Hosanna Excelsis One Universal Church Incorporated v Pastina Pty Ltd - [2020] SASCFC 110

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INCORPORATED v PASTINA PTY LTD
[2020] SASCFC 110
Judgment of The Full Court
(The Honourable Justice Kelly, The Honourable Justice Peek and The Honourable Justice Blue)
25 November 2020
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - DURATION - HOLDING OVER AFTER EXPIRATION OF TERM
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - DEFINITIONS - RETAIL SHOP LEASE OR LEASE
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - OBLIGATIONS, PROHIBITED TERMS AND PROTECTION FOR LESSEES - MINIMUM TERM OF LEASE AND RENEWAL OF TERM
Appeal against judgment by a District Court Judge in favour of the respondent for rent and outgoings for the balance of the term of a lease by virtue of section 20B of the Retail and Commercial Leases Act 1995 (SA).
In September 2010 the parties executed an addendum to an earlier memorandum of lease by reason of which the leased premises became a “retail shop”, and their lease agreement became a "retail shop lease", within the definition of the Act. The retail shop lease complied with subsection 20B(1) of the Act because the combined initial term and optional renewal term exceeded the required term of five years.
In May 2015, upon the expiration of the initial term and in the absence of the appellant’s exercise of the option to renew, a monthly tenancy arose pursuant to clause 4.8 of the memorandum of lease.
In October 2017 the appellant vacated the premises after having given one month’s notice.
The respondent contended that in May 2015 the parties entered into a holding over lease and that section 20B operated on that holding over lease to extend its term to five years from May 2015. The appellant contended amongst other things that section 20B did not operate on the holding over lease and in the alternative the exception in subsection 20B(3)(b) (which excludes the application of section 20B to holding over leases for the first six months) applied between May and October 2015 and the exception in subsection 20B(3)(d) (which excludes the application of section 20B if the lessee has been in possession of the premises for five years) applied from November 2015 onwards.
A Judge of the District Court upheld the respondent’s contentions and its claim.
The appellant appeals on two sets of grounds:
1 The Judge erred in holding that the holding over by it gave rise to a new lease for the purposes of section 20B, which new lease was required by subsection (1) to be for a term of at least five years and was extended by subsection (2) to five years.
2 Alternatively, the Judge erred in holding that the application of section 20B(3)(d) was to be assessed at the commencement of the holding over and not upon the expiry of the six months referred to in section 20B(3)(b).
Held by Blue J (Kelly and Peek J agreeing) allowing the appeal:
1 The Judge erred in holding that the application of section 20B(3)(d) is to be be assessed at the commencement of the holding over and not upon the expiry of the six months referred to in section 20B(3)(b) (at [88]).
2. It not necessary or desirable to decide the other grounds of appeal (at [92]).
3. Appeal allowed; judgment set aside; the parties to be heard on the terms of the judgment to be entered in favour of the appellant and costs (at [93]).
Retail and Commercial Leases Act 1995 (SA) ss 3(1), 4, 6, 20A, 20B, 20K, referred to.
NZI Insurance Australia Ltd v Baryzcka (2003) 85 SASR 497, considered.

HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INCORPORATED v PASTINA PTY LTD
[2020] SASCFC 110
Full Court: Kelly, Peek and Blue JJ

KELLY J: I agree with the orders proposed by Blue J and with his Honour’s reasons.
PEEK J: I agree with the orders proposed by Blue J and with his reasons.
BLUE J: The appellant, Hosanna Excelsis One Universal Church Incorporated (Hosanna), appeals against a judgment granted by a District Court Judge in favour of the respondent, Pastina Pty Ltd (Pastina), for $430,740.18 for rent and outgoings (and interest thereon) for the balance of the term of a lease by virtue of section 20B of the Retail and Commercial Leases Act 1995 (SA) (the Act).
In September 2010 the parties executed an addendum to an earlier memorandum of lease by reason of which the leased premises became a “retail shop”, and their lease agreement became a “retail shop lease”, within the definition of the Act. The retail shop lease complied with subsection 20B(1) of the Act because the combined initial term (just over four years and seven months) and the optional renewal term (five years) exceeded the term of five years required by that subsection.
In May 2015, upon the expiration of the initial term and in the absence of Hosanna’s exercise of the option to renew, a monthly tenancy arose pursuant to clause 4.8 of the memorandum of lease.
In October 2017 Hosanna vacated the premises after having given one month’s notice as required by clause 4.8 of the memorandum of lease.
Pastina contended that in May 2015 the parties entered into a holding over lease and that section 20B operated on that holding over lease to extend its term to five years from May 2015. Hosanna contended amongst other things that section 20B did not operate on the holding over lease and in the alternative the exception in subsection 20B(3)(b) (which excludes the application of section 20B to holding over leases for the first six months) applied between May and October 2015 and the exception in subsection 20B(3)(d) (which excludes the application of section 20B if the lessee has been in possession of the premises for five years) applied from November 2015 onwards.
Pastina issued a claim for rent and outgoings between October 2017 and April 2020. Hosanna issued a counterclaim for duplicated rent payments, tax payments and its security bond.
A Judge of the District Court upheld Pastina’s contentions and its claim, and awarded judgment for the net amount of Pastina’s claim.
Hosanna appeals against the judgment on two sets of grounds which may be summarised as:
1The Judge erred in holding that the holding over by Hosanna gave rise to a new lease for the purposes of section 20B, which new lease was required by subsection (1) to be for a term of at least five years and was extended by subsection (2) to five years.
2Alternatively, the Judge erred in holding that the application of section 20B(3)(d) was to be assessed at the commencement of the holding over and not upon the expiry of the six months referred to in section 20B(3)(b).
Background
On 1 May 2010 the parties executed a Memorandum of Lease (the Original Memorandum of Lease) in respect of the Demised Premises, which were defined to comprise the rear half of the ground floor[1] and the whole of the first floor (collectively Area 1) of premises at 278 South Terrace, Adelaide. The initial term (the Initial Term) of the Lease was five years from 1 May 2010 to 30 April 2015, together with one right of renewal of five years (the Renewed Term) if the option was exercised. Clause 4.8 provided for a monthly lease on a holding over after the expiration of the Initial Term and any Renewed Term.
[1] As depicted in a map contained in an annexure to the Memorandum of Lease. The area of the rear half of the ground floor was approximately, rather than exactly, half of the total area of the ground floor.
Clause 2 contained covenants by the lessee, which were expressed to apply:
throughout the continuance of the Term and any extended or renewed term and any period during which the Lessee holds over or remains as tenant or is otherwise in occupation of the Demised Premises.
Clause 2 included a covenant (clause 2.1) to pay rent, with the initial rental being $70,000[2] per annum and the rent being subject to annual rent reviews (four per cent increases each year) and a review to current market rent with effect on 1 May 2015.
[2] All dollar figures referred to herein exclude GST unless otherwise stated.
Clause 2 also included a covenant (clause 2.11) not to use the Demised Premises otherwise than for the Permitted Use, which was defined as “Community Church and Education” but excluding retail sale of goods, or provision of services, to the public.
Clause 4.8 provided:
4.8Holding Over
4.8.1 Subject to the next sentence, if the Lessee continues to occupy the Demised Premises after the expiration of the Term or any renewed term (‘the Expiry Date’) with the Lessor’s approval, it does so under a tenancy for a fixed term of one month and then from month to month which either party may terminate upon one month’s notice ending on any day. If the Lessee has a right of preference under section 20D of the Retail and Commercial Leases Act 1995 to a new lease and negotiations under section 20E of the Retail and Commercial Leases Act 1995 result in a new lease commencing the day following the Expiry Day or on some later day, the preceding sentence will not apply for the period when the new lease commences;
4.8.2 Subject to clause 4.8.1 the monthly tenancy is on the same terms as this Lease including in relation to payment of rent and outgoings except:
(a)rent will be varied on the first day of the first monthly tenancy in the same manner that the rent was reviewed at the commencement of the last year immediately before the Expiry date;
(b)for those changes which are necessary to make this Lease appropriate for a monthly tenancy; or
(c)for those changes which the Lessor requires as a condition of giving its approval to the holding over;
Clause 4.8 is ambiguous. It might be regarded as creating a monthly tenancy commencing as soon as the Lessee continues in occupation with the Lessor’s approval; that is, the “tenancy for a fixed term of one month” is merely the first month of the monthly tenancy. On this construction, a monthly tenancy commenced on the facts of this case on 1 May 2015. Alternatively, clause 4.8 might be regarded as creating a tenancy for one month commencing as soon as the Lessee continues in occupation with the Lessor’s approval; and then creating a separate and different monthly tenancy commencing at the expiration of the first month. On this construction, a monthly tenancy commenced on the facts of this case on 1 June 2015.
The former construction is the better construction. First, a monthly tenancy can be accurately described as “a tenancy for a fixed term of one month and then from month to month which either party may terminate upon one month’s notice”. Secondly, clause 4.8.2 only applies to “the monthly tenancy” such that, on the latter construction, the Memorandum of Lease would not identify the terms of the tenancy for the first month. Thirdly, on the latter construction, it may be expected that the monthly tenancy, commencing at the end of the first month, would only be triggered if the tenant remained in occupation at the end of the first month with the Lessor’s approval, but there is no such provision in clause 4.8.1. Fourthly, the former construction accords with the common law concept of a holding over tenancy, which clause 4.8 apparently attempts to replicate.
For reasons that will appear, the outcome of the appeal does not turn on whether the monthly tenancy under clause 4.8 commenced on 1 May 2015 or 1 June 2015.
It is common ground that the Act did not apply to the lease the subject of the Original Memorandum of Lease because the Demised Premises did not comprise a “retail shop” as defined by subsection 3(1) of the Act.
On 25 September 2010 the parties executed an Addendum to Lease (the Addendum), which varied the terms of the Original Memorandum of Lease. I refer to the Original Memorandum of Lease as varied by the Addendum as the Memorandum of Lease. The Addendum recited that the parties desired to incorporate the remainder of the ground floor, being the front half with a frontage to South Terrace, (Area 2) within the Memorandum of Lease. The Addendum provided that:
·the commencement date for the incorporation of Area 2 into the Memorandum of Lease was to be 20 September 2010;
·the initial rental (up to 30 April 2011) for Area 2 was to be $45,000 per annum;[3]
·the rental for Area 2 was to be subject to annual review in accordance with the terms of the Original Memorandum of Lease;
·the Term of the Lease, and any rights to extend it, as they applied to Area 2, were to be the same as those that applied for the balance of the Term as contained in the Original Memorandum of Lease for Area 1;
·otherwise, the terms and conditions contained in the Original Memorandum of Lease were to apply to Area 2 as though they formed part of the Leased Premises and were included in the Memorandum of Lease from its Commencement Date.
[3] There was to be an initial rent-free period until 31 December 2010, but this was to be disregarded when calculating any subsequent rent review.
Unlike the Original Memorandum of Lease (which was drafted by Pastina’s solicitors), the Addendum was drafted by its land agents and was ambiguous in several respects. In particular, it was ambiguous whether there were now two separate demises of Area 1 and Area 2 under the Memorandum of Lease or a single demise of the combined area. However, it is common ground on appeal that there was a single demise of the combined area and I proceed on that basis.
It is not clear from the Agreed Facts as to the precise date on which Hosanna took possession of Area 2 pursuant to the Addendum. I proceed on the basis that it was on 25 September 2010.
It was in dispute at trial whether, following execution of the Addendum, the Demised Premises were used for the sale of goods to the public by retail and thereby comprised a “retail shop”, and hence the lease the subject of the Memorandum of Lease comprised a “retail shop lease”, within the meaning of subsection 3(1) of the Act. The Judge decided this issue in favour of Pastina and there is no challenge to that decision on appeal. However, it is common ground that section 20B did not affect the term of the lease the subject of the Memorandum of Lease because the combined residue of the Initial Term (just over four years and seven months) and the Renewed Term if exercised (a further five years) exceeded the period of five years referred to in subsection 20B(1).
On 30 April 2015 the Initial Term expired without Hosanna having exercised the option to renew. However, Hosanna remained in occupation of the Demised Premises with the consent of Pastina and continued to pay rent in accordance with the terms of the Memorandum of Lease. The provisions of clause 4.8 of the Memorandum of Lease therefore applied.
Between 30 April 2015 and 21 September 2017 there was no communication between the parties relevant to expiry, continuation, termination, renewal or extension of the Memorandum of Lease.
On 21 September 2017 Hosanna wrote a letter to Pastina giving 30 days’ notice of intention to vacate the premises.
On 29 September 2017 Pastina sent an email to Hosanna saying amongst other things “This has come as a great surprise to us as we thought you still had another 3 years on your 5 + 5 lease and also we thought that the Church was very happy at this location”.
On 9 October 2017 Pastina’s solicitors wrote to Hosanna contending that, by virtue of Hosanna, with the consent of Pastina, holding over for longer than six months, section 20B of the Act had resulted in the renewal of the lease for a further five year term commencing on 1 May 2015. They contended that Pastina was not entitled in the circumstances to vacate the premises on 21 October 2017.
On 21 October 2017 Hosanna vacated the premises.
On 4 December 2017 Pastina’s solicitors wrote a letter to Hosanna giving notice that it terminated the lease and claimed damages.
On 2 March 2018 Pastina issued a claim in the Magistrates Court for rent and outgoings from 21 October 2017 to 30 April 2020 totalling $424,895; costs of repair/repainting totalling $60,025; less the security bond of $38,500; plus interest.
On 11 April 2018. Hosanna issued a counterclaim in the Magistrates Court for duplicated payments of rent and outgoings totalling $35,758; recovery of land tax payments totalling $28,500; and the security bond of $38,500.
Hosanna applied for the summary dismissal of Pastina’s principal claim for rent and outgoings on the ground that, on its proper construction, section 20B of the Act had not resulted in the renewal of the lease for a further five year term commencing on 1 May 2015. A Magistrate accepted Hosanna’s construction of section 20B and summarily dismissed the rent and outgoings claim by Pastina.
Pastina appealed to the Supreme Court against the Magistrate’s decision on the ground that its rent and outgoings claim was reasonably arguable and the Magistrate erred in granting summary judgment. A Judge of this Court allowed the appeal and set aside the summary dismissal order.[4] The Judge concluded that Pastina’s claim was sufficiently arguable to prevent summary judgment being awarded. The Judge expressed his reasons in terms of accepting Pastina’s propositions concerning the construction of section 20B but, in context, the Judge could only have decided that those propositions were sufficiently arguable to prevent summary dismissal.
[4] Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc [2019] SASC 18, (2019) 132 SASR 421.
The proceeding was subsequently transferred to the District Court because the claim and counterclaim each exceeded $100,000, being the monetary limit of the jurisdiction of the Magistrates Court.
The legislative regime
The Act was amended by the Retail and Commercial Leases (Miscellaneous) Amendment Act 2019 (SA), which came into force on 1 July 2020. The summary below is of the Act in force at the material times and in particular as at 2015 (before the 2020 amendments). For ease of reference, I refer to the Act in its form before 1 July 2020 in the present tense.
The Act applies, subject to defined exclusions, to a retail shop lease if the leased premises consist of a retail shop or a retail shop together with an adjacent dwelling.
Section 4 provides:[5]
[5] Section 4 was extensively amended in 2020 including to extend the exceptions to the application of the Act.
4—Application of Act
(1)This Act applies to a retail shop lease if the premises to which the lease applies consist of a retail shop or a retail shop together with an adjacent dwelling.
(2)     However, this Act does not apply to a retail shop lease if—
(a)     the rent payable under the lease exceeds $250 000 per annum or, if a greater amount is prescribed by regulation, that other amount; or
(ab)   the lease is for a term of 1 month or less; or
(b)     the right of occupation arises under—
(i)    an agreement for the sale and purchase of premises; or
(ii)     a mortgage; or
(iii)a scheme under which a group of adjacent premises is owned by a company and the premises comprising the group are let by the company to persons who jointly have a controlling interest in the company; or
(c)     the lessee is—
(i)    a public company or a subsidiary of a public company; or
(ii)     an ADI; or
(iii)a body corporate authorised by law to carry on the business of insurance; or
(iv)the Crown or an agency or instrumentality of the Crown in right of the State, another State or Territory, or the Commonwealth; or
(v)a municipal or district council or other authority with powers and functions of local government.
(3)The regulations may exclude from the application of this Act (either conditionally or unconditionally) a specified class of retail shop leases.

Subsection 3(1) defines “retail shop” in the following terms:
retail shop means—
(a)     business premises—
(i)    at which goods are sold to the public by retail; or
(ii)     at which services are provided to the public, or to which the public is invited to negotiate for the supply of services; or
(b)     business premises classified by regulation as premises to which this Act applies,
but does not include business premises of a class excluded by regulation from the ambit of this definition;
and “retail shop lease” in the following terms:
retail shop lease or lease means an agreement under which a person grants or agrees to grant to another person for value a right to occupy a retail shop for carrying on a business—
(a)     whether or not the right is a right of exclusive occupation; and
(b)     whether the agreement is express or implied; and
(c)     whether the agreement is oral or in writing, or partly oral and partly in writing;
It is apparent that there are differences between the concept of a lease at common law and the concept of a retail shop lease or lease under the Act. First, a lease at common law is distinguished from the agreement which gives rise to the lease; whereas a lease under the Act is defined to be the agreement under which a right to occupy is granted or agreed to be granted. Secondly, a lease at common law must by definition confer a right of exclusive occupation, and is distinguished from a licence; whereas a lease under the Act includes an agreement granting or agreeing to grant a licence granting a right of non-exclusive occupation. Thirdly, a lease at common law must be in writing; whereas an agreement comprising a lease under the Act may be oral or implied (and regardless of part performance).
Under subsection 4(1), the Act only applies to a retail shop lease as defined if the subject premises consist of a retail shop or a retail shop together with an adjacent dwelling. It is arguable that the Act does not apply if a substantial part of the subject premises consists of something other than a retail shop or dwelling, such as a factory. However, this issue was not raised in this case and can be ignored for the purposes of this appeal.
Section 5 gives paramountcy to the provisions of the Act over the provisions of an agreement that comprises a lease within the meaning of the Act. It provides:
5—This Act overrides leases
(1)This Act operates despite the provisions of a lease.
(2)A provision of a lease or a collateral agreement is void to the extent that the provision is inconsistent with this Act.
Section 6 deems a retail shop lease to be entered into when the lessee first enters into possession, or pays rent, as lessee under the agreement if that occurs before execution of the agreement comprising the lease or if the agreement comprising the lease is oral or implied. It provides:
6—When the lease is entered into
For the purposes of this Act, a retail shop lease is taken to have been entered into when—
(a)both parties have executed the lease; or
(b)a person enters into possession of the retail shop as lessee under the lease; or
(c)a person begins to pay rent as lessee under the lease or proposed lease (but not if the payment is an advance payment of rent made to secure the premises),
(whichever happens first).
Part 4A is entitled “Term of lease and renewal”. Section 20A sets out the objects of Part 4A, which includes Division 2. It provides:
20A—Objects
(1)The Parliament recognises that conflicts sometimes arise between a lessor's expectation to be able to deal with leased premises subject only to the terms of the lease and a lessee's expectation of reasonable security of tenure.
(2)The objects of this Part are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure as far as practicable fair dealing between lessor and lessee in relation to the renewal or extension of a retail shop lease.
Division 2 of Part 4A is entitled “Initial term of lease”. It comprises section 20B, which provides:[6]
[6] Section 20B was amended in 2020.
20B—Minimum 5 year term
(1)The term for which a retail shop lease is entered into must be at least five years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2)A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.
Example—
If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).
(3)This section does not apply to a lease if—
(a)     the lease is a short-term lease (ie a lease entered into for a fixed term of 6 months or less); or
(b)     the lease arises when the lessee holds over after the termination of an earlier lease with the consent of the lessor and the period of holding over does not exceed 6 months; or
(c)     the lease contains a certified exclusionary clause; or
(d)     the lessee has been in possession of the retail shop premises for at least 5 years; or
(e)     in the case of a retail shop lease that is a sublease—the term of the retail shop lease is as long as the term of the head lease allows; or
(f)the lease is of a class excluded by regulation from the ambit of this Division.
Division 3 addresses the renewal of shopping centre leases. Division 4 addresses the renewal of retail shop leases other than shopping centre leases or leases in which an option to renew exists. They are not directly relevant to this appeal.
Division 5 includes section 20K which provides:
20K—Certified exclusionary clause
(1)Subject to this section, the rights conferred by this Part cannot be excluded or modified by contract.
(2)However, the statutory rights of security of tenure may be excluded by a certified exclusionary clause.
(3)A certified exclusionary clause is a provision of a retail shop lease in respect of which a certificate signed by a lawyer who is not acting for the lessor is endorsed on the lease to the effect that—
(a) the lawyer has, at the request of the prospective lessee, explained the effect of the provision and how this Part would apply in relation to the lease if the lease did not include that provision; and
(b) the prospective lessee gave the lawyer apparently credible assurances that the prospective lessee was not acting under coercion or undue influence in requesting or consenting to the inclusion of the provision in the lease.
Subsection 3(1) defines “statutory rights of security of tenure” in the following terms:
statutory rights of security of tenure means the rights conferred on a lessee by Part 4A Division 2 and, if the retail shop lease relates to premises in a retail shopping centre, by Part 4A Division 3.
Section 20N provides:
20N—Exclusion of legal consequences for which express provision is not made
Except as expressly provided in this Part, there is no civil remedy for non-compliance with this Part.
Section 20N has the effect that there is no consequence of a retail shop lease not complying with subsection 20B(1) other than the consequence prescribed by subsection (2), namely that the term of the lease is extended to bring the term (or aggregate term) to five years.
It is apparent from the text and context (including section 20A, subsection 20K(2) and the definition of “statutory rights of security of tenure”) of section 20B that its purpose is to confer security of tenure of five years on lessees of retail shops under retail shop leases, except in those cases in which the legislature considered that such security of tenure was not required or was not appropriate.
The trial
At the trial, several documents were tendered, primarily being the documents referred to above. In addition, a Statement of Agreed Facts was tendered.
At the trial, the quantum of Pastina’s claim was agreed at $448,486 for rent and outgoings (if liability was established) plus $19,600 for painting (in respect of which liability was agreed). The quantum of Hosanna’s counterclaim was agreed at $84,879 (in respect of which liability was agreed).
The only oral evidence adduced was given by Rosina Alvaro, a director of Pastina, on the factual issue whether Hosanna was using the Demised Premises for the sale of goods to the public by retail. She was not cross-examined. The Judge accepted her evidence and found that the Demised Premises were used from an unspecified date in September 2010 for the sale of goods to the public by retail. It followed that the Demised Premises comprised a retail shop, and there was a retail shop lease within the meaning of the Act, from 25 September 2010.
The Judge’s reasons
The Judge addressed issues that are no longer in contention on appeal.
The Judge then rejected Hosanna’s contention that subsection 20B(1) did not apply to the monthly periodic tenancy commenced by the holding over. The Judge said:
The exception provided for in s 20B(3)(b), namely the holding over after the termination of an earlier lease with the consent of the lessor for a period of less than six months, implicitly recognises that s 20B(1) may apply if there has been a holding over after the termination of an earlier lease. That is, it implicitly recognises that s 20B(1) applies not just to the initial lease, but also to the subsequent lease created by the holding over.
There would be no need for the exception created by s 20B(3)(b) if the lease created by the holding over did not come within s 20B(1) or if s 20B(1) only applied to the initial lease.
The Judge referred to Hosanna’s reliance on the decision of this Court in NZI Insurance Australia Ltd v Baryzcka.[7] In that case, this Court considered the construction of former section 17 of the Act, which was in materially[8] the same terms as section 20B which replaced it in 1997, subject to two exceptions. The first exception was that former section 17 contained one additional exception when the lease resulted from the renewal of an earlier lease in certain circumstances[9] and an explanation of that exception.[10] The second exception was that former section 17 did not contain an equivalent of current section 20B(3)(d).
[7] [2003] SASC 190, (2003) 85 SASR 497.
[8] The exceptions contained in the current section 20B(3)(a) and (b) were contained in section 17(3)(a) and (b). The exception contained in current section 20K was contained in section 17(3)(c) in different wording to the same effect. The exception contained in current section 20B(3)(e) was contained in section 17(4) in different wording to the same effect. The exception contained in current section 20B(3)(f) was contained in section 17(5).
[9] Section 17(3)(d).
[10] At the end of section 17(3)(d).
The respondent on the appeal advanced a notice of alternative contention that the holding over by the lessee for more than six months gave rise to a retail shop lease within the meaning of subsection 17(1) and subsection 17(2) extended the term of the holding over lease to five years. This Court rejected that contention. Debelle J (with whom Duggan and Williams JJ agreed) said:
Pointing to [subsection] (3)(b), Mr Manetta submits that, as the respondent held over under the lease which expired on 31 December 1999 for a period in excess of six months, she is entitled to a renewal of that lease on the same terms and conditions as are contained in the lease for a period of five years.
I do not think that s 17(3)(b) has the effect for which Mr Manetta contends. It is not clear what s 17(3)(b) means. I will assume it applies in the circumstances of this case where the respondent held over as a monthly tenant with the consent of the appellant. Although it is provided that s 17(3) does not apply where a tenant holds over for a period less than six months, I do not think that it is intended that a lease for five years will come into existence if the period of the holding over exceeds six months. It is a very serious step to impose a renewed term of five years upon the lessor. I do not think it was intended to achieve it by a legislative side wind of this kind. Furthermore, the respondent had held a lease of these shop premises for more than five years. The intention of s 17 is to provide a minimum term of five years for a retail shop lease. It is not concerned with the term of a renewed lease. That intention is clearly expressed in the note at the end of s 17(3) and it is reinforced by the terms of s 17(3)(d). For these reasons, I do not think that the terms of s 17(3) apply.[11]
[11] At [41]-[42].
Debelle J went on to give another reason why the alternative contention must fail, namely that then new section 20B applied to the lease in question and section 20B(3)(d) applied to exclude the operation of subsections (1) and (2) because the lessee had been in possession of the premises for more than five years.[12]
[12] At [43].
The Judge considered that the decision of this Court in Baryzcka was not binding on him because the construction of the section adopted by this Court in the passages extracted at [58] above did not comprise part of the ratio decidendi of the decision. The Judge considered that in any event they were not binding on him because of the existence in former section 17 of subsection (3)(d) in relation to renewals summarised at [57] above.
The Judge rejected Hosanna’s alternative contention that section 20B(3)(d) operated upon the expiry of the first six months of the holding over to exclude the application of section 20B to the holding over lease because by then (30 October 2015 or later) it had been in possession of the retail shop lease premises for more than five years. The Judge did so by adopting a passage from the reasons of the Supreme Court Judge who had allowed Pastina’s appeal against the summary dismissal of its claim. The Judge said:
[The Supreme Court Judge] in the summary judgment appeal rejected the second argument, namely that the time of possession should be assessed at the expiration of the six month period of holding over referred to in s 20B(3)(b). [The Judge] held:
I do not accept that there is any textual basis for reconsidering the application of that exception, in the case of a lease by holding over, as at the conclusion of the six month period contemplated by the exception in s 20B(3)(b). The exceptions in ss 20B(3)(b) and (d) are quite separate and independent exceptions. The latter is not confined in its operation to leases by holding over. While the effect of s 20B(3)(b), in the case of a holding over, will be to delay the operative effect of s 20B(2) for a period of six months, I do not think that there is any textual or other basis for construing s 20B(3)(d) on the basis that it may be considered afresh at that point of time. In my view, that would be to give s 20B(3)(b) an inappropriate role in the construction of s 20B(3)(d) in circumstances where the two are intended to have quite independent operation and the latter is intended to have operation in cases where there has been no holding over and hence s 20B(3)(d) has no role to play.
I adopt that passage. In my view, the application of s 20B(3)(d) must be assessed at the commencement of the holding over. That is the date when the lease is otherwise extended to a term of five years. An assessment at any other time would create uncertainty. Making an assessment at that date, possession of the retail shop falls short of five years and the exception provided for by s 20B(3)(d) does not apply.
The contentions on appeal
Application of section 20B to a “holding over lease”
Hosanna contends that the Judge erred in his construction of section 20B in holding that the holding over by Hosanna gave rise to a new lease for the purposes of section 20B, which new lease was required by subsection (1) to be for a term of at least five years and its term was extended by subsection (2) to five years from 1 May (or 1 June) 2015. For ease of reference, I refer to a putative new lease resulting from a holding over as a holding over lease, and I refer to the putative new lease in the present case as the Holding over Lease, without pre-judging that section 20B in fact treats it as a statutory lease (which is the constructional issue in dispute). Hosanna puts its contention in two alternative ways.
First, under ground 1A of appeal, Hosanna contends that subsection (1) does not treat a holding over upon expiry or termination of a section 20B-compliant lease as being pursuant to a new lease which itself is required to comply with subsection (1).
Hosanna points to the differences, summarised at [40] above, between a lease at common law (which Hosanna calls a common law lease) and the definition of a lease for the purposes of the Act (which Hosanna calls a statutory lease) in subsection 3(1).
Hosanna contends that it is the statutory lease that is the subject of the five year term conferred by section 20B. Provided that there is the requisite agreement for value granting a right to occupy a retail shop for carrying on a business, the five year term conferred by section 20B will commence on the earlier of the lessee taking occupation or paying rent or entering into the agreement. Execution of an instrument of lease, say, two years after the lessee begins occupation or paying rent under an agreement will not start a new five year term operating afresh.
Hosanna contends that, on the facts of the present case, the statutory lease was taken to have been entered into under section 6, and its five year term commenced, on 25 September 2010. But for the right of renewal which resulted in section 20B not applying to the statutory lease upon its entry in September 2010, the term of the statutory lease would have been extended from expiring on 30 April 2015 to expiring on 25 September 2015. The mere fact that the holding over constituted a new demise at common law, and hence a new common law lease, is irrelevant. The statutory lease simply continued unabated during the holding over period.
Hosanna contends in the alternative that, pursuant to section 6 of the Act, the holding over lease was taken to have been entered into when both parties executed the lease, namely on 25 September 2010 when the addendum was executed, conferring the right of occupation by holding over under clause 4.8. It is immaterial that Hosanna only commenced to occupy the premises pursuant to the holding over lease upon expiration of the initial term because section 6 deems the lease to have commenced from the earlier of execution of the instrument, entry into occupation or payment of rent.
Secondly, under ground 1 of appeal, Hosanna contends that, if subsection 20B(2) operates at all, it operates to extend the term of the overall lease so as to bring the aggregate term of occupation – including the initial term – to five years. The reference in subsection (2) to an “aggregate term” is a reference to the entire term of the lease as it transpires pursuant to the agreement that comprises the statutory lease. It is not merely the aggregation of the initial term and any renewed term pursuant to any right of renewal because this is already achieved by the second paragraph of subsection (1).
Pastina contends that the contentions the subject of grounds 1 and 1A were not advanced before the Judge at first instance and raise new issues of law for the first time on appeal. Pastina acknowledges, however, that they are legal issues only and do not raise any factual issues about which further evidence might have been adduced.

Pastina does not take issue with Hosanna’s contentions summarised at [64] and [65] above. Pastina takes issue with the contention summarised at [66] above. Pastina points to the fact that the definition of a lease in subsection 3(1) still requires an agreement and the right of occupation must flow from the agreement. The term of the holding over lease only commenced upon commencement of the holding over. It was not in any sense a right to occupy the premises under the Memorandum of Lease, which had expired. The right to occupy under that lease came to an end on expiry of that lease on 30 April 2015. Hosanna did not have an automatic right to continue to occupy the premises, but only upon Pastina permitting occupation to continue.
Pastina takes issue with the contention summarised at [67] above. It points to the distinction between entering into a retail shop lease and commencement of the term of (or right of occupation under) the lease. Section 6 does not address when the term of the lease commences but only when the lease is taken to have been entered into.
Pastina takes issue with the contention summarised at [68] above. It contends that the reference in subsection (2) to an aggregate term is a reference to the initial term and any renewed term under any right of renewal and does not encompass the term of a holding over, which is pursuant to a new and separate demise.
Generally, Pastina supports the reasoning of the Judge at first instance.
Application of section 20B(3)(d) exclusion
Hosanna contends in the alternative that the Judge erred in his construction of section 20B in holding that the application of section 20B(3)(d) must be assessed at the commencement of the holding over and not upon the expiry of the six months referred to in section 20B(3)(b).
Under ground 5 of appeal, Hosanna contends that subsections 20B(1) and (2) had no operation upon the Memorandum of Lease unless and until the exclusion contained in subsection (3)(b) ceased to operate. It was therefore only on the expiry of six months after the holding over commenced that subsection 3(d) came to be considered to operate and, at that time, Hosanna had been in possession of the premises for more than five years.
Pastina takes issue with these contentions and supports the reasoning of the Judge.
Application of section 20B(3)(d) exclusion
For reasons that will appear, it is convenient first to address ground 5 of appeal, which is considered on the assumption that, subject to the exceptions contained in subsection (3), subsections (1) and (2) would otherwise operate upon a “holding over lease”.
The issue is one of construction of section 20B: does the exclusion effected by subsection (3)(d) operate at the commencement of the holding over lease (as contended by Pastina and upheld by the Judge) or on the expiration of six months after the commencement of the holding over lease (as contended by Hosanna)?
Starting with the text and structure of section 20B, its three subsections operate in conjunction with each other. They operate in an integrated fashion. Subsection (1) imposes a requirement that the term of a retail shop lease must be at least five years. If and only if there is a contravention of subsection (1), subsection (2) effects a statutory extension of the term (or aggregate term) of the lease to five years. However, there will be no contravention of subsection (1), and no statutory extension of the term of the lease under subsection (2), if any one of the paragraphs of subsection (3) apply. Conversely, there is no occasion for a paragraph of subsection (3) to operate if there is no contravention of subsection (1), whether this is because the term of lease is already at least five years or because another paragraph of subsection (3) is operating to exclude the operation of subsections (1) and (2). In particular, paragraph (d) of subsection (3) does not and cannot operate to exclude the operation of subsections 20B(1) and (2) to a retail shop lease unless and until subsection (1) would otherwise be contravened and subsection (2) would otherwise extend the term (or aggregate term) to five years.
By way of illustration using the facts of this case, no occasion arose for the operation of subsection (3)(d) between 25 September 2010 and 30 April 2015 because the Memorandum of Lease, as amended by the Addendum, provided for a combined initial and renewed term of nine years and seven months and thereby complied with subsection (1). No occasion arose for the operation of subsection (3)(d) on 1 May 2015 because the holding over that commenced on 1 May 2015 had not exceeded six months and subsection (3)(b) operated such that the Holding over Lease complied with subsection (1).[13] On each day between 2 May 2015 and 31 October 2015, subsection (3)(b) continued to operate such that the Holding over Lease complied with subsection (1).
[13] If clause 4.8 provided for a one month tenancy and then a separate monthly tenancy, there was no contravention of subsection (1) between 1 May and 31 May 2015 because section 4(2)(ab) excluded the one month tenancy from the operation of the Act and subsection 20B(3)(a) in any event excluded a one month tenancy from the operation of subsections (1) and (2) and there was no contravention of subsection (1) between 1 June and 30 November 2015 because the holding over that commenced on 1 June 2015 had not exceeded six months and subsection (3)(d) operated such that the Holding over Lease complied with subsection (1).
By contrast, on 1 November 2015 subsection (3)(d) operated because otherwise there would have been a contravention of subsection (1) due to the Holding over Lease not being for at least five years. Subsection (3)(d) operated to exclude the operation of subsections (1) and (2) because Hosanna on that date had been in possession of the retail shop premises for at least five years. Similarly, on each day between 2 November 2015 and 21 October 2017 subsection (3)(d) operated to exclude the operation of subsections (1) and (2) for the same reason.
Turning to the context of section 20B, section 4 excludes the operation of the Act to leases when the lessee is the Crown, a Council, a public company, a financial institution or an insurer; which indicates that the Act was enacted to protect lessees against lessors. Subsection 20A(1) identifies that the object of section 20B is to provide a lessee with reasonable security of tenure. The application of section 20B itself can be excluded by a retail shop lease if the lessee has received legal advice and the lawyer has signed a section 20K certificate. It is clear, therefore, that section 20B was enacted to protect lessees rather than lessors.
It is clear from the provisions of section 20B itself, and the context referred to in the previous paragraph, that the purpose of section 20B is to ensure that lessees of retail shops (other than those leasing only for a short term) receive security of tenure for five years, unless they choose to opt out of that statutory protection by obtaining legal advice and a section 20K certificate.
The context referred to in the previous two paragraphs supports the construction indicated by the text and structure of section 20B itself that subsection (3)(d) operates to exclude the operation of subsections 20B(1) and (2) to a retail shop lease only when subsection (1) would otherwise be contravened and accordingly it operates on the expiration of six months after the commencement of a holding over lease rather than at its commencement.
Turning to the evident purpose of section 20B, for the reasons given above, its evident purpose is to ensure that lessees of retail shops (other than those leasing only for a short term) receive security of tenure for five years, unless they choose to obtain a section 20K certificate. This evident purpose also supports the above construction of section 20B.
In the passage from the reasons of the Supreme Court Judge adopted by the District Court Judge in the first paragraph extracted at [61] above, the Supreme Court Judge referred to “reconsidering” the application of the subsection (3)(d) exception as at the conclusion of the six month period contemplated by the exception in s 20B(3)(b) and “considering afresh” the application of the subsection (3)(d) exception at that time. This implies that the subsection (3)(d) exception had already operated at the commencement of the six month period. That is not so for the reasons given above. It also implies that the subsection (3)(d) exception (and presumably all of the subsection (3) exceptions) has a one off operation so that its operation is exhausted after it has operated on a given day. That is not so. The subsection (3)(b) exception has a continuing operation every day over a period of six months, as illustrated at [80] above in respect of the period between 1 May and 31 October 2015. Likewise, the subsection (3)(d) exception has a continuing operation every day after the lessee has been in possession of the premises for five years.
In the passage from the reasons of the District Court Judge in the second paragraph extracted at [61] above, the Judge said that the commencement of the holding over is the date when the lease is otherwise extended to a term of five years. That is not so. The lease is not otherwise extended to a term of five years until the expiration of six months after the commencement of the holding over. The Judge also said that assessment at any other time would create uncertainty. That is not so. There is no uncertainty as to the date on which the subsection (3) (d) exception operates (it is not a question of making an assessment). It operates on the date immediately after the expiration of six months after the commencement of the holding over and, as observed above, continues to operate while the lessee remains in possession of the premises thereafter.
Having regard to the text, context and evident purpose of section 20B, on its proper construction subsection 20B(3)(d) operates, in the case of a holding over lease, on and after the expiration of six months after the commencement of the holding over. The Judge erred in construing section 20B otherwise.
It follows that Hosanna was not in breach of the Memorandum of Lease by giving one month’s notice of termination on 21 September 2017 or by vacating the premises on 21 October 2017. Pastina’s claim for rent and outgoings should have been dismissed. Judgment should have been entered in favour of Hosanna for the net amount of its admitted counterclaim ($84,879) less Pastina’s admitted repainting claim ($19,600) and taking into account interest in respect of the counterclaim and claim.
Application of section 20B to the Holding over Lease
Given the conclusion above, it is not necessary to decide whether section 20B otherwise applied to the Holding over Lease (ground 1A and 1).
As noted above, the Act was amended in several respects with effect on 1 July 2020. As part of the amendments, subsection 20B(3)(b) was amended to delete the words “with the consent of the lessor and the period of holding over does not exceed 6 months”. The issue will therefore not arise after 1 July 2020.
It is preferable that the proper construction of section 20B in this respect be determined if and when it is necessary to do so and when it will be determinative.
Conclusion
I would allow the appeal. I would set aside the judgment and orders (including as to costs) made by the Judge. I would hear the parties concerning the amount of the net judgment to be entered in favour of Hosanna against Pastina and in relation to all questions of costs.