Krajcar v Eastern Central Real Estate Pty Ltd
[2022] VSC 173
•27 April 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2021 04093
| BOJAN KRAJCAR and KRAJCAR FAMILY PTY LTD (ACN 169 752 827) (AS TRUSTEE FOR THE KRAJCAR FAMILY SUPERANNUATION FUND) | First Appellant Second Appellant |
| v | |
| EASTERN CENTRAL REAL ESTATE PTY LTD (ACN 101 415 034) and INGRID BROPHY and PATRICK BROPHY | First Respondent Second Respondent Third Respondent |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 March 2022 |
DATE OF JUDGMENT: | 27 April 2022 |
CASE MAY BE CITED AS: | Krajcar & Anor v Eastern Central Real Estate Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2022] VSC 173 |
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PRACTICE AND PROCEDURE – Appeal to the Trial Division of the Supreme Court of Victoria from the Victorian Civil and Administrative Tribunal – Must demonstrate a real prospect of success – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 – Brondolino v Surf Coast Smash Masters Pty Ltd [2019] VSC 505 – Not a fact finding exercise on appeal – Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 – Boucher v Dandenong Ranges Steiner School Inc (2005) 145 LGERA 21 – Whitehorse City Council v Golden Ridge Investments Pty Ltd (2005) 13 VR 275 – Hoskin v Greater Bendigo City Council (2015) 48 VR 715 (CA) – Court to avoid overly pernickety examination of reasons – Roncevich v Repatriation Commission (2005) 222 CLR 115 – Role of VCAT as a specialist tribunal not to be usurped by the Court and a decision of such a tribunal is not to be interfered with absent a vitiating error of law – Rysze International Pty Ltd v Yong [2021] VSC 786 – Victorian Civil and Administrative TribunalAct 1998, ss 148(1), 148(2A).
LEASES AND TENANCIES – Retail leases – Rent review – Separate leases comprising whole business premises – Extent to which rental valuation for whole business premises is apportionable to separate lease premises – Relevant “retail premises” for rental valuation – Party agreement to reviewed rent – Remedial or ameliorating legislation – Peppercorn Nominees Pty Ltd v Loizou (1997) V ConvR 54-560 – Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 – Retail Leases Act 2003, ss 35 and 37.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr M. Hoyne | Pointon Partners |
| For the First Respondent | Mr L. Virgona | Mahons Lawyers |
| For the Second and Third Respondents | No appearance |
HIS HONOUR:
Introduction and background
This proceeding is brought pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”). The appellants, Bojan Krajcar and Krajcar Family Pty Ltd (ACN 169 752 827) (As trustee for Krajcar Family Superannuation Fund) (“the Appellants”), seek leave to appeal the orders of Member C. Edquist, constituting the Victorian Civil and Administrative Tribunal (“VCAT” or “the Tribunal”) made on 7 October 2021 in VCAT proceeding number BP1091/2019. The Tribunal, on 16 September 2021, published reasons for the making of these Orders.[1]
[1]Eastern Central Real Estate Pty Ltd v Dubravko Jurkovic & Bojan Krajcar (Building and Property) [2021] VCAT 1041 (“Tribunal Reasons”).
The proceeding in the Tribunal in relation to which this proceeding is brought was an application by the first respondent in these proceedings, Eastern Central Real Estate Pty Ltd (ACN 101 415 034) (“the Managing Agent” or “the First Respondent”) as the Managing Agent of a 23 lot subdivision at 52-54 George Street, Doncaster East, Victoria (“the Property”) with respect to the distribution of rental proceeds. The Property is conducted as a nursing home. The lots comprising the subdivision are owned by a number of individual lot owners, and these lots are, in turn, leased by their respective owners to the proprietors of the nursing home, Mr Patrick Brophy and Ms Ingrid Brophy (“the Tenants”). The Managing Agent collects the rent and outgoings payable by the Tenants under the respective leases of the various lots and has the responsibility of disbursing rent and outgoings to the lot owners in accordance with their respective entitlements according to the plan of subdivision of the Property.
The dispute at the heart of the VCAT proceedings is a dispute between Mr Jurkovic and Mr Krajcar on the one hand, and all the other lot owners (“the Other Owners”) of the lots comprising the subdivision of the Property as to the manner in which rent is to be distributed. The position of the Other Owners is that the rent is to be determined in accordance with an agreement struck between all owners and the Tenants at a mediation conducted by the Tribunal and recorded in terms of settlement dated 8 October 2013 (“the Terms of Settlement”). Under the Terms of Settlement, the rent is to be allocated to the individual lot owners in proportion to their individual lot entitlement. Mr Jurkovic’s position as stated in the Tribunal Reasons is that, through his superannuation fund, he will be disadvantaged in a relatively minor way if the rent is distributed in this way and contends that the rent is to be distributed in the manner set out in his lease. In relation to Mr Krajcar’s position, it is said that directly, and indirectly through his superannuation fund, he will be heavily disadvantaged if the rent is distributed in the manner set out in the Terms of Settlement, and also says that the rent is to be distributed in the manner set out in his lease.
By the Amended Notice of Appeal, dated 9 December 2021, the Appellants seek to appeal that part of the Orders of the Tribunal which affect lots 18 and 23 of the Property (“the Appellants’ Lots”). The critical part of the Orders, in the context of this appeal, is the first paragraph:
1.For the reasons published on 16 September 2021, the Tribunal declares, under s 124 of the Victorian Civil and Administrative Tribunal Act 1998 (the VCAT Act) that the applicant is entitled to distribute the rental proceeds in accordance with the proportions set out in clause 22.7(v) of the leases. This declaration will operate for the entirety of the term of the leases.
Only the First Respondent, the Managing Agent, is represented and participating in this appeal. The second and third respondents informed the Appellants’ solicitors that they “do not intend to appear at the Trial and will accept the Court’s ruling”.[2]
[2]Letter dated 22 March 2022 from MNG Lawyers Pty Ltd (acting for the second and third respondents) to the Appellants’ solicitors.
Principles applicable with respect to appeals
Section 148(1) of the VCAT Act provides:
A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding—
(a)if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or
…
(b)in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.
It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal”.[3] It follows that “[t]his Court is not entitled to enter into the fact finding exercise which the legislature has deliberately entrusted to a specialist tribunal”.[4]
[3]Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6 and Myers v Medical Practitioners’ Board (Vic) (2007) 18 VR 48 at 55–6 [28].
[4]Boucher v Dandenong Ranges Steiner School Inc (2005) 145 LGERA 21 at 26 [15] citing Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 and Whitehorse City Council v Golden Ridge Investments Pty Ltd (2005) 13 VR 275.
The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[5]
The requirement for leave under s 148(1) of the [VCAT Act] “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the court do found the subject matter of the appeal”.[6] It also confers a discretion about whether to grant leave[7] which an applicant must persuade the court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[8] It will ordinarily be necessary (in addition to a clearly articulated question of law)[9] for an applicant to make out a prima facie case[10] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[11]
[5](2011) 83 ATR 832 at 833–4 [3].
[6]Commissioner of State Revenue (Vic) v STIC Australia Pty Ltd (2010) 2010 ATC 20-232 at 11,839 [10];
81 ATR 682 at 687 [10] per Davies J.
[7]Department of Premier and Cabinet v Hulls [1999] 3 VR 331; Al-Hakim v Monash University (unreported, Court of Appeal, Vic, No 3707 of 2003, 28 March 2003); Myers v Medical Practitioners Board (Vic) (2007) 18 VR 48.
[8]See Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J.
[9]Osland v Secretary to the Department of Justice [No 2] (2010) 241 CLR 320 at 333 [21]; 84 ALJR 528 at 536 [21]; 267 ALR 231 at 240 [21] per French CJ, Gummow and Bell JJ.
[10]Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J; Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335 [10]; 15 VAR 360 at 366 [10].
[11]Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335-336 [11]; 15 VAR 360 at 366 [11] per Phillips JA; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65 at 69 [20] and 77 [65] per Hollingworth J.
An additional safeguard has since been imposed. Effective from 1 May 2018, the VCAT Act was amended to include s 148(2A).[12] The section provides:
The Trial Division of the Supreme Court may grant an application for leave to appeal under this section only if it is satisfied that the appeal has a real prospect of success.
[12] Justice Legislation Amendment (Court Security, Juries and Other Matters) Act 2017, s 31(3).
This amendment sees the replacement of the requirement that an applicant seeking leave to appeal from VCAT to the trial division of the Supreme Court must show that there is a real or significant argument to be put that an error below exists,[13] sometimes referred to as the Hulls test.[14] Instead, all applicants under s 148 are now subject to the same and more burdensome requirement: they must demonstrate that the appeal has a real prospect of success.[15] With respect to applications subject to the same test,[16] the Court of Appeal has said:[17]
… the test under s 63 of the Civil Procedure Act should be construed as one of whether the respondent to the application for summary judgment has a “real“ as opposed to a “fanciful“ chance of success; that the “real chance of success“ test is to some degree a more liberal test than the “hopeless“ or “bound to fail” test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not “hopeless“ or “bound to fail”, it does not have a real prospect of succeeding.
[13]Myers v Medical Practitioners’ Board of Victoria (2007) 18 VR 48 at 55 [28], citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335.
[14]See Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 7th ed, 2020), p 893 [VCAT.148.160].
[15]The same requirement is imposed upon applicants for leave to appeal a VCAT decision before the Court of Appeal under s 148(1)(a) of the VCAT, with the additional requirement to such an application set out at s 14C of the Supreme Court Act 1986; see Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 7th ed, 2020), p 893-7 [VCAT.148.160].
[16]Section 63(1) of the Civil Procedure Act 2010 empowers a court to give summary judgment in a civil proceeding if the defence, inter alia, has “no real prospect of success”.
[17]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 at 39 [29]. See also Kennedy v Shire of Campaspe [2005] VSCA 47, [3]–[14].
The new requirement of s 148(2A) makes express the restraint this Court ought exercise when reviewing decisions of VCAT, a restraint long and more generally recognised in case authority. In considering applications of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[18]
[18](2005) 222 CLR 115 at 136 [64].
Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[19] The focus of attention is on the substance of the decision and whether it has addressed the “real issue” presented by the contest between the parties.
Similarly, in Vegas Nominees Pty Ltd v Werribee Sports & Community Club Inc, Ashley J said:[20]
This Court has said more than once that it should not examine briefly stated reasons by an expert Tribunal in an over-legalistic manner or by the over-zealous drawing of inferences in order to disclose some supposed error; although where unambiguous language is used, the user should be taken to mean what the words say. I should add that the Court is not entitled to interfere with the Tribunal’s decision unless it is satisfied that there was in fact a vitiating error of law. It is not enough for the appellant to show that the Tribunal’s reasons for its decision are so expressed as to suggest the possibility that it proceeded upon a wrong view of the law. In support of the several propositions that I have just stated I refer to Portland Properties Pty Ltd v Melbourne & Metropolitan Board of Works,[21] Michaelis Bayley (Vic) Pty Ltd v Melbourne & Metropolitan Board of Works[22] and Teston Investments Pty Ltd v Melbourne & Metropolitan Board of Works.[23]
Additionally, “[o]n appeal this Court must recognise the forensic realities of the way in which the case was put to the Tribunal. It is these realities to which a Tribunal must respond in its reasons”.[24]
[19]Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575, 597; cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at 348 [74].
[20](Supreme Court of Victoria, Ashley J, 21 December 1994) at 13.
[21](1971) 38 LGRA 6 at 18.
[22](1980) 44 LGRA 65 at 67–8.
[23](1985) 62 LGRA 346 at 349–50.
[24]The Gombac Group Pty Ltd v Vero Insurance Ltd [2005] VSC 442, [59].
It is clear from the authorities to which reference has been made that the role of a specialist tribunal, such as VCAT, is not to be usurped by the Court and that a decision of such a tribunal is not to be interfered with absent a vitiating error of law.[25]
[25]And see Rysze International Pty Ltd v Yong [2021] VSC 786.
At the commencement of the hearing of the proceedings, it was agreed that the matter should proceed as a combined or “rolled up” application for leave to appeal under the provisions of s 148 of the VCAT Act and, if leave is granted, that the hearing should be treated as a hearing in the appeal itself. According, I have proceeded on this basis.
For the reasons which follow, I am satisfied that the Appellants have established a proper basis upon which leave to appeal should be granted and that the appeal has a real prospect of success. However, as these reasons indicate, the appeal has, in any event, failed.
The appeal
Leave to appeal is sought with respect to the following questions of law by the Appellants in the Amended Notice of Appeal:
Whether, on their proper construction, clause 22.7(v) of the leases affecting the Appellants’ Lots complied with s 35 of the Retail Leases Act 2003 (“RLA”).
The three grounds relied upon in support of the appeal are as follows:
1.Section 35(1) of the RLA provides, relevantly, that a rent review clause of a retail lease must state the basis or formula on which the review is to be made. Section 35(2) provides that the basis or formula must be, relevantly, “the current market rent of the retail premises” (emphasis added).
2.Clause 22.7(v) of the leases provided relevantly that the rent was to be determined by assessing the market rent of 23 properties as though it was one property and then allocating the rent to each lot owner determined as a fraction of the amount equivalent to that lot owners’ lot entitlement.
3.Hence, clause 22.7(v) did not determine the current market rent of the relevant retail premises (being, in the language of clause 22.7(v), each of the lots) but sought to determine the market rent for 23 different retail premises (as though – contrary to the fact - those 23 lots was one retail premises) and then distributing the rent for those 23 properties in accordance with the lot entitlements specified in the plan of subdivision. This is not a permissible basis or formula for rent review under s 35 of the RLA.
The substantive orders sought by the Appellants are that the orders made by Member C. Edquist be set aside insofar as they pertain to the Appellants’ Lots and that the proceeding be dismissed insofar as it pertains to the Appellants’ Lots.
Retail leases legislation
Critical to the issues in the VCAT proceedings and, consequently, with respect to this appeal are the following provisions of ss 35 and 37 of the RLA (and s 1 in this proceeding):
1. Main purpose
The main purpose of this Act is to replace the scheme in the Retail Tenancies Reform Act 1998 with a new scheme to enhance—
(a)the certainty and fairness of retail leasing arrangements between landlords and tenants; and
(b)the mechanisms available to resolve disputes concerning leases of retail premises.
35. Rent reviews generally
(1)If a retail premises lease provides for a review of the rent payable under the lease or under a renewal of the lease, the lease must state—
(a)when the reviews are to take place; and
(b)the basis or formula on which the reviews are to be made.
(2)The basis or formula on which a rent review is to be made must be one of the following—
(a)a fixed percentage;
(b)an independently published index of prices or wages;
(c)a fixed annual amount;
(d)the current market rent of the retail premises;
(e)a basis or formula prescribed by the regulations.
(3)A provision in a retail premises lease is void to the extent that it purports to preclude, or prevents or enables a person to prevent, the reduction of the rent or to limit the extent to which the rent may be reduced.
(4)However, subsection (3) does not apply to a provision that uses—
(a)a basis or formula referred to in subsection (2)(a), (b) or (c); or
(b)a prescribed basis or formula referred to in subsection (2)(e) that is also prescribed as a basis or formula to which subsection (3) does not apply.
(5)A rent review is to be conducted as early as practicable within the time provided by the lease. If the landlord has not initiated the review within 90 days after the end of that time, the tenant may initiate the review.
(6)A rent review provision in a retail premises lease is void if the lease does not specify how the review is to be made.
(7)If a provision in a retail premises lease that provides for a review of the rent payable under the lease does not comply with subsection (2) or is void under subsection (6), the rent is to be—
(a)as agreed between the landlord and tenant; or
(b)if there is no agreement within 30 days after the landlord gives the tenant, or the tenant gives the landlord, a written notice specifying an amount of rent for the purposes of the review, the amount determined by a specialist retail valuer appointed by the Small Business Commission as the current market rent of the retail premises.
(8)The landlord and tenant are to pay the costs of a valuation referred to in subsection (7)(b) in equal shares.
37. Rent reviews based on current market rent
(1)A retail premises lease that provides for a rent review to be made on the basis of the current market rent of the premises is taken to provide as set out in subsections (2) to (6).
(2)The current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm’s length transaction having regard to these matters—
(a)the provisions of the lease;
(b)the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease;
(c)the landlord’s outgoings to the extent to which the tenant is liable to contribute to those outgoings;
(d)rent concessions and other benefits offered to prospective tenants of unoccupied retail premises—
but the current market rent is not to take into account the value of goodwill created by the tenant’s occupation or the value of the tenant’s fixtures and fittings.
(3)If the landlord and tenant do not agree on what the amount of that rent is to be, it is to be determined by a valuation carried out by a specialist retail valuer appointed by—
(a)agreement between the landlord and tenant; or
(b)if there is no agreement, the Small Business Commission—
and the landlord and tenant are to pay the costs of the valuation in equal shares.
(4)The landlord must, within 14 days after a request by the specialist retail valuer, supply the valuer with relevant information about leases for retail premises located in the same building or retail shopping centre to assist the valuer to determine the current market rent.
Penalty: 50 penalty units.
(5)In determining the amount of the rent, the specialist retail valuer must take into account the matters set out in subsection (2).
(6)The valuation must—
(a)be in writing; and
(b)contain detailed reasons for the specialist retail valuer’s determination; and
(c)specify the matters to which the valuer had regard in making the determination.
(7)The specialist retail valuer—
(a)must carry out the valuation within 45 days after accepting the appointment, or within such longer period as may be agreed between the landlord and tenant, or if there is no agreement, as determined in writing by the Small Business Commission; and
(b)may seek to enforce under Part 10 (Dispute Resolution) an obligation of the landlord under subsection (4).
Lease provisions
Critical also in this proceeding are the following lease provisions:
Item 6.Rent
[1.1]
$37,100.00 plus GST per annum
(being the agreed proportion of the Property Rent. The Property Rent is $212,000.00 plus GST per annum.)
…
Item 15Permitted use
[2.2.1]
Supported residential service
[1.13]Application of Act:
The Act does apply.
Item 16Review date(s)
[2.1.1, 11
& 18]
(a)Market review date(s):
The commencement date of any further terms of this Lease.
(b)CPI review date(s):
On each anniversary of the commencement date by the annual movement on the preceding year’s rent by the Consumer Price Index (Melbourne All Groups).
(c)Fixed review date(s) and percentage or fix amount increases:
Not Applicable.
…
Item 22 Additional Provisions
…
22.6Rental
(i)A single annual rental amount will be agreed for the Property (the Property Rent) and the rent due to the Landlord and each Registered Proprietor will be a proportion of the Property Rent. For the avoidance of doubt, the proportion of the Property Rent due to each Registered Proprietor is annexed to this Lease and marked ‘Schedule Three’.
(ii)The Property Rent is to be paid monthly, in a single sum, to the Managing Agent as directed by or agreed with the Managing Agent, from time to time. The Tenants bear no responsibility for division of the rent to the Landlord or other Registered Proprietors.
22.7Market Review
(i)the Tenants and the Registered Proprietors hereby agree and acknowledge that Lease Conditions 11.1.2, 11.1.3, 11.1.6(b), 11.3 and 11.5 herein are deleted and that a market review shall be undertaken in accordance with this Additional Provision 22.7.
(ii)The Property Rent for any further term is to be determined in accordance with this clause and the Rent for the Premises determined as set out in clause 22.6 above.
(iii)Lease Condition 11.1.6(b) is replaced as follows:
“11.1.6(b)the valuer resigns, dies or becomes unable to complete the valuation then the parties may immediately appoint a replacement valuer in accordance with Additional Provision 22.7.”
(iv)A valuer shall be appointed by agreement between the Tenants and the Registered Proprietors by simple majority of the Registered Proprietors (1 vote per lot owed at the Property) or in the event of any disagreement by the President of the Real Estate Institute of Victoria (REIV) or the Small Business Commissioner as appropriate, for the assessment of market value of the Property.
(v)The valuer is to determine the market value by assessing the Property as a whole property to determine the Property Rent and the individual rent to be received by each Registered Proprietor is to be determined as a proportion of that amount equivalent to that Registered Proprietor’s lot entitlement (as set out in the plan of subdivision 507062C annexed to this Lease and marked ‘Schedule Four’).
(vi)The cost of any valuer is to be borne half by the Tenants and half by the combined Registered Proprietors in proportion to their lot entitlement (as set out in the plan of subdivision 507062C).
…
22.9Managing Agent
(i)A Managing Agent shall be appointed by the Registered Proprietors by simple majority of the Registered Proprietors (1 vote per lot owed at the Property) or in the event of disagreement by the President of the REIV to manage the Property, for the purposes of all of the Tenants’ payments and requests under the Lease.
(ii)The Tenant is not liable to contribute to the cost of the Managing Agent, which cost is to be borne by the Landlord and other Registered Proprietors in proportion to their lot entitlement (as set out in the plan of subdivision 507062C).
(iii)It is a fundamental term of this Lease that the Managing Agent remain appointed to manage the Property and that the Managing Agent have full authorisation to negotiate and act on behalf of the Landlord and Registered Proprietors.
(iv)The Landlord and Registered Proprietors agree that for all expenses and decisions expected to be less than $1,000.00 in total, the Managing Agent is authorised to make a decision on behalf of the Landlord and Registered Proprietors which the Landlord and Registered Proprietors will be bound by.
(v)In the event that a decision or expense is expected to be more than $1,000.00 in total, the Managing Agent must seek instructions from the Registered Proprietors. The Managing Agent is authorised to act if he or she receives instructions from a simple majority of the Registered Proprietors. In the event of disagreement between the Registered Proprietors (either by a stalemate or an inability to reach a full majority), the Landlord and Registered Proprietors authorise the Managing Agent to make the decision on its behalf in accordance with the legal obligations of a retail premises Landlord; and the Landlord agrees to be bound by any such decision.
Appellants’ submissions
As observed in the Appellants’ submissions, s 35(1) of the RLA provides, relevantly, that a rent review clause of a retail lease must state the basis or formula on which any rent review is to be made. Moreover, s 35(2) provides that the basis or formula must be, relevantly, “the current market rent of the retail premises” (Appellants’ emphasis).
The Appellants do not dispute that the leases under review are subject to the RLA.[26] The critical issue arises, the Appellants contend, as a result of the provisions of clause 22.7(v) of the leases, which provides that the rent is to be determined by assessing the market rent of the 23 subdivided units that comprise the Property as though it was one property and then allocating the rent to each lot owner determined as a fraction of the amount equivalent to that lot owner’s lot entitlement. The Appellants submit that clause 22.7(v) does not provide for the determination of the current market rental of the relevant retail premises (being, in the language of that sub-clause, each of the lots) but seeks to determine the market rent for 23 different retail premises (as though – contrary to the fact – those 23 premises were one retail premises) and then distribute rent for those 23 premises in accordance with the lot entitlement specified in the plan of subdivision of the Property. The Appellants contend that this is not a permissible basis or formula for rent review under s 35 of the RLA.
[26]Referring to Tribunal Reasons, [55].
Consequently, it is contended that a finding by the Tribunal that such a formula is permissible under these provisions means that its decision is infected by relevant legal error and ought to be set aside. Moreover, it is contended that as the leases did not have a valid rent review provision in accordance with s 35(2) of the RLA, and the rent was not otherwise agreed between the landlord and tenant, the rent for each unit must be determined by a specialist retail valuer appointed in accordance with s 35(7)(b).
The relevant facts as set out in the Tribunal’s Reasons[27] are summarised by the Appellants as follows:[28]
[27]See Tribunal Reasons, [11]-[18].
[28]Appellants’ Outline of Submissions (10 February 2022), [5].
(a)Doncaster Manor is a 23 lot subdivision, with each property on an individual certificate of title. Each of the properties is leased to Patrick and Ingrid Brophy who operate an aged care facility at Doncaster Manor.
(b)a dispute regarding the leases was settled pursuant to terms of settlement dated 8 October 2013. Those terms provided that:
(i)the tenants would enter into a new lease with each registered proprietor;
(ii)those leases would each be for a term of five years (ie until 2018) with five further options of five years each;
(iii)the rent in respect of the further options was to be determined by assessing the whole of Doncaster Manor (including the common property) and then determining what each owner was to receive by calculating the lot entitlement of each property as a fraction of the total lot entitlement;
(c)new leases were entered into which reflected the terms of settlement (by means of a master lease which each of the property owners and the tenants agreed to). Insofar as the determination of rent in the second and subsequent terms was concerned, clause 22.7 of the leases provided as follows (noting that “Property” was defined to mean the entirety of Doncaster Manor, being the 23 premises plus the common property):
‘For the assessment of market value of the Property, the valuer appointed by the parties or by the REIV or as appropriate is to determine the market value by assessing the Property as a whole property and the individual rent to be received by each lot owner is to be determined as a fraction of that amount equivalent to that lot owners lot entitlement (as set out in the plan of subdivision)’.
(d)The plaintiffs purchased lots 23 and 18 in 2016 and 2018 respectively. To the extent that it matters, lots 1-22 are a variety of different sized and located residences for the inhabitants of the aged care facility whereas lot 23 is a larger residence which was used as a residence for the facility manager and night shift nurses (see paragraph [53] of [Tribunal] Reasons).
(e)The initial term of the leases expired in October 2018. Issues arose as to the determination of rent. Only one of those issues is the issue that remains before the Court.
In my view, this is a helpful summary of these factual matters and is not, as I understand it, in dispute between the parties.
The Appellants contend that the key parts of the Tribunal Reasons are at paragraphs 69 to 70, and whilst I accept this proposition, it is also useful to make reference to the prefatory material to these paragraphs, in paragraph 68. This Tribunal reasoning is as follows:[29]
[29]Tribunal Reasons, [68]-[70].
68The first characterisation is clearly justified, but I do not accept the second. The second part of clause 22.7(v) in the unit 23 lease provides:
the individual rent to be received by each Registered Proprietor is to be determined as a proportion of that amount equivalent to that Registered Proprietor’s lot entitlement (as set out in the plan of subdivision 507062C annexed to this Lease and marked ‘Schedule Four’).
69In my view, it is clear that the second step in clause 22.7(v) is not just concerned with how the rent is to be distributed. It is also concerned with the determination of the rent to be received by each Registered Proprietor in respect of their particular lot.
70As each particular lot is the subject of a retail premises lease, I find that clause 22.7(v) operates as a formula for the determination of the current market rent of retail premises and accordingly it falls within s 35(2) of the RLA.
The basis of this reasoning, the Appellants contend, is that the determination of the rent to be received by each registered proprietor as a proportion of the total amount received for the Property was a means of determining the rent and, because it was a retail premises lease, “clause 22.7(v) operated as a formula for the determination of the current market rent of retail premises”.
In relation to this reasoning, the Appellants concede that, as the Tribunal stated – at paragraph 69 of its Reasons – the allocation of rent according to lot entitlement is concerned with the determination of rent. However, it is contended that this does not grapple with the key issue, namely, whether the rent that is being determined is the current market rent of the relevant retail premises – being lots 18 and 23. The Appellants submit that determining the market rent of a much larger premises (being the entirety of the Property) and then multiplying it by the somewhat arbitrary figure, being the relevant fraction of lot entitlement, does not arrive at the market rent for lots 18 and 23 (or, if it does, that is largely coincidental). Moreover, it is contended that the issues that one would usually expect to see in a determination of the market rent of a property, such as the size, nature and quality of the premises, are absent. The result will be, it is said, that any improvements made to a lot since the lot entitlement was determined, and any differing deterioration of the lots, will be ignored, as will any change in the uses to which such lots are or can be put. Thus, it is contended that this utilization of lot entitlement as provided for in the plan of subdivision of the Property does not produce a result that necessarily reflects the market value of an individual lot or even the proportion of market value. Rather, it is said that it reflects a lot owner’s interest in the common property affected by the owners corporation.[30]
[30]See definition of “lot entitlement” at s 3 of the Subdivision Act 1998 (Vic).
Further, the Appellants say that whilst it may be the case that the drafters of the Terms of Settlement and the leases considered that the method adopted was a convenient means of determining the market value for the relevant lots, s 35 of the RLA does not permit such an approach or “formula”. Rather, it is submitted that s 35 relevantly requires that the rent review be of the current market rent of the retail premises. Thus, it is contended that it is not permissible to determine the market rent for a much larger property and then divide that amount by a figure that may or may not reflect what the market would require to be paid by way of rent in respect of each lot.
The Appellants’ submissions then turn to the, so-called, Managing Agents “fall-back argument”. In this respect it is helpful to set out part of the Tribunal Reasons to which reference is made in this respect:[31]
[31]Tribunal Reasons, [72]-[78].
72Section 37(1) of the RLA provides:
A retail premises lease that provides for a rent review to be made on the basis of the current market rent of the premises is taken to provide as set out in subsections (2) to (6).
73Section 37(2) of the RLA sets out a number of rules to be applied when the current market rent is being assessed. Section 37(3) provides:
If the landlord and tenant do not agree on what the amount of that rent is to be, it is to be determined by a valuation carried out by a specialist retail valuer appointed by—
1.agreement between the landlord and tenant; or
2.if there is no agreement, the Small Business Commission—
and the landlord and tenant are to pay the costs of the valuation in equal shares.
74The Managing Agent submits that s 37 of the RLA applies and that s 37(3) allows the parties to agree what “current market rent” means.
75Mr Krajcar does not grapple with this submission about s 37(3), because he contends that s 37 does not apply. It does not apply because the leases do not provide “for a rent review to be made on the basis of the current market rent of the premises” which is the gateway established by clause 37(1).
76I have found above that clause 22,7(v) does establish a formula for a rent review to be made on the basis of the current market rent of the premises, and it follows that I am satisfied that s 37 does apply.
77Having established that, I highlight that s 37(3) clearly establishes a two-stage process. Firstly, the landlord and the tenant must have an opportunity to agree on what the amount of the rent is to be. Only if agreement cannot be determined, then it is to be determined by a valuation carried out by specialist retail valuer.
78I accordingly accept the Managing Agent’s submission that the parties are entitled to agree, under s 37(3), the rent. This is an important point, which I refer to below.
In relation to the “fall-back argument”, the Appellants contend that s 37 of the RLA only applies if the retail lease provides for rent review to be made on the basis of “the current market rent” of the particular premises. A lease provision of this nature is said to be the “gateway” to the operation of s 37 and, consequently, if a lease does not contain such a provision then the operation of s 37 is not enlivened. It is contended that the lease in this instance does not contain a provision for a rent review on the basis of “the current market rent” and so the provisions of s 37 are not applicable, including the provisions of s 37(3) which contemplate the agreement of the parties “on what the amount of that rent is to be”. The Tribunal did, nevertheless, accept that the parties are entitled to agree, under s 37(3), the rent.[32] This finding of the Tribunal is not, however, relied upon by the Appellants as a question of law the subject of this appeal. As the application and operation of s 37 is integral to the position put by the Managing Agent that the Tribunal has made no vitiating error with respect to the application of s 35 of the RLA it is necessary to consider the operation and possible application of s 37 in this appeal. Additionally, the Tribunal considered submissions premised on the basis that the previous managing agent, Teska Carson, had agreed the Property Rent for the purposes of clause 22.7(v) of the lease;[33] another aspect of the argument put by the First Respondent that no vitiating error has been made by the Tribunal in terms of this appeal.
[32]Tribunal Reasons, [78].
[33]Tribunal Reasons, [79]-[91].
Further, it is contended by the Appellants that when s 37(3) provides for there to be agreement between the landlord and the tenant, that means a figure, a “dollar figure”, being adopted which represents a market rent and does not mean that any agreement reached between the tenant and the landlord should be taken to represent the market rent. Moreover, it is said that this is not consistent with the wording of s 37 and would also defeat the purposes of s 35.
The approach of the Appellants with respect to the interpretation and application of the provisions of s 37 of the RLA does involve a strict reading of its provisions in two respects. First it advocates strict reading of the expression “the current market rent” and, secondly, a reading of the provisions of s 37(3) which would exclude an agreement “on what the amount of that rent is to be” which though not naming a “dollar amount” does provide a clear mechanism which enables the “dollar amount” agreed to be determined.
First Respondent’s submissions
The First Respondent submits that the criticisms of the Tribunal Reasons made by the Appellants are misplaced, for five broad reasons.
First, it is said that determining the market rent of a much larger premises and then multiplying by what is said to be “some arbitrary figure” does not arrive at the market rental for lots 18 and 23.[34] This submission, it is said by the First Respondent, ignores the primacy which the provisions of the lease are to be given in determining “current market rent”; a critical matter, emphasised by McHugh JA in Legal and General Life of Australia Ltd v A Hudson Pty Ltd.[35]
[34]Appellants’ Outline of Submissions (10 February 2022), [8].
[35](1985) 1 NSWLR 314 at 329.
In the context of the lease provisions the First Respondent says that under the leases by the individual lot owners, each of these landlords have agreed to a process whereby a managing agent acts, in effect, as a proxy for each of the landlords, collecting not only rent but also making decisions on their behalf, with each landlord being bound where a simple majority exists.[36] On this basis it is said that there is limited, if any, scope for the Appellants’ leases to be, effectively, put to market, given the manner in which the arrangements between the landlords, collectively, and the tenants have been put in place through the terms of the leases. It is said that the division of rental in accordance with unit liability (or presumably entitlement) simply reflects this and what is, in effect, something in the nature of a joint venture by the unit owners to further the permitted use of the Property in a commercially beneficial and practical way.
[36]See clause 22.9 of the lease.
Moreover, under the provisions of the various leases, the same and only permitted use is that of “Supported residential service”. Again, it is said that this consideration – in the context of the provisions of the various leases – must be given significant weight. The collective manner in which the individual lots comprising the Property are utilised necessitates, it is said, a process of determining current market rent which adopts and reflects this unified approach to the usage of the respective lots comprising the Property. In this respect, reference was made to Serene Hotels Pty Ltd v Epping Hotels Pty Ltd[37] for the general proposition with respect to rental valuation that the RLA does not relevantly “… direct that any particular methodology is to be adopted nor does it prohibit any particular methodology so long as the chosen methodology is consistent with the Act”.[38] Reference was also made to 756 Glenferrie Road Pty Ltd v Mountfords Shoes Pty Ltd[39] in this respect. This decision is entirely consistent with this general proposition but, as discussed further, illustrates its limits having regard to the provisions of the RLA.
[37][2015] VSCA 228.
[38][2015] VSCA 228, at [12] (Tate JA, with whom Weinberg JA agreed); and see Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516, similarly with respect to inconsistency between contractual and statutory provisions.
[39][2013] VCAT 640.
Secondly, it is observed that the Appellants go on to identify a number of issues which are said to be ones that would usually be expected to be seen in a determination of the market rent of a property, such as the “size, nature and quality of the premises”.[40] However, it is contended, that there is nothing in clause 22.7(v) of the leases which directs a valuer to ignore such qualities. Indeed, it is said that determining the market rent for the Property, the valuer would be required to consider these attributes, and to then ascribe them collectively across each of the 23 lots to reach a figure of the current market rent for which the Tenant is then liable to pay. Thus it is said that the Appellants’ “true complaint” – being the manner in which the current market rent is then distributed amongst the landlords to reflect the collective management and use of each of their lots – has no bearing on the determination of the current market rent which the tenant is required to pay.
[40]Appellant’s Submissions, [8].
Thirdly, it is observed that the Appellants contend that lot entitlement does not reflect “market” value (First Respondent’s emphasis) of a particular lot or even the proportion of market value,[41] so that the supposed arbitrary distribution of rent should be somehow invalid under the provisions of the Act. Again, it is said that this submission seeks to bring into consideration matters which are not relevant to the determination of current market rent, as “market value” is not a factor which has any role to play under the Act, and is an entirely different proposition to “current market rent”.[42]
[41]Appellant’s Submissions, [9]; emphasis added.
[42]Eureka Funds Management Ltd v Freehills Services Pty Ltd [2008] VSCA 156.
Fourthly, it is said that the matters relied upon by the Appellants to prevent the application of s 37(3) of the RLA, as the “gateway” requirement to this sub-section is that the leases must first contain a clause requiring a current market rent review cannot apply. In this respect, the First Respondents contend that under s 35(7), a distinction is made between a clause in a lease which does not “comply” with s 35(2), and one which is “voided” under other provisions in the rent review mechanisms contained in the Act. It is said that this distinction is important because even if criticism can be made with respect to the mechanisms employed under clause 22.7(v) of the leases, the rent review provisions of the Act do not have the effect of voiding that clause. Accordingly, it is contended that the leases still contain a clause which requires a current market review, so the ability to agree to a rental amount under s 37(3) still applies.
Fifthly, and finally, the First Respondents submit that a purposive approach to the interpretation of the RLA is required, the legislation having been held to be ameliorating or remedial legislation whose purpose is to provide protections to tenants and to promote certainty in the landlord and tenant relationship. In this respect, reference was made to Peppercorn Nominees Pty Ltd v Loizou[43] and Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd.[44]Reference was also made to s 35 (a) of the Interpretation of Legislation Act 1984, which requires a purposive approach to legislative interpretation.
[43](1997) V ConvR 54-560.
[44][2013] VSC 344.
More particularly, it is submitted that the effect of overturning the Tribunal orders would be that the entire mechanism by which the parties have determined rent is to be collected and distributed from the Tenants will be set aside. In that event, each of the individual lot owners would be required to undertake their own market review, presumably with the Tenants having to meet half the cost of each of the 23 separate evaluations. It is said, that it would completely undermine the collective arrangements which have been in place since at least 2013 to allow the Tenants to operate the business at the Property. Consequently, it is said that an interpretation of s 35(2) of the RLA which undermines this collective arrangement is not one which would involve an interpretation of its provisions as ameliorating or remedial legislation or follow from and amount to a purposive approach to the RLA.
Discussion and conclusions
It is well established that the RLA is ameliorating or remedial legislation. As early as 1997 Smith J in Peppercorn Nominees Pty Ltd v Loizou said:[45]
[45](1997) V ConvR 54-560 at 66,373.
The parties are broadly in agreement about the principles to be applied in interpreting s 10(1) of the Act. In particular the respondents have accepted that the legislation is remedial legislation and that such legislation should be given a beneficial construction (Re Kearney [1984] HCA 14; (1984) 158 CLR 426; 52 ALR 24 at 28; BC8400523). They have submitted, however, that the principle does not entitle the court to adopt a construction that does not confirm with the language of the legislation. Reliance was placed on statements of the High Court in the joint judgment delivered in Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622; 54 ALR 639; BC8400510 where it was said (at CLR 638; ALR 649):
Section 18 is remedial in character and its language should be construed so as to give the most complete remedy which is consistent “with the actual language employed” and to which its words “are fairly open ...” ‘.
The High Court (at CLR 638; ALR 650), however, referred to two major objections which precluded its acceptance of the particular argument relied upon:
First, the rules that remedial provisions are to be beneficially construed so as to provide the most complete remedy of the situation with which they are intended to deal must, as has been said, be restrained within the confines of “the actual language employed” and what is “fairly open” on the words used. Once the conclusion is reached that the common law duty of disclosure cannot properly be regarded as a term or condition of the contract of insurance, the language employed in s 18 simply does not extend to that duty. Secondly, and perhaps more importantly, there is no proper basis for concluding that it was ever intended that the remedial function served by s 18 should extend to the case of a breach of the ordinary common law duty.
See also Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd where it was said that the RLA is “clearly ameliorating or remedial legislation” as a preface to a reference to this part of the judgment in Peppercorn Nominees.[46]
[46][2013] VSC 344, at [42](Croft J).
Moreover s 35 of the Interpretation of Legislation Act 1984 requires a purposive approach to the interpretation of legislation.[47]
[47] 35. Principles of and aids to interpretation
However, neither the common law nor the statutory approach to statutory interpretation enables the Court to transcend clear express words of an act or to disregard the fundamental structure and approach of legislation. In the case of the RLA the consistent approach is to focus on the provisions of individual leases – each individual demise. On this basis it follows that “retail premises” the subject matter of the operation of provisions such as s 35 and s 37 is that of each individual lease. There is no basis to “amalgamate” premises the subject of separate demises and to treat them, collectively, as the critical “retail premises” for the operation of these provisions. Limitations of this nature are illustrated by the decision in 756 Glenferrie Road Pty Ltd v Mountfords Shoes Pty Ltd[48] where Senior Member Riegler in VCAT said:[49]
[48][2013] VCAT 640.
[49][2013] VCAT 640, at [16]-[22].
16.As indicated above, s.37 of the RLA also regulates how market reviews are to be conducted where a lease provides for rent review. Insofar as a clause in a lease conflicts with s.37 of the RLA, the Act is to prevail.
17.Mr Morfuni submitted that s.37(2)(a) expressly requires that the Valuer, in arriving at his determination of the current market rent, must have regard to the terms of the Lease. Therefore, the Valuer was obliged to determine the market rent on the basis of two separate retail shops.
18.I accept that s.37(2)(a) requires a specialist retail valuer to have regard to the terms of the lease in question. However, that does not, in my view, mean that a specialist retail valuer is required to apply terms that prescribe or adopt a methodology of valuation which conflicts with the RLA.
19.In the present case, Clause 11.6 of the Lease and s.37(2)(b) of the RLA are uneasy companions. On one hand, Clause 11.6 requires the valuer to determine current market rental on the basis of 2 separate retail shops. On the other hand, s.37(2)(b) states that the current market rent is to be the rate obtainable in a free and open market having regard to the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease. There is tension between Clause 11.6 and s.37(2)(b) because the current use to which the Premises are put is not as 2 separate retail shops. As I have indicated, the Premises are currently used as one retail shop. There are no partitions or other features distinguishing Shop 1 from Shop 2. Therefore, in order to determine a current market rental on the basis of two separate retail shops, the Valuer must ignore the current use to which the Premises are put under the Lease; namely, as one retail shop.
20.It is not in contention that the Lease permits the Tenant to occupy and use the Premises as one shop, nor is there any requirement under the Lease that the Tenant maintain any division between Shop 1 and Shop 2. Therefore, to only allow an assessment of the current market rent based on a hypothetical assumption that there are two retail premises requires the Valuer to ignore the reality of the situation, which in my view, is contrary to the evident purpose of s.37(2); namely to arrive at a rent that the market is willing to pay for the Premises, having regard to their permitted use under the Lease.
21.Consequently, I am of the opinion that the requirement under Clause 11.6 to only allow a determination of the current market rent based on two separate retail shops contravenes s.94 of the RLA, which states:
(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between the parties to a retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).
22.In my view, s.37(2) requires a specialist retail valuer to look at what the Tenant is permitted to do under the Lease and to determine the highest rent that would reasonably be expected to be paid for the Premises as one demise. To require a specialist retail valuer to artificially split the Premises into two separate leasehold interests may result in an outcome that does not reflect the rent obtainable at the time of review in a free and open market between a willing landlord and a willing tenant in an arm’s length transaction.
The question of law the subject of the Amended Notice of Appeal is whether the basis or formula for rent review said to be provided for in clause 22.7(v) of the leases complies with s 35(2) of the RLA.[50] In this respect, particular reference is made to the discussion in the Tribunal Reasons (which has already been substantially set out[51]), which concludes with paragraph [70]:[52]
70As each particular lot is the subject of a retail premises lease, I find that clause 22.7(v) operates as a formula for the determination of the current market rent of retail premises and accordingly it falls within s 35(2) of the RLA.
In the context of this discussion it is not, in my view, entirely clear that the Tribunal has decided that clause 22.7(v) is a permissible rent review formula for the purposes of clause 22.7(v) of the lease, particularly having regard to the position reached on other grounds.[53] Nevertheless, for present purposes I will assume that this is the position, consistent with asserted error of law, the basis of this proceeding.
[50]See above, [14]-[15].
[51]See above, [23].
[52]Tribunal Reasons [67]-[70].
[53]See Tribunal Reasons [72]-[91].
Proceeding on the basis indicated with respect to the s 35(2) issue I accept that clause 22.7(v) of the leases does provide a “basis or formula” for rent review for the “current market rent of the retail premises” within the permitted ambit of s 35(2)(d). It is true that it is not a “basis or formula” commonly encountered in leases in a more simple form but it must be considered having regard to the circumstances of the lease provisions, the nature of the premises and the permitted use under the lease. Moreover, the purpose of the RLA, generally expressed in s 1 in terms of enhancing “certainty and fairness in retail leasing arrangements between landlords and tenants” is not served by disregarding the ameliorating and remedial nature of the legislation and striking down commercial arrangements involving retail leases on the basis of a strict and literal approach to the interpretation of its provisions. Quite apart from these considerations the legislature has sought to avoid this position in mandating a purposive approach in s 35 of the Interpretation of Legislation Act 1984. As indicated previously, this approach cannot be carried so far that a court is, effectively, giving pre-eminence to contractual or lease provisions over clear legislative provisions, a point made in 756 Glenferrie Road Pty Ltd v Mountfords Shoes Pty Ltd.[54] However that is not, in my view, the position with respect to clause 22.7(v) of the lease. Its provisions rely upon a market valuation of the Property – an operational and integrated nursing home – of which each of the leased premises form part. Issues were raised by the Appellant with respect to matters to which a valuer may have regard if there were to be a valuation of particular units within the Property. It is said by the Appellants that a “global” valuation of the whole facility, the Property, would or may not reflect their state of repair, improvement or the facilities each may offer. There is, however, an air of unreality in these arguments when the nature of a market valuation, as discussed by McHugh JA in Legal and General Life of Australia Ltd v A Hudson Pty Ltd[55] is considered. It is a reasonable inference from the lease terms and arrangements and the factual findings by the Tribunal that the units are very much part of the whole, the Property, and that a market rental valuation of each would be highly artificial and not reflect reality. Additionally, to suggest that reliance upon lot entitlement as set out in the relevant plan of subdivision as a means of apportioning overall rental, hence the manner in which the fruits of a market rental valuation of the Property is to be applied, would appear to have been agreed and accepted by the individual unit holders as landlords as a fair means of differences between the size and other attributes of each of their units.
[54][2013] VCAT 640.
[55](1985) 1 NSWLR 314 at 329.
For the preceding reasons, I find, assuming the Tribunal is to be taken as finding that the basis or formula provided by clause 22.7(v) of the lease was permitted under the provisions of s 35(2) of the RLA, that there was no error of law in that finding. In any event, even if I were to find that the Tribunal had made an error of law in this respect, I am of the view that it would not be a vitiating error as, for the reasons which follow, there are other bases upon which the Orders are justified.
In my view, for the reasons advanced by the First Respondent any deficiencies that may have arisen as a result of the operation of s 35 of the RLA are transcended by the Managing Agent’s agreement as to the reviewed rent for the purpose of s 37(3) of the RLA or as a matter of agreement at law generally. At the outset it should be observed that even if s 35 were to be engaged adversely to the operation of clause 22.7(v), the only provision in that section which renders any lease provision for rent review void is one which “purports to preclude, or prevents or enables a person to prevent, the reduction of the rent or to limit the extent to which the rent may be reduced” (see s 35(3)). Clause 22.7(v) is not a provision of this nature.
As observed previously, the Appellants contend that s 37 of the RLA is not applicable in the present circumstances, a position based on a literal and restrictive interpretation of s 37(1), the “gateway” in relation to “current market rent of the premises” and the nature of any agreement under s 37(3), in the latter instance as requiring an agreement as to a “dollar amount”.
As discussed with respect to s 35 of the RLA, I am of the opinion that clause 22.7(v) is to be treated for the purpose of these provisions as a provision for rent review on the basis of the “current market rent” and hence s 37(1) is enlivened – and so the “gateway” is opened. As to the second point, with respect to s 37(3), I am of the view that to interpret an “agreement” for the purpose of these provisions as requiring an agreement to a “dollar amount” of rental in circumstances where the “dollar amount” is readily ascertainable would be at odds with the ameliorating or remedial nature of the RLA and also at odds with a purposive approach to its provisions.
As appears from the Tribunal reasons,[56] and as observed by the First Respondent on the basis of pleadings in the VCAT proceedings,[57] it was not disputed that Teska Carson, the predecessor “managing agent” to the Managing Agent agreed the Property rent for the purposes of clause 22.7(v) and, hence the provisions of that clause fixed the rent under the individual leases. The First Respondent made submissions with respect to the extensive powers of the Managing Agent under the provisions of clause 22.9 of the leases, a provision which is, in my view sufficiently broadly cast to provide the necessary power in the Managing Agent to agree the rent as applied to each of the units under the leases for the purposes of s 37(3) of the RLA or by way of an agreement at general law. There is nothing in the relevant RLA provisions which would prevent or avoid an agreement of this nature in the current circumstances.
[56]See Tribunal Reasons, [80].
[57]Transcript, p, 44.
For the preceding reasons the appeal fails and the Orders of the Tribunal made on 7 October 2021 stand.
Orders
The parties are to bring in orders to give effect to these reasons.
I reserve the question of costs and will hear the parties on this issue unless the costs position is agreed.
In the interpretation of a provision of an Act or subordinate instrument—
(a)a construction that would promote the purpose or object underlying the Act or subordinate instrument (whether or not that purpose or object is expressly stated in the Act or subordinate instrument) shall be preferred to a construction that would not promote that purpose or object; …
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