 July 2018, the lessee operated a Hungry Jacks restaurant from the premises.

4. On 21 December 2021, an invoice in the amount of $29,803.76 for the January 2022 rent plus an amount for land tax (said to be the difference between the land tax payable and the amount of land tax relief received by the applicant) was issued by the applicant to the lessee. The invoice included an amount of $2709.43 for GST. In March and April 2022, the lessee paid three amounts to the applicant totalling $25,000, leaving a balance owing under that invoice of $1491.67. A copy of the invoice is contained in the exhibit to Mr Jaff’s affidavit.

5. Between February and May 2022, the applicant issued five invoices to the lessee each in the amount of $26,491.66 inclusive of GST for the monthly rent in respect of the period February to June 2022, inclusive. A copy of each of the five invoices is in the exhibit to Mr Jaff’s affidavit. Those invoices remain outstanding.

6. During this time, that is, February to June 2022, Mr Jaff and the respondent corresponded by email about rent arrears and repayment arrangements.

7. On 3 May 2022, the applicant’s solicitors sent a letter of demand to the lessee and the respondent for $83,977.87 which was said to be the outstanding rent owing for the period January to April 2022. A copy of the letter is in exhibit to Mr Jaff’s affidavit.

8. In an email dated 5 May 2022 from the respondent to a Mr Steven Herring, one of the applicant’s directors, the respondent said this: “As discussed, unfortunately the business is non-viable and we are not in a position to continue to support it. Therefore we need/are obligated to look at our options.” The option proposed by the respondent was to trade until the end of the financial year, by which time, according to the respondent, the rent would be “cleared …. taking into account the bank guarantee” and leaving the lessee’s fitout said to be “worth $200,000-$300,000 to set up.”

9. The lessee ceased trading and vacated the premises in June 2022.

10. In the months of June and July 2022, the applicant issued two invoices to the lessee each in the amount of $29,150 inclusive of GST. These invoices were for the July and August 2022 rent. Copies of the two invoices, which are addressed to the lessee and to the respondent, are in the exhibit to Mr Jaff’s affidavit. The invoices remain outstanding.

11. A liquidator was appointed to the lessee on about 14 September 2022 and, on 20 September 2022, the applicant’s solicitors sent a letter to the respondent demanding payment of the outstanding rent and amount of $123,211.20 after allowing a credit for the bank guarantee, which had at that time not yet been called up.

12. In late September 2022, the applicant re-entered the premises.

1. About May 2022, not long after the respondent informed the applicant that the lessee’s business would no longer be supported, the applicant commenced taking steps to locate a new tenant for the premises. Around the same time, the applicant engaged Ray White Commercial Double Pty Ltd (Ray White) to market the premises. The Ray White campaign identified Betty’s Burgers as a potential lessee.

2. On 17 May 2022, the applicant entered into a heads of agreement with Betty’s Burgers with respect to the lease of shops 5 and 6 (heads of agreement). The heads of agreement were subsequently formalised when the applicant and Betty’s Burgers entered into the BBA lease on or about 26 September 2022. At the same time, they also entered into the BBA incentive deed.

3. The BBA lease is for a term of 10 years commencing 26 September 2022. It contains one option for a further five-year term. The base rent at the commencement date of the lease was $400,000 per year plus GST.

4. It is a condition of the BBA lease and a term of the heads of agreement that the applicant enter into the BBA incentive deed. The deed provides for Betty’s Burgers to be entitled to an incentive amount of $400,000 plus GST by way of a rent free period for 12 months from the date of commencement of the initial term of the BBA lease.

5. Based on his experience as a financial officer of the applicant and his six years in the commercial and retail leasing space, incentive deeds and rent incentives is a common practice, especially when dealing with larger and more sophisticated tenants like Betty’s Burgers, which is understood to have more than 50 stores across Australia.

6. The applicant almost always has a rental incentive component in its leases with new tenants. The incentive is to allow a new tenant who has incurred significant expenses and capital costs in setting up premises to start trading and receive revenue to manage upfront cash flow without being required to pay periodic and potentially sizeable rent straightaway.

7. According to a Mr Tolstan, an agent employed by Ray White:

1. The heads of agreement and BBA lease would not have been agreed to and entered into by Betty’s Burgers without the incentive deed.

2. During negotiations, the applicant offered shorter rental incentive periods of six and nine months, both of which were rejected by Betty’s Burgers.

3. It was appropriate and typical in the industry to offer a 12 month rental incentive for a lease of this type and for retail space the size of shops 5 and 6, and Betty’s Burgers would not agree to a lease without it.

20. Betty’s Burgers commenced paying rent on 2 October 2023.

21. As a consequence, the applicant has suffered loss and damage in the amount of $291,500 (inclusive of GST) which represents the monthly rent from 1 September 2022 to 30 June 2023 that would have been payable had the lease with the lessee not been terminated.

22. The applicant incurred leasing costs and legal fees associated with leasing the premises to Betty’s Burgers in the amount of $73,654.38. This consisted of legal costs of $7654.38, inclusive of GST, incurred with Baron & Associates, and agent fees incurred with Ray White of $66,000, inclusive of GST.

23. Copies of Baron & Associates two invoices and Ray White’s invoice are contained in the exhibit to Mr Jaff’s affidavit.

24. After the lease was terminated, the applicant, at its own cost, arranged for the cleaning of the premises and making good damage, including the removal of the lessee’s fixtures and fittings and other items in order to return the premises to a “cold shell.” The amount claimed for the cost of this work is $29,040. The work was undertaken by Abode Property & Trade Solutions (Abode Property), which issued an invoice to the applicant for $31,570, inclusive of GST. This was later reduced by $2530 for costs associated with an electricity data board.

25. A copy of the Abode Property invoice is contained in the exhibit to Mr Jaff’s affidavit.

26. The amount claimed for interest is recorded in a table prepared by the applicant’s solicitors, a copy of which is in the exhibit to Mr Jaff’s Affidavit.

27. About 31 October 2022, the applicant received $72,049.99 which was the proceeds of the lessee’s bank guarantee.

38. Ms Petersen’s two affidavits concerned the calculations of the applicant’s interest claim. Ms Petersen recalculated the interest claim up to and including 29 January 2024, the date of the hearing. The amount now claimed for interest by the applicant is $112,837.95.

Applicant’s submissions

39. Mr Bateman provided written submissions. In short, he says in support of its claim, the applicant relies on the reasons for orders annexed to the application filed with the Tribunal, in effect the applicant’s points of claim, and Mr Jaff’s affidavit evidence including the exhibit to his 24 October 2023 affidavit, to establish that the respondent jointly and severally and unconditionally guaranteed the payment of money that became payable by the lessee under the lease and is liable to the applicant in the amount of $627,232.30. I also understand from what Mr Bateman said at the hearing that the applicant also relies on Ms Petersen’s affidavits.

Issues

40. The following are the issues to be considered and determined:

1. Is the respondent the guarantor of the lessee’s obligations under the lease? (guarantee issue)

2. If the answer to the guarantee issue is yes, is the applicant entitled to an order that the respondent pay the applicant the amounts that have been claimed? (monetary claims issue)

Consideration

41. I will consider each of these issues in turn.

Consideration: Guarantee issue

42. Item 9 of the reference schedule to the lease identifies the respondent as the guarantor. The item then references clause 18.1 of the lease. That clause contains the guarantee obligations. In relevant part, the clause provides as follows:

1. Clause 18.1.1: The respondent jointly and severally agrees with the applicant to unconditionally guarantee to the applicant the payment when demanded from him “of every sum of money whatsoever that may become payable by the lessee to the lessor under or in accordance with or by virtue of or in consequence of this lease.”

2. Clause 18.1.2: The respondent jointly and severally agrees with the applicant to indemnify the applicant from all damages and expenses that arise out of or are in consequence of the lessee’s non-observance or non-performance by the lessee of the terms or conditions of the lease.

3. Clause 18.1.3: The guarantee and indemnity given by the respondent is a continuing guarantee and indemnity that remains in force as long as there are any monies payable by the lessee to the applicant.

43. Page 35 of the lease contains an execution block with two signatures. One I take to be the signature of the respondent. The other is the signature of a Ms Joanna Yu. Above her signature, in the execution block are these words: “I am an eligible witness and this dealing was signed in my presence by Andrew Charles Williams the guarantor was personally known to me.”

44. I am comfortably satisfied that the lease has been signed by the respondent in his capacity as guarantor of the obligations of the lessee and that, by reason of the provisions in clause 18.1 to which I have referred, I find that he has guaranteed to the applicant the obligations of the lessee under the lease and agreed to indemnify the applicant for any loss suffered by it as a consequence of the lessee’s breach of the lease.

Consideration: Monetary claims issues

45. The applicant makes the following monetary claims against the respondent:

1. Unpaid rent for the months of January to July 2022 in the amount of $192,249.96 (rent claim);

2. Damages in the amount of $291,500 for rent the applicant would have received for the balance of the lease term had not been terminated in September 2022 (lost rent claim);

3. make good and cleaning costs in the amount of $29,040.00 (make good claim);

4. re-leasing costs in the amount of $73,654.38 (re-leasing claim); and

5. interest in the amount of $112,837.95 up to 29 January 2024 (interest claim).

46. I will consider each of these claims in turn.

Rent claim

47. The applicant’s claim of $192,249.96, inclusive of GST, for outstanding rent is calculated as follows:

Six months’ rent for the period January to June 2022

$26,491.66 x 6

$158,949.96

Two months’ rent for the period July to August 2022

$29,150 x 2

$58,300.00

Less payment in January 2022

$25,000

Total

$192,249.96

48. Clause 3.1 of the lease makes it clear that the lessee had an express obligation to pay the monthly rent. It continued to pay the rent, at least up until December 2021. On the basis of the applicant’s evidence, I am comfortably satisfied that the lessee part paid the rent for January 2022 but then failed to pay the rent plus GST for the months of February to August 2022, inclusive, and the amount of $192,249.96 remains due and owing by the lessee.

49. I accordingly find that the respondent, as guarantor of the lessee’s obligations under the lease, is liable to the applicant in the amount of $192,249.96, inclusive of GST, for the outstanding rent for the period January to August 2022.

50. As the rent owed by the lessee is a taxable supply by the applicant for which the applicant is liable to remit GST, it is entitled to also recover from the respondent, as guarantor, the GST component of the rent claim.

Lost rent claim

51. In its reasons for orders annexed to the application filed with the Tribunal, in effect the applicant’s points of claim, it pleads that having terminated the lease by reason of the lessee’s breach for non-payment of rent, it is entitled to damages to be assessed on the basis that it has observed its obligations to mitigate damages.

52. I am comfortably satisfied, on the evidence of Mr Jaff, that the lessee failed to pay the rent for the months of January to August 2022 when due, in breach of a fundamental term of the lease and thereby repudiating the lease. The applicant was therefore entitled, pursuant to clause 11.2 of the lease, to re-enter the premises in late September 2022, which it did, and terminate the lease.

53. I am also comfortably satisfied that, by reason of clause 12.16 of the lease, the lessee covenanted with the applicant to compensate it for any loss or damage suffered as a consequence of any conduct on the part of the lessee constituting a repudiation of the lease.

54. Clause 12.18 of the lease contains an express obligation on the part of the applicant to mitigate its loss.

55. The applicant pleads that in or around May 2022, in accordance with its obligations to mitigate its loss or damage, it identified a potential lessee, namely Betty’s Burgers, and entered into the BBA lease pursuant to which Betty’s Burgers was entitled to an incentive amount of $400,000 plus GST as a rent free period for 12 months from the date of commencement of the Betty’s Burgers lease.

56. As a consequence of this rent incentive provided to Betty’s Burgers, the applicant’s lost rent claim, made pursuant to clause 12.19 of the lease, is for the entire amount of the rent the lessee would have paid for remaining 10 months of the lease term from 26 September 2022 to 30 June 2023 had the lease not been terminated due to the lessee’s breach. The amount of $291,500 claimed is equivalent to 10 months’ rent at $29,150 per month, inclusive of GST.

57. The applicant contends that in entering into the BBA lease, it has satisfied its obligation to mitigate the loss that it has suffered as a result of the lessee’s breach of the lease.

58. There are two unusual aspects to this contention that are cause for some hesitation on my part, at least initially.

59. First, the BBA lease and BBA incentive deed provide that no rent is payable by Betty’s Burgers during the first year of the lease. This has meant that despite re-leasing the premises shortly after the subject lease in these proceedings was terminated, the applicant received no rent from the incoming lessee by way of offset against the loss that it suffered by reason of the lessee’s default as a consequence of its lease being terminated.

60. Second, the BBA lease is for a term of 10 years with an option for a further five years. This lease would appear to be far more commercially advantageous or beneficial to the applicant, such that it might be willing to forego the first year’s rent to secure the lease without considering other possible options including, for example, amortising the rent free period over some or all of the remaining nine years of the lease term. There is no evidence that this was ever considered by the applicant or put to Betty’s Burgers.

61. I have not been referred to any authorities nor have I found any authorities where facts similar to those here have been considered on the question of mitigation. I propose, therefore, to fall back on general mitigation principles to be applied where a lease has been determined owing to the lessee’s repudiatory conduct.

62. Professor Brendan Edgeworth in Butt’s Land Law (7th edition), says this about the obligation to mitigate:

“[7.1630] Where the landlord has terminated for the tenant’s repudiation, the landlord must take reasonable steps to mitigate the loss – for example, by attempting to find another tenant. The landlord is not entitled to a double benefit which would accrue if after termination he could get compensation for the unexpired term as well as rent from re-letting the premises. If the landlord fails to mitigate, the damages will be reduced by the amount that the landlord would have received if it had taken reasonable steps to mitigate. The onus is on the landlord to establish loss, and the tenant to show that the landlord has failed to mitigate that loss and to what extent. The standard of mitigation is not a high one; the landlord is not obliged to do anything other than in the ordinary course of business.”

63. One of the cases relied upon by Prof Edgeworth in the above passage is Karacominakis v Big Country Developments Pty Ltd & Big Country Developments Pty Ltd v Chadlace Pty Ltd & Ors J W Wall Investment Co Pty Ltd & Ors v Big Country Developments Pty Ltd & Ors Hollingsworth & v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313 (Karacominakis). On the question of mitigation, Giles JA said this:

“[187] A plaintiff who acts unreasonably in failing to minimise his loss from the defendant’s breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130). Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did (Banco de Portugal v Waterlow and Sons Ltd [1932] UKHL 1; (1932) AC 452; Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5).”

64. The applicant’s evidence, given by Mr Jaff, is that despite the applicant’s efforts, it was not possible to secure a lease with Betty’s Burgers on terms other than a lease that provided for no rent being paid in the first year of the lease. The evidentiary bar the applicant is required to overcome is relatively low. As Giles JA said in Karacominakis, a high standard of conduct is not required on the part of a lessor to minimise its loss.

65. In the absence of any evidence from the respondent, upon whom the onus rested to show that the applicant had not fulfilled its duty to mitigate, I accept the applicant’s evidence and find that the applicant has not acted unreasonably in its efforts to mitigate the loss that it suffered as a consequence of the lessee’s breach of the lease. This is despite the fact that no rent was received from Betty’s Burgers which could be offset against the damage it suffered as a consequence of the lessee’s breach of the lease, or that the applicant was able to secure what appears to be a more commercially advantageous lease for the premises.

66. The applicant is accordingly entitled to recover the damage suffered as a result of not receiving rent from the lessee for the ten month period following the termination of the lease.

67. The applicant has, however, claimed an amount of $291,500 in damages which is inclusive of GST for that 10 month period. A claim for liquidated damages is not, however, a taxable supply attracting GST. The applicant is entitled to the GST exclusive amount of $264,545.45 in damages, the amount to be paid by the respondent pursuant to his obligation under the lease as the lessee’s guarantor.

Make good claim

68. The applicant’s make good claim in the amount of $29,040 inclusive of GST is for work undertaken by Abode Property.

69. The lessee was obligated under the lease to pay the costs of cleaning the premises (clause 3.2) and, prior to vacating the premises, remove its fixtures and fittings and not cause any damage in doing so, and make good any damage caused (clause 9.2).

70. In his affidavit, Mr Jaff says that the applicant carried out, at its own cost, the cleaning and making good of the premises. He says that included the removal of the lessee’s fixtures, fittings, plant and equipment in order to return the premises to a cold shell.

71. The Abode Property invoice is for $31,570 inclusive of GST, but Mr Jaff says this was reduced by $2530, for works associated with an electricity data board. This leaves an amount claimed of $29,040 which is assumed to be inclusive of GST.

72. A copy of the Abode Property invoice, which is dated 14 September 2022 with a due date of 15 September 2022, is included in the exhibit to Mr Jaff’s affidavit. The invoice is not very illuminating as to the work undertaken by Abode Property. It gives the address 152 Campbell Parade, Bondi Beach and then simply describes the service provided by Abode Property as demolishing the premises “to (a) cold shell.” No other documentation is provided to expand on what that entailed.

73. Despite the paucity of information in the Abode Property invoice, I am nevertheless comfortably satisfied on the basis of Mr Jaff’s affidavit evidence and the invoice that make good work was carried out by Abode Property as a consequence of the lessee’s failure to properly clean the premises and comply with its make good obligations under the lease.

74. I accordingly find that the respondent is liable to the applicant pursuant to his personal guarantee for the costs incurred by the applicant with Abode Property. As GST is not recoverable in a liquidated damages claim, the amount for which the respondent is ultimately liable to the applicant is the GST exclusive amount of $26,400 for cleaning and make good costs.

Re-leasing claim

75. The applicant claims the amount of $73,654.38 said to be the costs incurred in re-leasing the premises to Betty’s Burgers. This amount is calculated as follows:

Agent’s fees: Ray White	$66,000
Legal costs: Baron & Associates	$7654.38
Total	$73,654.38

76. The amount claimed is inclusive of GST.

77. Included in the exhibit to Mr Jaff’s affidavit are two invoices issued to the applicant by Baron & Associates. One invoice, dated 7 July 2022, is for $3100.54, inclusive of GST. The second invoice from the applicant’s solicitors is dated 19 September 2022 and is for $4553.84, also inclusive of GST. Both invoices give the subject heading “Heriot Pty Ltd Lease to Betty’s Burgers Australia Pty Ltd Shops 5 and 6/152-162 Campbell Parade…” and describes the work involved in preparing and negotiating the lease documentation.

76. Also in the exhibit to Mr Jaff’s affidavit is an invoice dated 15 September 2022 issued by Ray White to the applicant. The invoice is for the fees charged by the agent to re-lease the premises. The invoice describes a leasing fee as 15% plus GST of the $400,000 annual gross rent of the BBA lease, which comes to $66,000 inclusive of GST

77. I am comfortably satisfied that these invoices are for work involved in the re-leasing of the premises as a consequence of the lessee’s repudiation of the lease and constitute additional damage suffered by the applicant. The respondent, as guarantor of the lessee’s obligations under the lease, is liable to the applicant for the damage it suffered.

78. However, as was the case with other liquidated damages claims that have been made by the applicant, GST is not recoverable in respect of the invoices issued by the applicant’s solicitors and the agent. The GST exclusive amount for which the respondent is liable to the applicant is $66,958.57 made up as follows:

Baron & Associates invoice dated 7 July 2022	$2818.69
Baron & Associates invoice dated 15 September 2022	$4139.88
Ray White Commercial	$60,000
Total	$66,958.57

Interest claim

81. The applicant claims interest totalling $112,837.95 pursuant to clause 11.4 of the lease. The clause reads as follows:

“If the Lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay or to do or effect then on each and every such occasion it shall be lawful for but not obligatory upon the Lessor, and without prejudice to any rights or powers arising from such default, to pay such money or to do or effect such thing by itself as if it were the Lessee and for that purpose the Lessor may enter upon the demised premises and there remain for the purpose of doing or effecting any such thing AND without prejudice to the rights powers and remedies of the Lessor otherwise under this Lease, the Lessee will pay to the Lessor interest at the annual percentage rate equivalent to the prime overdraft rate for the time being applied by the Commonwealth Bank of Australia (hereinafter called “the Bank”) or its successors in respect of an overdraft limit in excess of One Hundred Thousand Dollars ($100,000) (or in the event of the Bank ceasing to quote such a rate then such a rate as in the opinion of the Bank is equivalent thereto in respect of similar overdraft accommodation afforded to prime borrowers) plus two per centum (2%) on any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for fourteen (14) days, such interest to be computed from the due date for the payment of the moneys in respect of which the interest is chargeable until payment of such moneys in full and be recoverable in like manner as rent in arrears.”

82. In his affidavit, Mr Jaff deposes to having instructed the applicant solicitors to prepare a table of interest calculations in accordance with clause 11.4. That table is contained in the exhibit to his affidavit. In the exhibit is a document Mr Jaff believes contains the Commonwealth Bank of Australia overdraft index rate. It records only one overdraft interest rate and is undated. Mr Jaff says he was informed by Baron & Associates that the document was obtained from the bank’s website.

83. Also included in the exhibit to Mr Jaff’s affidavit is an email dated 4 August 2023 sent to Ms Petersen from a person by the name of “Long” in business banking at the Commonwealth Bank. The email sets out what are said to be the historical base rates on the bank’s business overdraft from January to December 2022. Mr Jaff says these rates were used by the applicant’s solicitors to calculate the interest owed as set out in the table.

84. In her first affidavit, Ms Petersen, a paralegal employed by Baron & Associates, says that one of her tasks was to prepare the above-mentioned table of interest referred to in Mr Jaff’s affidavit. Ms Petersen updated the table to reflect interest owing up to and including 29 January 2024, the date of the hearing. She annexed a copy of the updated table to her affidavit and confirmed that the total amount of interest claimed by the applicant is $112,837.95.

85. Annexed to Ms Petersen’s second affidavit is an email dated 7 August 2023 again from “Long” at the Commonwealth Bank. The email contains a slightly different list of the bank’s historical business overdraft rates. This difference appears due to the rates described in the email being for the period April 2020 to June 2023. Ms Petersen says she used those rates to calculate the interest claimed which appears in the updated interest table. The table also records that 2% has been added to the interest rate. This accords with the rate of interest prescribed by clause 11.4 of the lease.

86. The updated interest table sets out in detail Ms Petersen’s separate calculations for the rent claim, the lost rent claim, the make good claim and the re-leasing costs claim.

87. On the outstanding rent claim of $192,249.96, simple interest of $42,520.76 has been calculated on each month’s rent that is unpaid, commencing from 2 January 2022 through to 29 January 2024.

88. On the make good claim of $29,040, simple interest of $5289.35 has been calculated on that amount from 15 September 2022, which is the due date of the invoice from Abode Property, up to 29 January 2024.

89. On the re-leasing costs claim of $73,654.38, interest of $12,982.08 has been calculated on that amount from 3 October 2022 up to and including 29 January 2024. The 3 October 2022 date is the due date of the tax invoice issued by the applicant’s solicitors on 19 September 2022 and postdates both the solicitors’ first invoice and the Ray White invoice.

90. On the lost rent claim of $291,500, interest of $52,045.77 has been calculated on that amount from 26 September 2022, the date the applicant entered into the BBA lease, to 29 January 2024

91. I am comfortably satisfied on the evidence presented and therefore accept that, in each case, interest has been calculated in accordance with the rates prescribed by clause 11.4 of the lease.

92. It does not, however, automatically follow that in each instance there will be a finding that the applicant is entitled to the total amount of interest claimed. This is because for all but one of the monetary claims, interest has been calculated on GST inclusive amounts when GST is not in fact recoverable from the respondent.

93. In relation to the outstanding rent claim, I have found that the GST component of the claim is recoverable from the respondent because the claim is a taxable supply for which the applicant is liable to remit GST. The applicant is therefore entitled to interest of $42,520.76, as calculated by Ms Peterson on the amount of $192,249.96 with the result that the respondent is liable for the sum total, which comes to $234,770.72.

94. The amounts of each of the make good, re-leasing and lost rent claims for which the respondent has been found liable, are GST exclusive. This has meant that the interest calculation in respect of each of those claims is incorrect, having been calculated on principle amounts inflated by GST.

95. I am also unable to accept the applicant’s entitlement to interest in respect of the make good, re-leasing claim and lost rent claims for the period prior to the commencement of proceedings. The obligation to pay interest pursuant to clause 11.4 arises “on any account whatsoever pursuant to [the] Lease but unpaid for 14 days…”. As a matter of construction, I am of the view that for the clause to be triggered, it was necessary for there first to have been a demand made for the amounts claimed. While the applicant’s solicitors made demands for unpaid rent on 3 May and 20 September 2022, there is no evidence of any demand having been made by them or the applicant for make good costs, re-leasing costs or lost rent prior to the commencement of proceedings.

96. In my view, the commencement of these proceedings by the applicant for the make good, re-leasing and lost rent claims and the service of the application on the respondent amounted to a demand for payment for each of those claims, thereby triggering an entitlement to claim interest on the expiration of 14 days. The applicant is therefore only entitled to interest from the commencement of these proceedings up to and including 29 January 2024, at the rate prescribed in clause 11.4 of the lease.

97. In case it becomes relevant, had I been required to exercise my discretion in relation to an entitlement to interest on each of the three claims pursuant to section 72A of the Act, I would have declined to award interest prior to the date these proceedings commenced. This is because it would, in my view, be unfair for the applicant to be entitled to (or the respondent to be liable for) interest on amounts said to be owing but in respect of which no demand was made so as to bring the claims to the attention of the respondent. On the evidence presented, that did not happen until these proceedings commenced.

98. I do not propose to reject the entirety of the applicant’s interest claim. An order will be made directing the applicant to prepare fresh calculations, supported by an affidavit and reflecting what I have said regarding the applicant’s entitlement to interest. Final orders will then be made.

Costs

99. The applicant seeks an order for costs against the respondent.

100. These proceedings were commenced in the Tribunal’s Consumer and Commercial Division for an amount exceeding $30,000. Rule 38 of Civil and Administrative Tribunal Rules 2014 therefore applies. That rule provides that, despite section 60 of the CAT Act, the Tribunal may award costs to which the rule applies even in the absence of special circumstances warranting an award of costs.

101. In my view, it is appropriate, given the outcome of the applicant’s claim, that costs should follow the event. When final orders are made, an order for costs will be made in favour of the applicant.

102. For completeness, I would add that the applicant is also entitled to a cost order by reason of clause 12.5.1 of the lease, the respondent having been found liable for damages suffered by the applicant as a result of the lessee’s breaches of the lease.

Conclusion

103. The applicant has been successful in its claim against the respondent.

104. The respondent has been found liable to pay the applicant the following:

1. $234,770.72 inclusive of interest for the rent claim;

2. $264,545.45 for the lost rent claim;

3. $26,400 for the make good claim;

4. $66,958.57 for the re-leasing claim; and

5. Interest on the amounts in (2) to (4) above at the rate prescribed by clause 11.4 of the lease from the commencement of these proceedings to 29 January 2024

less the bank guarantee proceeds of $72,049.99

105. The applicant is also entitled to an order for costs.

106. Final orders will be made following the filing of an affidavit detailing interest calculations on make good claim, re-leasing claim and unpaid rent claim in accordance with these reasons.

Orders

107. These are the orders of the Tribunal:

1. Within seven (7) days, the applicant file and serve an affidavit setting out interest calculations on the make good claim, re-leasing claim and unpaid rent claim at the rate prescribed by clause 11.4 of the lease from the commencement of these proceedings to 29 January 2024.

2. Upon the filing of the affidavit, final orders will be made on the papers as permitted by section 50(2) of the Civil and Administrative Tribunal Act 2013, unless persuaded that there should be oral submissions.

3. Costs are reserved.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 29 November 2024