John Serafim and Presdate Pty Limited v J v Pigott Pty Ltd
[2012] NSWADT 187
•17 September 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: John Serafim and Presdate Pty Limited v J V Pigott Pty Ltd [2012] NSWADT 187 Hearing dates: On the Papers Decision date: 17 September 2012 Jurisdiction: Retail Leases Division Before: D Patten Deputy President Decision: Application dismissed. Applicants to pay Respondent's costs.
Catchwords: Specialist retail valuer - Appointed by tribunal - Alteration of determination - Legal effect - Time for application - S 32A Retail Leases Act - Costs Legislation Cited: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994Cases Cited: Tringas v Quach [2007] NSWADT AP35 Category: Principal judgment Parties: John Serafim and Presdate Pty Limited (Applicants)
J V Piggott Pty Ltd
(Respondent)Representation: Matthews Solicitors (Applicants)
B M Salmon Layton & Co (Respondent)
File Number(s): 125072
REASONS FOR DECISION
This purports to be an application by the Applicant pursuant to s 32 A of the Retail Leases Act (the Act) for "Review of Determination of Specialist Retail Valuer". The only references in the section to the Tribunal's power to order a review of a determination of a specialist Valuer are those contained in ss (1) and (2):
"32A Review of current market rent determinations
(1) Application for review. A party to a lease may apply to the Tribunal for the appointment of two specialist retail valuers to conduct a review of a determination of the current market rent made by a specialist retail valuer made under section 19 or 31.
(2) The application for a review must be made within 21 days after the party first received a copy of the determination. Subsection (13) provides another opportunity to make an application for a review if the decision on the review is set aside."
It may be taken that the application seeks to enliven the Tribunal's jurisdiction under subsection (1). In this regard the Respondent contends that the Tribunal has no jurisdiction as the application was made outside the time stipulated by ss (2). That in turn raises a disputed issue of fact. If the issue is found against the Applicants they seek an extension of time under s 44 of the Administrative Decisions Tribunal Act, raising the question whether the Tribunal has jurisdiction to grant such relief and, if so, whether the discretion should be exercised in the circumstances of this case.
There is no dispute as to the underlying facts of the matter and it has been directed that the issues in dispute be determined on the papers without oral argument, pursuant to s 76 of the Administrative Decisions Tribunal Act.
The Applicants are the lessor and the Respondent the lessee of premises at 163 Oxford Street, Darlinghurst (the premises). In the premises the Respondent conducts a newsagency business. The lease was for a term of 5 years commencing 18 September 2005. It contained an option for renewal which was exercised and provided a detailed procedure for determining (in the event of dispute) the rent for the renewed lease expressed to be "current annual market rent". The parties seem to have accepted, nonetheless, that by the operation of s 7 of the Act, the provisions of s 31 replaced the provisions they agreed upon.
As a consequence, this Tribunal, pursuant to s 31(b) of the Act, in proceedings 115139, appointed Mr Philip Barlow of Landmark White (NSW) Pty Ltd as a specialist retail valuer.
Having received submissions from both the Applicants and the Respondent, on 27 February 2012 Mr Barlow published to the parties a 17 page document headed "rental determination". He determined the market rental of the premises at $153,000 gross or (after deducting outgoings payable by the lessee) $125,500 net.
Mr Barlow noted in his report that the lettable area of the premises comprised "190 sq metres and storage of 20 sq metres plus first floor office 10 sq metres - total 220 sq metres". He reached his conclusion in two steps. First he made these calculations:
"I have adopted $800/sq m gross, as my assessment of market rental value of the subject property with lower rates applicable to the rear storage and office accommodation. My calculations are as follows:
190sq m @ $800/sq m pa gross =$152,000
20sq m storage @ $500/sq m pa gross=$ 10,000
10sq m office @ $500/sq m pa gross =$ 5,000
Total:= $167,000 p.a. gross"
As his second step he considered, as required by s 31(1)(a)(iv) of the Act what he described as "Incentive". He did so in these terms:
"In accordance with the Retail Leases Act, I have then made a deduction to allow for incentives normally granted to incoming tenants. My research indicates that incoming tenants normally obtain an incentive of 1 months rent for each year of the lease term (this incentive has been consistent since 2009). This equates to an incentive of 8.33% and the following calculation results:
8.33% of $167,000 pa=$13,911
Gross face rent=$167,000
Less
Incentive=$13,911
Gross effective rent=$153,089
Say $153,000"
The result of that calculation viz $153,000 became Mr Barlow's determination of the market rental.
On 13 March 2011 Dr Michael Serafim, on behalf of the Applicants, sent an email to Mr Barlow:
"I would like to summarize our concerns so far.
Although we have trouble in understanding Mr Barlow's valuation of the $/sq. metre pa gross, our main concern is the defined 'net lettable area'.
We note that Mr Barlow did not have available the Survey of the 'Net Lettable Area' and as such we have again included a copy of the Survey for ease of discussion. In this survey it shows a ground floor 'Net Lettable area' of 217 sq. metres.
We would like to point out that the rear wall is a structure of wood and plasterboard and is not shown in this Survey plan. As such a separate 'storage area' cannot be allocated as a separate area as its existence is based on a temporary structure erected by the tenant.
The Net Lettable area on the ground floor as dictated by the Survey is 217 sq metres and the office on the mezzanine level is 13 sq metres.
Therefore using the figures in your assessment of market rental value:
217 sq m @$800/sq m pa gross= $173,600
13 sq m @ $500/sq m pa gross= $ 6,500
Total:$180,100
Would you please amend your Valuation in accordance with the Survey by 'Harrison Friedmann and Associates Pty Ltd."
On or about 15 March Mr Barlow published a second determination. Although it stated the same lettable area as in the earlier report it increased the rental determination to $160,000 gross or $132,500 net. It is to be inferred that Mr Barlow whilst not expressly so stating simply applied his previous calculations to what he had been informed was the correct lettable area of the premises. The inference arises from the circumstance that not only was Mr Barlow by then in possession of the survey report sent to him by Mr Serafim but it accords with what subsequently occurred.
On 19 March Mr James Garvan, the Applicant's solicitor, sent an email to Mr Barlow:
"Thank you for the revised valuation.
Could you please clarify why the storage area has been separately valued at $500 per sqm? This area is created by an internal partition that the tenant installed at its own election. My understanding was that the area calculation should be based on the vacant shell and pay no regard to such internal partitions? In other words, the net lettable area of the premises to be valued at $800 per sqm should be 217sqm when the storage space is included?
I look forward to hearing from you."
Mr Barlow replied on the same day:
"The storage area not finished to the same standard as the retail area, the walls are not finished and there is no ceiling.
It is not suitable for display or retailing."
Further correspondence ensued between Mr Garvan and Mr Barlow. There was a letter from the former sent on 5 April 2012 and reissued on 24 April:
"We act for John Serafim and Presdate Pty Limited, the lessors of the above premises.
We refer to the rental determination of the market rent for the above premises (the Determination) prepared by your Mr Phil Barlow, pursuant to his appointment by the Administrative Decisions Tribunal. Your file reference as stated on the Determination is 106632/58002.
We note that the Determination prepared by Mr Barlow was revised and reissued on 15 March 2012 due to a discrepancy concerning the net lettable area of the premises.
Upon further review of the revised Determination, our client has identified a number of discrepancies, which they have attempted to raise with Mr Barlow, however such attempts have either been ignored or insufficiently explained. As a result, our client does not accept the current assessment made in the Determination.
We note that the parties have made payment of $6,600.00 to Landmark White to commission the Determination. It is entirely reasonable therefore to expect that either party be entitled to raise queries and seek clarification of particular aspects of the Determination, and if necessary have the Determination revised, as part of the service for which they have paid.
Our client has instructed us to write to you seeking clarification (and if necessary the issue of a further revised assessment) of the method of calculation adopted by Mr Barlow in reaching the Determination, specifically his consideration of incentives as outlined on page 16 of the Determination.
Firstly, it is unclear as to whether the reference to an incentive of "1 month rent for each year of the lease term" is to mean:
(a)an incentive of 6 months rent free is granted for a lease with a term of 6 years and in this instance, whether this is given in the form of an up-front incentive in year 1 of the lease(i.e. 6 months rent free in year 1); or
(b)whether it is intended to mean that in each year of the lease, the lessee is simply given 1 month rent free, for the duration of the term
The Determination appears to have adopted a combination of options (a) and (b), by firstly determining the number of months of rent-free with reference to the term of the lease, and then amortising that incentive across each year of the term. This has a consequential negative impact on the commencing rent for each consecutive year of the lease as, in effect, once the rent review prescribed under the lease is applied, a reduction of 1 months rent is then made.
Further, the context of this Determination is a lease renewal pursuant to an option. It is therefore the case that the terms of the contract between the parties comprising the new lease are already agreed and not open to negotiation. The only undecided element of the lease is the determination of market rent. In this instance, the lease makes no provision for incentives in the form of rent-free periods or otherwise. It seem inappropriate therefore that the Determination grant a discount to the lessee in the form of a 1 month rent-free discount to the gross face rent, when the lessee has no contractual entitlement to such an incentive.
Would you kindly consider the matters raised above and advise us of your views on the matter so that our client can consider its next steps."
Mr Barlow replied by email on 27 April:
"I refer your letter dated 24 April 2012 regarding my rental determination for the above property. I note your concern in relation to the inclusion of an incentive and wish to advise that the Retail Leases Act requires that an incentive be provided in a determination.
As a result I am unable to alter my assessment. The Act does have provision for an appeal.
If you have any further queries please do not hesitate to contact me on 0400 815 060."
Mr Garvan wrote again on 10 May taking issue with what he asserted was Mr Barlow's misinterpretation of s 19 of the Act in relation to the obligation to have regard to "rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied retail shops". Seemingly, this more appropriately should have been a reference to the similar obligation in s 31(1)(a)(iv) of the Act.
Mr Garvan went on to say:
"Subject to your replies to the matters raised above, we also note that the reissued rental determination still contains errors regarding the stated area of the premises and the corresponding calculation methodology shown in the report. For these reasons, we do not consider the current determination to be finalised and will require the valuation to be reissued. Specifically, we refer to sections 4.3 and 8.2 of the report, which still shows that stated area of the premises as 220 sq m, when in fact the area is 230 sq m, as per the survey plan of the premises previously provided. The corresponding calculations are also incorrect due to the area of the premises being incorrectly stated.
We would be grateful for your urgent reply to the matters raised above and look forward to receiving your further revised valuation as soon as possible."
On 15 May, Mr Barlow wrote to Mr Garvan and the Respondent's solicitor, Mr W Layton:
"I refer to my appointment by the Administrative Decisions Tribunal requesting that I make a determination to the Lessor and the Lessee in respect of a rent review for the above premises.
My amended determination was sent on 15 March 2012, however, I wish to advise there are typographical errors in that report which need to be addressed. These errors have no effect upon the determination at $160,000 pa gross and $132,500 pa net, however, I have amended my report to clear up any confusion.
A copy of my amended report is attached hereto.
Furthermore, I note that the question of incentives has been raised and as indicated in my report, the Retail Leases Act requires under section 19 that rent concessions and other benefits that are frequently or generally offered to prospective tenants must be reflected in the determination.
Part 7 (sic) of the Act indicates that the Act overrides the lease.
If you have any queries, please do not hesitate to contact the undersigned."
The letter was accompanied by a third Rental Determination. It differs from the previous two determinations in several respects. In the first place the lettable areas of the premises, which appear twice and are in identical terms in both prior determinations, are altered to read "197sq m and storage 20sq m and first floor office 13sq m - total 230sq m.
Another variation is that the calculations set forth in paragraph 7 above are replaced with:
"197sq m @ $800/sq m pa gross =$157,000
20sq m storage @ $500/sq m pa gross=$ 10,000
13sq m office @ $500/sq m pa gross=$ 6,500
Total: = $174,100 p.a. gross"
In the third determination Mr Barlow substituted for the passage under the heading "Incentive" in each of the two earlier reports the following passage:
"In accordance with the Retail Leases Act, I have then made a deduction to allow for incentives normally granted to incoming tenants. My research indicates that incoming tenants normally obtain an incentive of 1 months rent for each year of the lease term (this incentive has been consistent since 2009). This equates to an incentive of 8.33% and the following calculation results:
8.33% of $174,100 pa=$14,503
Gross face rent=$174,100
Less
Incentive=$14,503
Gross Effective rent=$159,597
Say=$160,000"
The figure of $160,000 calculated as above was stated to be Mr Barlow's determination of the market rental replicating the conclusion expressed in the determination published on 15 March.
It is apparent from what I have said that Mr Barlow's three determinations contain unsatisfactory features, not the least of which is the fact that so far as the evidence before me relates, Mr Garvan and Mr Barlow communicated with each other quite extensively without reference to the Respondent as though Mr Barlow had been commissioned by the Applicants rather than by this Tribunal.
However, I have no power simply to set aside one or all of Mr Barlow's determinations. The only relevant power I do have is to appoint two specialist retail valuers to conduct a review of Mr Barlow's determination. The application for the exercise of this power was lodged in the registry on 23 May 2012, that is within 21 days after the Applicants received a copy of Mr Barlow's 3rd determination published on 15 May 2012, but outside the period of 21 days from when the first determination was received about 27 February 2012 and from when the second reprint was received about 15 March 2012.
It seems to me that there are two questions to be decided, the first being whether Mr Barlow's third determination should be regarded as performance of his obligation to determine the current market rent. If that question is answered in the affirmative there is nothing in the way of the Tribunal appointing two specialist valuers to conduct a review of Mr Barlow's determination pursuant to s 32A(1) of the Act.
If the question is answered in the negative then consideration needs to be given to whether the Tribunal has power to extend the time stipulated in s 32A(2). As to this question, I should say at once that I regard myself as bound by the decision of an Appeal Panel of this Tribunal in Tringas v Quach [2007] NSWADT AP35. The Appeal Panel held that by virtue of s 40 of the Administrative Decisions Tribunal Act the Tribunal has no jurisdiction under s 44 to extend the period of 21 days stipulated in s 33A(2) of the Act. Accordingly, if this question arises, I would answer it against the Applicants.
The question whether the third determination should be regarded as the performance by Mr Barlow of his allotted task involves consideration of the effect of the two earlier determinations. The first on its face seemed to fulfil Mr Barlow's obligation to assess the current market rent of the premises. However his attention was then drawn to the error he made in measuring the lettable area of the premises. In my opinion as Mr Barlow had made his assessment by first calculating the current market rental per square metre and then proceeding to multiply that calculation by the lettable area expressed in square metres he was entitled to amend the final result once he became aware that his measurement of lettable area was erroneous. This was no more than the application of a "slip rule".
It follows from what I have said that the second determination merely corrected the earlier mathematical error even if this was not made manifest in the body of the determination itself.
In my opinion the publication of the second determination to the parties on or about 15 March 2012 constituted a full discharge of Mr Barlow's role. His third determination did nothing except express more accurately the assumptions he had used when reading his conclusion. Although Mr Barlow was undoubtedly entitled to do what he did in my opinion the third determination had no legal significance.
It follows that the application under s 32 A of the Act was not made within the time prescribed by s 32A(2). As I have no jurisdiction to extend that time having regard to the decision of the Appeal Panel in Tringas v Quach [2007] NSWADT AP35 the Application must be dismissed.
The Respondent seeks costs relying inter alia on letters its solicitors wrote to the Applicants' solicitors pointing out the difficulties presented by s 32A(2).
The jurisdiction to award costs is contained in s 88 of the Administrative Decisions Tribunal Act when read in conjunction with section 70(b) and section 77H of the Act. Bearing in mind that this dispute involves informed commercial parties legally represented, and the circumstance that the Applicants have failed for the very reason pointed out to them more than once by the Respondent I think it is fair that the Applicants pay the Respondent's costs of this Application. I do not however think that an Indemnity Costs order is warranted. The Respondent's letters contained no element of compromise and costs should be on a party and party basis.
I make these orders:
(1) Application dismissed.
(2) Applicants to pay Respondent's costs of the Application on a party and party basis as agreed or assessed.
Decision last updated: 17 September 2012
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