Mattana Coiffure Pty Limited v Sotiropoulos

[2003] NSWADT 210

CITATION:	Mattana Coiffure Pty Limited v Sotiropoulos [2003] NSWADT 210
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Mattana Coiffure Pty Limited RESPONDENT Vlasios Vasilios Sotiropoulos
FILE NUMBER:	035024
HEARING DATES:	22/07/2003, 23-24/07/2003
SUBMISSIONS CLOSED:	07/24/2003
DATE OF DECISION:	09/09/2003
BEFORE:	Fox R - Judicial Member
APPLICATION:	Claim for payment of money - Claim for rectification of the lease - Costs
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:
REPRESENTATION:	APPLICANT Mr Darke, counsel RESPONDENT Mr Burton, counsel
ORDERS:	Matter to be listed on 15 September 2003 at 10 am

REASONS FOR DECISION

1 The Applicant seeks orders for refurbishment of rented premises damaged as a result of the Respondent landlord’s building activities on the site, and compensation for loss of past and future trading profits, from the commencement of the interference caused by the construction to the anticipated date of completion of the reinstatement. It also seeks an order for costs.

2 The premises are a street level hairdressing salon at 787 Military Road, Mosman, and indeed that is the way they are described in the Lease – “Folio Identifier, part only being ground floor premises 787 Military Road, Mosman”. The Lease is in standard Law Society approved form dated 17 April 2000, for a term of 5 years, without option, at a rental of $88,400.00 per year (or $1,700.00 per week), subject to annual CPI Increases. The building appears in Edwardian times to have been a shop with residence at rear and above. The upper facade of the building is heritage listed, but the street level shop front, and the rest of the building is not.

3 The Applicant had commenced trade in 1996 some distance down the road and by the year 2000, those premises had grown too small, and the Applicant resolved to move into the current larger (and much more expensive) premises.

4 The Applicant’s money claim was for damages for breach of the covenant for quiet enjoyment, and was not pursuant to the provisions which Section 34 of the Retail Leases Act 1994 (“the Act”) imports into the Lease.

5 I was not given a copy of the mandatory Disclosure Statement, and consequently cannot refer to that to seek to ascertain what exactly was intended by the parties to be included in “ground floor premises”. However, there was a one page document headed “Agreement to Lease” signed between the parties some time in March 2000. In it the premises are described as “ground floor lockup shop 787 Military Road, Mosman includes one car parking space and rear access”.

6 Considering the definition found in Section 3 of the Act;

retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:

(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.


I am satisfied that the Lease amounted to an exclusive right to occupy the ground floor built area, and included a shared right to park a vehicle in the rear yard and a shared right of access to the rear lane Council car park.
7 At the commencement of the Lease, with full council approval, the Applicant gutted the premises and effected a very high quality modern, architect designed fit-out. This created a waiting and display area at front, with a cutting area for approximately 15 cutting chairs and a shampooing facility, all forming the main salon. To the rear of the main salon were two beauty treatment rooms. The salon and the treatment rooms were all at the one level. The fit-out was by way of custom built ceiling height polyurethane sheeted walls and suspended fire rated ceiling. There was built-in sound and ducted air-conditioning in the ceiling cavities, as well as the usual fire safety system, and, apparently, a full alarm system. The custom built sinks, cupboard and other fittings in the beauty treatment rooms were of a high modern standard, reminiscent of a modern dental surgery fit-out.

8 One side of the treatment rooms formed a corridor to the rear of the premises. The corridor terminated in what might previously have been the laundry of the attached residence. It was at a lower level; perhaps one or two steps down, and included the rear entrance. This area, shown in the fit out plans as “back of house” was not, in the re-fit, treated to the same high quality polyurethane walls etc but was merely re-tiled and repainted. It had a fully enclosed toilet with door, and a fully enclosed small staff area, but this contained a commercial washing machine, a commercial dryer, a hand basin and a hot water system, and so would have afforded only room for staff to stand.

9 The Applicant’s evidence was that this “back of house” area was clean neat and tidy, because the toilet was used by clients as well as staff. Further, clients were encouraged to use the rear entrance as a matter of convenience, because there was more parking in the council car park to the rear, than there was in Military Road at front. In fact there was a built in intercom system at the back door, so that, when the back door (or the security grill over the back door) was locked, clients could draw attention to gain entry.

10 There was a vacant yard area between the back entrance and the rear boundary of the holding. This was used as a car park, it was perhaps long enough to accommodate two cars end to end, and wide enough to leave a comfortable walking passage.

11 It transpired from the evidence that, for a least a year prior to the commencement of the letting, the Lessor had been exploring development applications with Mosman Council. These aimed to refurbish the separately let upstairs flat (which gained its access by a rear stairway, and so to the rear laneway/car park) and the construction of a second upstairs residence, partly on top of the Applicant’s treatment rooms, and partly suspended over the rear yard.

12 I am satisfied that this development was in the process of negotiation with the Council at the time when the Applicant submitted its salon development application. The salon development application was lodged on 17 May 2000 (one month after a commencement of the Lease) and was approved by Council on 3 August 2000. The Respondent’s application for “proposed alterations and additions to ground floor shop and construction of one three bedroom dwelling over two levels at the rear of premises” was obviously lodged some time in 1999, and was approved by Council on 28 July 2000, although it may well be the case that the Respondent did not know about this until 5 October 2000. The Respondent’s Development Consent expired on 28 July 2005, perhaps 6 weeks after the termination date of the Lease.

13 It is clear that the Lessor’s Development Consent envisaged the complete demolition of the “back of house” laundry/toilet facilities because the existing backyard car park area was not sufficient, by modern standards, to accommodate two cars nose to tail. Although the evidence that I was given is quite vague in this regard, the initial concept was that replacement toilet/laundry facilities could be built at the side of the premises, in what was the traditional turn of the century light and air access corridor. This could be conveniently accessed through a former outside doorway in the corridor beside the treatment rooms, such doorway having been covered over in the Applicant’s fit out.

14 To go forward a little, it is appropriate to observe that the difficulties between the parties arose when, in the final design stages, it transpired that it was not practical to use this side area, and so the design was changed to move the laundry/toilet facilities destroyed by the demolition of back of house, into the treatment room no.2. This, in principle, met with the Applicant’s approval because the treatment room was not being put to its designed use.

15 It is common ground that, on the move into the premises in the year 2000, the Plaintiff branched into an additional new area of business, being the conduct of a beauty salon, and for that purpose employed a beautician, who used treatment rooms No.1 and No.2. That exercise was found not to be profitable, and the use appears to have finished towards the end of the year 2001. By the time the Respondent approached the Plaintiff with serious proposals for the rebuilding, the two treatment rooms were being used for either storage, or as a staff breaks area.

16 I had affidavit evidence from Eleanor Mattana, the business manager and organiser of the Applicant; Alain Mattana, the hair stylist and Dennis Fish, Town Planner on behalf of the Applicant. The Respondent Bill Sotiropoulos, as well as his brother George, their builder Mr Carollo and Ms Hunt, an experienced hairdresser, deposed for the Respondent. All of the deponents gave oral evidence. Mr Darke elected not to cross-examine the Respondent and his brother, but all the others were exhaustively cross-examined.

17 I do not accept the Respondent’s assertion that the Applicant became fully aware of the Respondent’s rebuilding plans before the Applicant entered into the Lease. If it was, it should have featured in the Disclosure Statement. I am satisfied that the Respondent’s brother Bill first raised the matter with Alain some time in the year 2001, during a hair cut.

18 The negotiations about the re-build, were in the main, between Mrs Mattana and the Doctors Sotiropoulos and their builder. Some were conducted by telephone, others by onsite meetings and some by exchanges of emails. This resulted in a letter of 14 June 2002 signed by the Respondent and addressed to Mr and Mrs Mattana. It gave two options, being either to do the whole rebuild immediately, which would involve interference with the Applicant’s toilet/laundry, or, alternatively, to adopt a two stage building program, which would leave the interference with the Applicant’s premises until after the expiry of the Lease. By letter of 16 June 2003 the Applicant accepted the building interference option. This option is aptly summarised as follows:-

1. Existing laundry/toilet to be surrendered and demolished

2. Treatment room No.2 to have toilet and laundry facilities installed at Respondent’s cost

3. “In compensation for this loss of space, and any resulting disruption to rear access during building works and in anticipation of your complete cooperation during the building process, a reduction of $200.00 be applied to your base weekly rental”.

19 The proposals specifically referred back to discussion at an onsite meeting on 3 June 2003, as minuted by a 3 June 2003 note of Eleanor Mattana. This described placement of a temporary toilet in treatment room No.2, and thereafter identified the location of the permanent toilet, overhead cupboards, sink, and location of the washing machine and dryer. Relevantly, it also required a permanent door to be installed in the passageway “between the salon and the new laundry” and further stated “floor will be existing tiles, (as indicated previously) floor to be made good with existing tiles”.

20 By this time the builder had already been on site for some time, carrying out either preliminary excavations, in the rear yard, or works to the front upstairs residence.

21 I am satisfied from Mr Carollo’s affidavit and his oral evidence that he, on several occasions indicated to Mrs Mattana that there would be “structural works” in treatment room No.2. This is what he had in mind when, on 5 September 2002 he stripped all of the polyurethane fittings and plumbing etc from treatment room No.2 and reduced the apparent height of the internal walls by approximately 600mm, to accommodate the “bond deck” permanent formwork. The span in question was between 3 and 4 metres, and consequently it was necessary that there be an internal support beam, held up by several Acrow props to accommodate the weight of the curing concrete.

22 It was always clearly understood between the parties that the laundry/toilet facilities had to be available at all times. Mr Carollo, true to this arrangement, did install temporary toilet and plumbing. However, facilities which had previously been in a well finished and well ventilated room, were now to be found in a space with a ceiling of galvanised steel 1.9meters in height, having unfinished rough brick work walls. The entryway and useful space was further reduced by the middle support beam and the Acrow props. The obviously temporary toilet cubicle, was poorly (and perhaps even dangerously) electrically lit. The commercial washing and drying machines occupied virtually all of the remaining space. In fact, the only thing left of any acceptable standard was the existing floor, which had, in the initial fit-out, been tiled with a slate-like material.

23 Alain Mattana complained of lack of ventilation and that was resolved some days later, by the installation of flexible air-conditioning tubing with appropriate fan, seeking to exhaust air from the toilet cubicle and from behind the dryer, to the outside air. These tubes were suspended from the ceiling, and so lowered the effective height of the room by another 200mm or so, and rendered the appearance of the room even more dangerous and uninviting.

24 The room remains that way to this day, because on 25 September 2002 the Applicant involved its’ solicitor, making formal demand for rectification and the Respondent seems to have done little to further address these issues in a physical sense.

25 I had a view of the premises, and I am satisfied that none of the arrangements complied with any occupational health and safety standards, either for staff toilet use, or for staff using the clothes washing and drying facilities, even on a temporary basis. That which was available for use as toilet certainly met no imitation of any standard for use by clients.

26 As I have indicated before, I accept that John Carollo did indicate that “structural works” would need to take place in treatment room No.2, and that, by that, he understood that he was referring to the substantial lowering of the ceiling. However I am satisfied he did not say that the ceiling would be lowered, and that the Applicant had no way of understanding what would happen to the ceiling height, or how dreadfully unacceptable the temporary facilities would be.

27 The reduction of the ceiling height means that the floor will have to be excavated down between 300mm and 500mm to reinstate an acceptable 2.1meter ceiling height.

28 I note that the lowering of the floor is clearly described on the plan as available for view at the Council Chambers. I am satisfied that at one stage Mrs Mattana asked for the plans, and was told by either the Respondent or his brother that it was none of her business. It does not, in these circumstances, aid the Respondent to now say “they could have inspected the plans at Council” either in relation to the lowering of the floor, or the lowering of the ceiling.

29 Be that as it may, although I am satisfied that the Applicant did not know that the floor of treatment room No.2 would have to be lowered, there is no proper complaint in relation to that. Such floor and ceiling lowering will only reflect the previous situation in the old demolished toilet/laundry, which had a floor level several steps down from the rest of the salon and necessitated the use of those steps to reach the threshold of the back door.

30 Some parts of the Applicant’s Solicitor’s demand of 25 September 2002 were inappropriate in view of the Agreement which I have found between the parties. However the request to:-

“insure that (the premises) conform with all applicable BCA requirements and our clients authorisation”

seems to me to have been entirely appropriate. The Respondent’s response is best encapsulated by the paragraph:-

“we are instructed to suggest that your clients give particulars of any complaints to the builder onsite or provide details of those complaints to us or our clients so that they can be investigated, and, if necessary, rectified. We are instructed that the works carried out by our clients at the property which affect your clients have been carried out in accordance with an Agreement with your client in June of this year”.


That response may have been appropriate had the temporary facilities been anywhere near acceptable. However, it was not an appropriate response to the disturbing state of the premises which was shown to me.
31 The Applicant’s Solicitors next letter (18 October 2002) accurately reflects most of the matters which I have found to be proper complaints of the Applicant, and properly seeks an onsite meeting. This was followed by a letter of 23 October 2002, again offering to meet onsite. The Respondent’s only effective response was by letter of 5 November 2002, enclosing a letter from the builder which is part denial, part agreement to fix in due course, but does not acknowledge that the temporary toilet facilities are inadequate, and does not offer to fix them.

32 I am satisfied that the proper response of the Respondent was to immediately build more adequate temporary facilities elsewhere, and then, having sealed off treatment room No.2 from the rest of the premises, carry out all necessary excavations and rebuilding to the point where the reinstated laundry/toilet, reconnected air-conditioning etc met the same standards as had applied before the demolition.

33 It is the Respondent’s failure to take these steps which render the Respondent liable to compensate the Applicant.

34 I am satisfied from Mr Carollo’s evidence that, by late November, there were other facilities on the site, either in the former upstairs (now renovated) residence, or alternatively in the newly built one. I am unable to find when that was communicated to the Applicant, it certainly was not done by way of the Respondent directly approaching the Applicant. In any event, from my observations of the site, the alternatives involve access by way of outside stairways, and I am not satisfied that that was appropriate for clients.

35 I am satisfied that the Respondent is now obliged, without further delay, to continue the works in treatment room No.2 to create joinery, toilet etc in accordance with the plan drawn by the Applicant and submitted to the Respondent as part of the minute of 3 June 2002, to an appropriate high standard of finish, and, in the interim, is obliged to supply satisfactory temporary facilities, taking care, amongst other things, to fully isolate the worksite from the salon.

36 Much of the contest before me turned on the issue of damages for loss of profit. For the Applicant I was shown tax and financial returns from year ended 1996 to 2002, and takings figures to March of this year. For the Respondent Ms Hunt gave evidence to prove that the absence of attractive toilet facilities would have no effect on the salon’s takings, neither would building and construction noise. In her view, the Applicant’s fall in takings could all be attributed to the general downward turn in the economy, increased competition from several chain salons which had opened up quite nearby, and the fact that the Applicant had lost three senior cutters, who would each take their own clientele with them.

37 I accept Ms Mattana’s explanation of this situation; of the three senior cutters who left – two did not find employment in nearby salons, and so did not “steal” any trade, and they were eventually both replaced.

38 The evidence of Elanore Mattana was that there were 31 or 32 salons in the Mosman shopping area, and that none of those had made any difference to the continuing growth of the Applicant’s salon once it had been opened and established in its former location. The major franchise opening of “Tony and Guy” had demonstrably made no difference to her figures, contrary to Ms Hunt’s evidence. Ms Hunt deposed that “Tony and Guy” had opened in the year 2000 (based on information given to her by the receptionist in the Tony and Guy salon), whilst Ms Mattana insisted that the salon had opened in 1999, and that her salon’s takings had increased at the very time when Ms Hunt suggested that Tony and Guy would be having their major negative effect. All things considered, I prefer Ms Mattana’s evidence in this regard.

39 The other major player referred to by Ms Hunt was “Made in Paris” but Ms Mattana indicated that it had been in the same location in Mosman for 10 years, and its clientele made no difference to her. A salon called “MIP”, which was an offshoot of Made in Paris, had opened within the last two years, but it had not made any difference either because it appealed to a younger group.

40 Alain Mattana’s evidence was that he used a classical European cutting style which appealed to a more mature clientele than the kind of customers that were attracted to MIP and Tony and Guy.

41 I note the general agreement in Alain Mattana and Ms Hunt’s evidence to the effect that a style cut preceded by a shampoo would involve an attendance of more than three quarters of an hour, and by the time there is colour work as well it would be likely to be much more than an hour. Alain Mattana’s evidence is that approximately 80% of the work involved colour, and that, generally, clients were offered refreshment by way of beverage. That, I am satisfied, means that an appropriate toilet facility for clients is essential for the conduct of the salon.

42 Considering all of the evidence in this regard, I am satisfied that the general conditions within the salon, as a result of the Respondent’s building activities, and as particularly evidenced by the disturbing condition of the staff, laundry and toilet facilities, would have had a detrimental and depressing effect on all of the staff, and would severely have tested the loyalty of any client who needed to use that necessary facility.

43 Further I cannot ignore the obvious loss of convenience to clients who must walk a substantial distance “around the block” from the council car park to the front entry of the premises, rather than the much more convenient and shorter back entrance path.

44 In this latter regard Clause 3.4 of the Lease is relevant, which, in turn, refers to Clause 11.3.2. The last dot point of 11.3.2.1 is:-

“the right for the tenants customers to park vehicles in any areas set aside for customer parking, subject to any reasonable rules made by the landlord”.
The next subclause, more relevantly, obliges the landlord to:-
“maintain the facilities…..in reasonable condition”.

Obviously, the Respondent has an obligation to allow the Applicant parking space and access and the denial of those is one of the heads of damage.
45 I had in evidence as part of the tax records all profit and loss statements for the business from 1996 onward. These, in very broad terms show a steady growth in gross takings at the former location, but not at the present location. Trade in the first full year of operation, at the new address, being financial year ended 2002, was distinctly “down” from the previous financial year, the year in which there was 4 months trade at the old location and 8 months at the new. No doubt there were abnormal factors in the “start up” in the financial year ended 2001, but I am not prepared on the figures given me to assume that trade as revealed by the gross takings is not naturally on a minor decline. It seems to me to follow that, with proper promotion in the financial year ended 2003, the best the Applicant would have done is to “hold the line” to the year ended 2002 figures, and I will take these as my reference point.

46 The only clear comparable figure throughout the many years of available trading figures was that of “operating profit”. Calculating the loss by reference to the operating profit is made difficult by the fact that the Applicant’s premises rental increased from approximately $30,000.00 in the former location to more than $85,000.00 per annum at the commencement of the Lease now in issue.

47 The operating profit for financial year ended 2002 was $53,209.00 or $4,433.00 per month. I was given figures for comparable periods July 2001 to March 2002 and July 2002 to March 2003. These figures appear to have been calculated on the same matrix as shown in the annual profit and loss statements, and from those I conclude that the whole year operating profit for the year commencing July 2002 and ending June 2003, being the period of the building interference, dropped to $900 per month. The obvious conclusion is that there has been a reduction of approximately $3500 per month, but of course I cannot ignore the fact that there may have been other factors which would bring about normal variations in trade. I think reduction of approximately 15% for these vicissitudes is appropriate, and so find that the compensation payable to the applicant, to place it in the same situation it would have been had the building interference not occurred, is $3000 per month.

48 I note that my proposed monthly loss figure factors in the $866 per month rent reduction, but that agreement by the applicant was made in consideration of an entirely different anticipated building interference to that which actually eventuated, and no countervailing adjustment is appropriate. If the reduction had not been made, the proper loss figure would be $3,866.00 per month.

49 On the evidence before me I am prepared to hold that the loss will so continue during the next several months, as the rebuilding continues, but only if proper temporary facilities are built within the next 2 or 3 weeks.

50 I am not unmindful of the possibility of a continuing downward spiral in trade if the building interference continues for much longer, and so direct that the matter be listed before me on 15 September 2003 at 10am for directions. If the temporary toilet facilities have been made adequate by then, I will make an order for the payment of damages in line with the above reasoning, and will make such building rectification orders as the parties then propose. I note that the parties will, in the interim period, have an opportunity to draw and agree on specifications for such rebuilding work, and if the parties are not agreed by that next date, I will simply, on that day make appropriate orders on the basis of whatever further detailed submissions about the manner of rectification which the parties wish to place before me.

51 It is obviously necessary that the matter be brought to a close, and so I also observe that if on 15 September 2003 at 10am the Applicant indicates that it is not satisfied with the temporary facilities, I will rule on those by having a further view and if I find the facilities not to be satisfactory, will give the applicant leave to produce further evidence to establish it’s loss on from 1 July 2003 (including loss of value of goodwill), and would also propose to hear argument on what power I have to force early completion of the building arrangements, such as ordering a waiver of rent.

52 The cost of proceedings such as these is always of concern. This is especially in a matter such as this when, after 3 days hearing, the issue between the parties cannot be regarded as concluded, and will not be until the building is completed.

53 It also appears to be appropriate to indicate that by extending the sitting hours, the hearing of the matter and submissions, in effect, took up four days of hearing time.

54 I will also on 15 September 2003 at 10am, give directions for the making, and hearing of submissions on the question of costs which (at my direction) was not argued at the hearing.