Naim v PBPSF Pty Ltd
[2008] NSWADT 202
•22 July 2008
CITATION: Naim v PBPSF Pty Ltd [2008] NSWADT 202 DIVISION: Retail Leases Division PARTIES: APPLICANT
Adel NaimRESPONDENT
PBPSF Pty LtdAPPLICANT
RESPONDENT
PBPSF Pty Ltd
Adel NaimFILE NUMBER: 075016, 075060 HEARING DATES: 18 February 2008 SUBMISSIONS CLOSED: 20 March 2008
DATE OF DECISION:
22 July 2008BEFORE: O'Connor K - DCJ (President) CATCHWORDS: Retail Tenancy Claims MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Leases Act 1994
Conveyancing Act 1919
A New Tax System (Goods and Services Tax) Act 1999 (Cth)Corporations Act 2001 (Cth)
Administrative Decisions Tribunal Act 1997
Legal Profession Act 2004CASES CITED: Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255
Petelin v Deger Investments Pty Ltd (1976) 133 CLR 538
Cronulla Newsagency Pty Ltd v Pizzata [2002] NSWADT 17
Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24
Brandonia Pty Ltd v Lenola Pty Ltd [2006] NSWADT 319
Trust Company of Australia Ltd v Skiwing Pty Ltd [2006] NSWCA 387
Makhoul v Petria Pty Ltd [2004] NSWADT 51
Petria Pty Limited v Makhoul [2004] NSWADTAP 47
Heatherway Pty Ltd v Dykes & Wildie [2006] NSWADT 354
Dykes and Wildie v Heatherway Pty Ltd (RLD) [2007] NSWADTAP 26
Davies v Lyndhurst Developments Pty Ltd [2000] NSWADT 196
Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81REPRESENTATION: Applicant/Respondent
Respondent/Applicant
P Kirsop, solicitor
B Zipser, barristerORDERS: Application No 075016
The Tribunal declares that:
1. The Respondent/Lessor is not entitled under the Lease to apply the margin scheme to the GST payable in respect of the sale of the premises to the Applicant consequent on the Applicant’s exercise of the option to purchase
2. The Respondent/Lessor is to pay the Applicant’s costs of the proceedings, as agreed or assessed.
Application No 0750601
Applicant/Lessor’s application dismissed
REASONS FOR DECISION
1 This dispute is between the lessee and lessor of retail shop premises. Both parties have filed claims for relief under the Retail Leases Act 1994 (RL Act). Attempts at mediation have been unsuccessful.
2 Relevant documentation, commencing in 2000, was placed in evidence. Affidavit and oral evidence was given by the lessee, Mr Naim, and by a director of the lessor, Mr McNaughton. Subsequent to the hearing, the lessee, the lessor and the lessee in reply filed written submissions.
Background
3 The lessor is PBPSF Pty Ltd and the lessee is Mr Adel Naim. The premises are located at ground floor, 16/18 Watt Street, Newcastle, and the business conducted is that of a café known as ‘Café 16’. ‘PBPSF’ stands for ‘Palmer Bruyn & Parker Superannuation Fund’. Palmer Bruyn & Parker is a firm of surveyors.
4 In 1999, Mr Naim expressed interest in taking up a tenancy at No 18 after learning that it was to be redeveloped. Numbers 18 and 20 Watt Street were in 1999 owned by the fund.
5 He commenced negotiations with Mr Bill Parker, a director, to lease one of the ground level retail units, unit 16. The negotiations were completed via the agents, McGees, in January 2000. He entered into occupation in February 2000 ahead of finalisation of the Agreement to Lease. He remains in occupation.
6 In April 2000 a draft of the Agreement to Lease was provided. By letter dated 6 April 2000 Mr Naim’s solicitors indicated that they wished to have included the draft option to purchase clause found at cl 3.5. That occurred. The Agreement to Lease was executed in May 2000.
7 After the redevelopment of the building had been approved, the parties entered into a formal lease.
8 The Lease commenced on 2 April 2001 for a period of five years expiring 1 April 2006: registered March 2002, Registered No. 8458203. The rent agreed was a yearly rental of $15,600 plus GST payable in equal monthly instalments of $1300 plus GST. There was no provision for rent review during the term. The Lease’s structure was similar to the Agreement for Lease and included an Option to Purchase clause at cl 3.5.
9 The lessee exercised the option by letter dated 17 March 2004. On 8 April 2004 the lessor’s solicitor submitted a contract of sale.
10 The lessee declined to complete on the basis that, contrary to the terms of the contract to which the parties had agreed to be bound, the lessor/vendor sought to apply the margin scheme for calculating the Goods and Services Tax (GST) payable. This was to the financial benefit of the vendor and to the detriment of the purchaser/lessee.
11 The original lease expired in April 2006, and the lessee has been in occupation since that time on a holding over basis.
12 On 9 May 2006 the lessor gave the lessee notice of increase in the rent. The lessee has continued to pay rent at the same rate provided for during the term.
13 The Lease required the lessee to pay ‘extra insurance premiums’, i.e. that proportion of the building insurance paid by the owner which is attributable to any extra hazard created by the use to which the lessee’s premises are put by the lessee. The lessee has not made any payments under this clause.
14 The lessee filed its application in January 2007, and the lessor its application in April 2007. The lessee’s application took the form of a combined retail tenancy and unconscionable conduct claim. The lessor’s application was confined to a retail tenancy claim. (As to the difference between these two types of claim, see RL Act, ss 70-72AA.) The lessee filed an amended retail tenancy claim in January 2008, and withdrew the unconscionable conduct claim at the hearing in February 2008.
15 The issues arising under the lease that remain in dispute between the parties are:
16 As to the last issue, there had been a wider claim for rent default in the original application filed by the lessor. The lessor sued for recovery of shortfalls in the payment of rent during the entire currency of the lease. Prior to hearing, the claim was amended to limit it to the period since the giving of the notice of the rent increase, which followed expiry of the original term.
1. Whether the lessor is entitled to apply the margin scheme in calculating its GST liability as vendor with respect to the price paid under the contract of sale tendered following exercise of the option to purchase by the lessee?
2. Whether the lessor is entitled to recover from the lessee payments made in connection with extra insurance premiums?
3. Whether the lessor is entitled to recover an amount equivalent to the increase in rent said to have been effected by the notice given 9 May 2006, and interest thereon?
17 In addition the lessee has made an application for its costs of these proceedings.
18 The Option to Purchase clause provided:
‘3.5 OPTION TO PURCHASE
3.5.1 That if the lessee wishes to purchase the reversion in fee simple in the demised premises at the price of One hundred and sixty thousand dollars ($160,000.00) inclusive of GST payable [handwritten amendment initialled and dated by parties] and if he shall have duly and punctually paid the rent reserved by this lease at the times hereinbefore appointed for payment thereof and shall have duly performed and observed the covenants and agreements by and on the part of the lessee contained in this lease then at any time before 4.00pm on the date being 3 years after the commencement of this lease upon giving to the lessor a notice in writing to that effect, the person giving such notice shall be the purchaser of the said reversion at the price of One hundred and sixty thousand dollars ($160,000.00) as from the date of such notice being so given subject to the following conditions:-
3.5.1.1 A deposit of 5% of the amount of purchase money shall be paid with the said notice.
3.5.1.2 The lessor shall submit to the lessee a contract in the form the [sic] 2000 edition as approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales to the lessee [sic] or his nominated solicitors such contract to provide for completion of the purchase within two (2) years from the date of the notice of exercise of the option to purchase and if the purchase is not completed within that time then the lessee shall pay to the lessor interest on the balance of purchase money at the rate of 12% per annum computed from the last of the said two (2) years to the actual completion of the purchase.
3.5.1.3 The lessee shall pay all rent up to the date appointed for the completion of the purchase.
3.5.1.4 Upon payment of the balance of purchase money and all rent at the time aforesaid the lessor shall execute such assurance of the premises and the reversion therein to or for the benefit of the lessee.’
19 On 17 March 2004 the lessee’s solicitors gave notice of exercise of the option to purchase in the amount of $160,000 accompanied by a deposit of $8,000. There was a question as to whether the price had increased to $164,000 because of improvements made since 2001. Subject to resolution of that matter (now resolved), the lessor’s solicitors accepted the notice, and tendered a contract of sale on 8 April 2004.
20 At the commencement of the hearing the issue remained in dispute as to whether the option had been validly exercised, and whether the option had been repudiated, either by subsequent conduct of the lessee or by lawful notice given by the lessor following breach of the lease by the lessee. The validity of the exercise of the option is no longer in dispute.
21 Mr Zipser, after cross examining Mr Naim, accepted that Mr Naim had not, by his subsequent conduct, repudiated the option. He also acknowledged that the lessor had not taken any steps to repudiate the lessee’s entitlement to the option (in particular, while there had been disputes about late payment of rent and other matters, no notice of breach in the prescribed form had been given under s 133E of the Conveyancing Act 1919).
22 The GST issue is the key issue in the case. Its non-resolution has meant, from the lessee’s viewpoint, that he has not had the benefit of a completed sale now for some years.
23 There is no doubt that allocation of the GST liability for any sale pursuant to the exercise of an option was in the minds of the parties from the beginning. In the lead-up to signing the Agreement to Lease, his solicitors (letter, 6 April 2000) stated:
- ‘With regard to clause 3.5 our client would like an option to purchase within the first 5 year term of the Lease for the sum of $160,000 which is inclusive of GST and with no CPI adjustment.’
24 Clause 3.5 of the Agreement, as executed on 12 May 2000, did include the option to purchase, but there was no reference to whether the price was inclusive of GST.
25 Clause 3.5 of the Lease executed in 2001 was in the same terms as the Agreement to Lease, but with, as previously noted, the addition of the words ‘inclusive of GST payable’, initialled by the parties. As to the form of the contract of sale, it specified:
- ‘The lessor shall submit to the lessee a contract in the form [sic] the 2000 edition as approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales to the lessee [sic] or his nominated solicitors.’
26 The option was exercised on 17 March 2004. On 8 April 2004 the lessor tendered to the lessee a Contract of Sale in the form of the 2000 edition contract specified in cl 3.5 (the Standard Contract). It stipulated that the lessor would apply the margin scheme for calculating the GST element.
27 If GST had been applied to the sale at the ordinary rate, the GST element of the sale would have been $14,545.45. The ‘margin scheme’ allows the vendor of real property to elect to calculate the GST liability using as the base reference amount not zero but the valuation of the property as at 1 July 2000: see A New Tax System (Goods and Services Tax) Act 1999, s 75.5 and related provisions.
28 The result for the lessor was that the GST liability became only $138.80 (there had, it would seem, been little movement in the value of the property between 1 July 2000 and March 2004). The net proceeds of the sale would therefore remain at near $160,000. The cost to the lessee was that he could no longer anticipate receiving a tax invoice for $14,545.45 which he could offset against his GST liabilities. Consequently the net cost of the transaction for the lessee rose by that amount.
29 The lessee’s submission is that:
- - The terms of contract of sale were finalised at the time the option was granted
- That option was granted by the lease
- The lease incorporates the standard terms of the standard contract for sale of land in its 2000 edition
- Clause 13.5 of that standard contract provided that ‘Normally the vendor promises the margin scheme will not apply to the supply of the property’
- ‘Normally’ is defined for the purposes of the standard contract as ‘subject to any other provision of this contract’ (see the definition in cl 1)
- The lease did not state that the margin scheme would apply
- There was no ‘other provision of this contract’ that referred to the margin scheme when the contract is understood as the contract incorporated into the lease. Therefore the normal provision at cl 13.5 was not displaced
- Therefore the margin scheme does not apply.
30 The lessor’s position is that cl 13.5 did not foreclose it from exercising the right given by Commonwealth law to utilise the margin scheme. See, for example, Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 at [10] – ‘These are rules which, at the option of the taxpayer, may be applied to achieve a result, beneficial to the taxpayer, different from that which the general scheme of the Act would have achieved.’
31 That there is such a right under the Commonwealth law is not disputed by the lessee. The lessee’s argument is simply that the terms of cl 13.5 read in conjunction with the terms of the Standard Contract precluded the lessor from electing to apply the margin scheme.
32 The Tribunal would not ordinarily be called on to deal with GST issues. The Tribunal agrees with the parties that it has jurisdiction to deal with the question that arises in this case as it involves ‘a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned’: RL Act, s 70(a); read in conjunction with s 63 (definition of ‘retail tenancy dispute’).
The Standard Contract
33 The Standard Contract has the following note at the bottom of the front page, the words: ‘NOTE: subject to clause 13, the price INCLUDES goods and services tax (if any) payable by the vendor.’
34 The word ‘Normally’ is used at certain critical points of cl 13. It is a defined term. Clause 1 of the Standard Contract defines it to mean ‘subject to any other provisions of the contract’.
35 Clause 13 provides:
- ‘ 13 Goods and services tax (GST)
13.1 In this clause, enterprise, input tax credit, margin scheme, supply of a going concern, tax invoice and taxable supply have the same meanings as in the GST Act.
13.2 Normally, if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount.
13.3 If under this contract a party must make an adjustment, pay an expense of another party or pay an amount payable by or to a third party (for example, under clauses 11, 14 or 20.7) –
- 13.3.1 the party must adjust or pay at that time any GST added to or included in the amount; but
13.3.2 if this contract says this sale is a taxable supply, and payment would entitle the party to an input tax credit, the adjustment or payment is to be worked out by deducting any input tax credit to which the party receiving the adjustment is or was entitled and adding 10%.
- 13.4.1 the parties agree the supply of the property is a supply of a going concern;
13.4.2 the vendor must, between the contract date and completion, carry on the enterprise conducted on the land in a proper and business-like way;
13.4.3 if the purchaser is not registered by the completion date, the parties must complete and the purchaser must pay on completion, in addition to the price, an amount of 10% of the price (“the retention sum”). The retention sum is to be held by the depositholder and dealt with as follows:
- if within 3 months of completion the purchaser serves a letter from the Australian Taxation Office stating the purchaser is registered, and the registration took effect from a date on or before the time of the supply, the depositholder is to pay the retention sum to the purchaser; but
- if the purchaser does not serve that letter within 3 months of completion, the depositholder is to pay the retention sum to the vendor;
13.4.4 if the vendor, despite clause 13.4.1, serves a letter from the Australian Taxation Office stating the vendor has to pay GST on the price, the purchaser must pay to the vendor on demand the sum of 10% of the price.
13.6 If this contract says the margin scheme applies to the supply of the property, the vendor promises the margin scheme will apply.
13.7 If this contract says this sale is not a taxable supply, the purchaser promises that the property will not be used and represents that the purchaser does not intend the property to be used in a way that could make the sale a taxable supply.
13.8 If this contract says this sale is not a taxable supply, the purchaser must pay the vendor on completion in addition to the price an amount of 10% of the price if this sale is a taxable supply because of –
- 13.8.1 a breach of clause 13.7; or
13.8.2 something else known to the purchaser but not the vendor.
- 13.9.1 this sale is not a taxable supply; or
13.9.2 the margin scheme applies to the property.
36 It will be seen that cl 13 provides that ‘Normally, the vendor promises the margin scheme will not apply to the supply of the property’ (13.5) and ‘If this contract says the margin scheme applies to the supply of the property, the vendor promises the margin scheme will apply’ (13.6). Clause 13.9 contains the basic proposition for which the lessee has contended throughout his dispute with the lessor/vendor, i.e. ‘the vendor must pay the purchaser on completion an amount of one-eleventh of the price’.
The Contract as Tendered
37 In the contract as tendered the boxes on page 2 were filled in. The lessor marked ‘yes’ to the following questions ‘This sale is a taxable supply’ and ‘Margin scheme applies to property’.
38 The following additional conditions were included:
- ‘ 30.2 Goods and Services Tax (GST)
(a) Clauses 13.4.4 and 13.8 shall be amended by insertion after “10%” where it appears on the second line the words “plus any interest and penalties which may be imposed by the Australian Taxation Office as a result of late payment of the GST”.
(b) Clause 13.8 shall be amended by insertion after the word “completion” where it appears in the first line the words “(if the amount is determined before completion) or in any other case on written demand by the vendor served on the purchaser”.
(c) Clause 13.9 shall be amended by insertion after the word “price” where it appears on the second line the words “less the actual GST payable by the Vendor (if any)” and by insertion after the word “supply” where it appears in clause 13.9.1 the words “or is partially a taxable supply”.
(d) Addition of clause 13.11:-
- “Notwithstanding anything hereinbefore contained, if this contract says this sale is a taxable supply and does not say the margin scheme applies to the property, then, unless this contract says that the price includes GST, the price for all purposes in this contract shall be the price shown on the front page of this contract plus 10% thereof.”
39 The effect of the amendment of cl 13.9 was that cl 13.9 now read:
- ‘the vendor must pay the purchaser on completion an amount of one-eleventh of the price less the actual GST payable by the Vendor (if any) if: (i) this sale is not a taxable supply or is partially a taxable supply [Standard 13.9.1 as amended by cl 30.2 (c)] and (ii) the margin scheme applies to the property’ (Standard 13.9.2)’.
40 The words ‘inclusive of GST payable’ that were added to cl 3.5 were not sufficiently specific, in my view, to conclude the question of how the GST would be applied. However, the Standard Contract was specific on the issue.
41 It is usual for the deed or instrument granting the option to have annexed to it the contract of sale. That did not occur in this case.
42 The method chosen instead was to incorporate by reference into the option a standard form of contract. This is an acceptable method, though not the usual method: see Petelin v Deger Investments Pty Ltd (1976) 133 CLR 538.
43 In Petelin the option clause provided:
- ‘Immediately upon the exercise of this option the Grantor and the Grantee or its nominee will execute a contract on the terms referred to above [price, unencumbered fee simple] and containing the conditions of sale as approved by the Real Estate Institute of New South Wales and the Law Society of New South Wales together with the such conditions (if any) as appear in the Third Schedule hereto.’
44 The High Court held that the clause was clear, and bound the parties to the terms of the standard contract to which it referred.
45 In that case the vendor was seeking an order for specific performance against the purchaser. The purchaser had sought to rescind because of a restriction that had arisen subsequent to the exercise of the option by the purchaser, and had not been, the purchaser submitted, dealt with in the standard contract. The High Court held that the purchaser was entitled to rescind on that basis.
46 The lessee’s submission is that the Standard Contract was properly incorporated into the option clause, and, in contrast to the outcome in Petelin, the matter in issue here was directly and specifically addressed by the Standard Contract.
47 The lessor sought to distinguish the circumstances in Petelin from the present on the basis that terms of the option clause here are less stringently expressed. The clause, it is said, merely called on the lessor to ‘submit to the lessee a contract in the form of ’ the Standard Contract (emphasis added).
48 In my view, and contrary to the lessor’s submissions, the use of the words ‘in the form of’ do not so weaken the requirement as to defeat its obvious purpose. Its obvious purpose was to indicate that the terms of the contract of sale would be those contained in the Standard Contract. (The only extra principal conditions contemplated by cl 3.5.1.2 are those relating to the duration of the option and the interest consequences of delay in completion.) Accordingly, the lessor/vendor was bound not to apply the margin scheme to the supply of the property.
49 The result, in my view, is that the lessee was entitled to resist the variation to the contract as tendered. The lessee has wrongly been denied completion of the sale since the date on which completion could have been expected in the ordinary course.
50 It follows that the declarations along the lines of those sought by the lessee on this subject should be made.
(2) Extra Insurance Premiums
51 This case, like many cases that have reached the Tribunal, was one where the lessor supplied the lessee with a standard commercial lease, and neither party at the time of entry into the lease recognised the applicability to the relationship of the RL Act.
52 The Lease provided:
- ‘2.22 EXTRA INSURANCE PREMIUMS
The Lessee will from time to time as and when required by notice in writing from the lessor pay all extra premiums of insurance relating to the property and its contents if any be required on account of extra risk caused by the use to which the demised premises are put by the lessee and approved by the lessor.’
53 It will be seen that this provision differentiates, in effect, between the ordinary risk that attaches to the premises and any ‘extra’ risk that flows from the permitted use – here ‘café’ (cl 2.5).
54 Demand under cl 2.22. Though the lessee moved into occupation early in 2000, it was not until 13 April 2006 that any notice was given to him seeking to recover outgoings said to have been incurred by the lessor under cl 2.22. This notice appeared at point 6 of a letter from the lessor’s solicitors to the lessee’s solicitors, in reply to the ‘purported’ exercise of the option to purchase. It said:
- ‘Our client gives notice pursuant to cl 2.22 of the lease for extra insurance premiums totalling $1,500 per annum as advised by its broker.’
55 The lessee’s solicitors in reply (18 April 2006) noted that the demand was not supported by documentation. They asked for information relating to the ‘extra risk’ relied on, whether the premiums had been paid by the lessor or the owners corporation, how they are calculated and to what period did they relate.
56 These were, obviously, reasonable questions.
57 The reply (24 July 2006) came from the lessor itself, not the solicitors, and was expressed as follows:
- ‘Enclosed are copies of the five invoices for insurance of the premises. The additional premium in accordance with the Hazard Code of the insurer and the decision of the body corporate is as follows:
2001/2 $3,682
2002/3 $4,438
2003/4 $4,614
2004/5 $1,946
2005/6 $1,886
Total $16,579’
58 It will be seen that now the demand had escalated to cover all years since the Lease commenced. None of the specific amounts were for ‘$1,500 per annum’, raising a doubt as to the basis for the original demand.
59 On 31 August 2006, the lessor sent a further letter demanding payment, and it was expressed to be made pursuant to cl 2.22 for the above amount. It said:
- ‘We have paid the total amount to the body corporate and are awaiting the final amount that is your responsibility from the insurance brokers’.
60 In a further letter dated 24 November 2006 going to a range of matters, the demand was again mentioned.
61 By letter dated 21 September 2006 Mr McNaughton forwarded the insurer’s account for the 06/07 premium, and demanded payment of $1,712.
62 The Provisions of the RL Act. At hearing and in the written submissions the lessee argued that there should be no order against him for these amounts, relying mainly on the degree of non-compliance with ss 27 and 28 of the RL Act. There was relatively passing reference at hearing to s 22 of the RL Act.
63 The three provisions are set out below.
- ‘ 22 Recovery of outgoings from lessee
(1) The lessee under a retail shop lease is not liable to pay any amount to the lessor in respect of any outgoings except in accordance with provisions of the lease that specify:
(a) the outgoings that are to be regarded as recoverable, and
(b) how the amount of those outgoings will be determined and how they will be apportioned to the lessee, and
(c) how those outgoings or any part of them may be recovered by the lessor from the lessee.
(2) In this Part, the expression outgoings to which the lessee contributes refers to any outgoings in respect of which the lessee is liable under the lease to make any payment to the lessor.
(3) Costs associated with the advertising or promotion of a retail shop or retail shopping centre, or of any business carried on there, are not outgoings for the purposes of this section.
27 Outgoings estimates
A retail shop lease is taken to include provision to the following effect:
(a) the lessor must give the lessee a written estimate of the outgoings to which the lessee contributes under the lease, itemising those outgoings under the item descriptions used in the list of outgoings in the form of lessor’s disclosure statement prescribed for the purposes of section 11,
(b) the estimate of outgoings must be given to the lessee in respect of each accounting period of the lessor during the term of the lease and must be given before the lease is entered into and thereafter during the term of the lease at least 1 month before the commencement of the accounting period concerned,
(c) if the shop is in a retail shopping centre, the estimate of outgoings is to include:
- (i) a statement of management fees, broken down into the fees to be paid by the lessee towards the administration costs of running the centre and other fees paid to the management company, and
(ii) a statement of cleaning costs to be paid by the lessee, broken down into the costs of consumables and other costs, and
(iii) any other particulars prescribed by the regulations.
(1) A retail shop lease is taken to include provision to the following effect:
(a) The lessor must give the lessee a written statement (an outgoings statement) that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute.
(b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates.
(b1) If the shop is in a retail shopping centre, the outgoings statement is to include:
- (i) a statement of total management fees paid in respect of the centre, broken down into the fees paid towards the administration costs of running the centre and other fees paid to the management company, and
(ii) a statement of total cleaning costs paid by the lessor, broken down into the costs of consumables and other costs, and
(iii) any other particulars prescribed by the regulations.
(d) The outgoings statement is to be given to the lessee within 3 months after the end of the accounting period to which it relates.
(e) The outgoings statement is to be accompanied by a report (an auditor’s report) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth).
(f) The auditor’s report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period.
(g) The outgoings statement may be a composite statement (that is, it may relate to more than one lessee) so long as each lessee to which it relates is able to ascertain from the statement the information required by paragraph (a) that is relevant to that lessee.
(h) The outgoings statement need not be accompanied by an auditor’s report if the statement does not relate to any outgoings other than land tax, water, sewerage and drainage rates and charges, local council rates and charges, insurance and strata levies, and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the lessor as referred to in paragraph (a).
(2) An auditor preparing a report under subsection (1) (e) or the lessor must ensure that the lessee is given a reasonable opportunity to make a written submission to the auditor on the accuracy of the lessor’s proposed outgoings statement. The auditor need not contact the lessee for the purposes of this subsection if the lessor advises the auditor that the lessor has informed the lessee of the lessee’s opportunity under this subsection.
(3) The auditor must consider any written submissions made pursuant to subsection (2).’
64 Non-compliance by the lessor with s 22 gives rise to the consequence that the lessee is ‘not liable’ to pay any amount to the lessor. In contrast, there is no express provision rendering a lessee not liable if non-compliance with ss 27 and 28 is demonstrated. This difference in the stated consequence has led the Tribunal to conclude that non-compliance with a requirement of s 27 and s 28 does not necessarily lead to the lessee being immunised from liability for outgoings to which it must contribute under the lease. It may be that an award of damages, a reduction of the liability or some other lesser form of order is sufficient to deal with the breach. See, generally, for example, Cronulla Newsagency Pty Ltd v Pizzata [2002] NSWADT 17 at [36]; Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24; Brandonia Pty Ltd v Lenola Pty Ltd [2006] NSWADT 319 at [77]-[81].
65 As to the purpose of the outgoings provisions in the scheme of the RL Act, the lessee referred to the following statement by the Court of Appeal in Trust Company of Australia Ltd v Skiwing Pty Ltd [2006] NSWCA 387 at [52] per Basten JA; and in his submissions in reply explicitly linked it to s 22:
- ‘Under s 22, there is a prohibition on recovery of outgoings otherwise than in accordance with the terms of the lease, which must comply with that section and with the requirements with respect to apportionment in s 30. Further, ss 27 and 28 provide a level of disclosure with respect to outgoings, both anticipated and actual. Section 28 demonstrates a statutory intention that a lessee must either be given an audited statement in relation to outgoings or must be provided with copies of relevant assessments, invoices and receipts where the outgoings are effectively restricted to charges and fees payable to other bodies. Further, in a particular case, as the Appeal Panel noted, a level of disclosure beyond that expressly provided for in the lease or by the Retail Leases Act , may be required depending upon the circumstances of the particular case.’
66 My primary conclusion is that the lessor failed in this case to specify in the Lease at cl 2.22 ‘how the amount of those outgoings [the extra insurance premiums] will be determined and how they will be apportioned to the lessee’ (s 22(1)(b)). The requirements in s 22 are to be read in conjunction with ss 27 and 28. It will be seen that these provisions require a high degree of specificity as to the matters itemised.
67 Phrases that appear in cl 2.22 such as ‘from time to time’ and ‘as and when required’ fall well short of the degree of exactitude contemplated by ss 27 and 28. The method for recovery of contributions to outgoings is part of a process which has specific disclosure obligations prior to any demand being made. The absence of any reference in the Lease to mechanisms of this kind makes cl 2.22 inconsistent with the provisions of the RL Act.
68 The Lease’s non-compliance with s 22, in particular s 22(1)(b) and (1)(c) are, in my view, sufficient to dispose of the case.
69 I have not made a declaration on this matter, as sought by the lessee, as, in my view, the dismissal of the lessor’s claim in this respect is sufficient to dispose of the matter.
70 If I am wrong in that regard, and s 22 is satisfied, I would not, on a discretionary basis, have been disposed to make an order against the lessee in respect of any of the amounts claimed in respect of the years 01/02 to 05/06, the subject of the demand dated 24 July 2006.
71 There was no pre-lease disclosure statement meeting the requirements of s 27. In the case of s 28 there is no evidence that an outgoings statement was provided within 3 months of the end of the relevant accounting period, as contemplated by s 28(1)(d). The possible exception is the notice given in September 2006 in respect of the 06/07 insurance year. Were s 22 satisfied, I may have been minded to make an order for payment in respect of that year, as the communications between the parties and the evidence at hearing has addressed the issues of the way the insurance amount is determined, and how it is allocated.
72 Clause 2.22 does not time-limit the making of a demand. In my view, ss 27 and 28 clearly impose time limits on the making of demands. A lessee is entitled to conduct its business on a predictable basis in relation to liability for outgoings.
73 The lessor’s breach of these obligations was, in my view, so egregious as to the first five premium periods that no order in the lessor’s favour should be made. It would, I consider, be manifestly unfair to impose on the lessee liability for contributions that were open to be the subject of a timely demand as soon as each premium was paid.
74 It does not follow from this conclusion that a minor infraction of the time requirements or other requirements of ss 27 and 28 should lead to a lessor being deprived of the right to recover outgoings. Section 28A reflects a policy that the outgoings can still be recovered but the lessee is given the right to query the demand and require the information to be provided to which s 28 refers.
75 This conclusion is in line with the approach adopted by the Tribunal (Fox JM) in Makhoul v Petria Pty Ltd [2004] NSWADT 51 (set aside by appeal, but the following aspect of the reasons was not the subject of appeal, see Petria Pty Limited v Makhoul [2004] NSWADTAP 47):
- ‘9 I am satisfied that, where the Lessor has not submitted proofs of the basis for the annual outgoings contribution claims within a reasonable time of receipt of those assessments, so that there has not been any attempt at complying with the statutory regime, even in spirit if not in substance, the Lessor loses the right to claim those payments. To hold otherwise would put this Tribunal in a situation where its’ orders condone a failure to abide by the clear spirit of the Act.
10 Had all other things been equal, I would have been comfortable in ordering the Respondent to give the Applicant refund or credit for the amounts in question. That is especially so in relation to the Land Tax claim, because, even on the limited information in evidence, the method used in calculating that amount clearly did not conform with the “single holding” requirement of the Lease. However the comments which I make at the end of these reasons in relation to the absence of two of the three original Lessees have application to limit the orders which I am willing to make, and so I make no order of any kind in relation to the claim for outgoings.’
76 There were two other matters raised by the parties on which I will comment briefly. The lessee submitted that if its other submissions failed, at the least the lessee should not be obligated to make payment until a compliant outgoings statement was rendered. Section 28A is a relatively new provision, commencing 1 January 2006:
- ‘ 28A Non-provision of outgoings estimate or statement
(1) A lessee is entitled to withhold payment of contributions for outgoings if:
(a) the lessor has failed to give the lessee a written estimate of outgoings required under section 27 or an outgoings statement required under section 28, and
(b) the lessee has, at or after the expiry of the time when the estimate or statement was required to be given to the lessee, requested the lessor in writing to furnish the estimate or statement to the lessee, and
(c) the lessor’s failure has continued for 10 business days after the request was made.
(2) The lessee must pay the withheld contributions within 28 days after the lessor furnishes the estimate or statement.
(3) The lessor is not entitled to recover interest or late payment charges in respect of contributions withheld in accordance with this section.
(4) The lessee is not in breach of the retail shop lease for acting in accordance with this section.
(5) This section does not affect any other rights that the lessee has in connection with the lessor’s failure to provide the estimate or statement.’
77 The circumstances in this case fall within paragraph (a) of s 28A(1). The lessor contests whether the lessee has made a request that falls within paragraph (b). The lessee’s solicitors’ letter of 14 April 2006 and the subsequent correspondence in evidence make no reference to s 28A(1)(b). The failure to refer to s 28A in this case is reflective of the mutual ignorance of the relevance of the RL Act until some time close to when the dispute reached the Retail Tenancy Unit, and then the Tribunal.
78 I am not convinced that this is a case to which s 28A has much relevance. Section 28A in my view is a mechanism designed to deal with a situation where a lessee is involved in an otherwise compliant relationship with the lessor. The lessee is waiting for a notice, has not received it, and wants to obtain clarity before paying the bill. The lessee is immunised from payment until a proper notice is rendered, and immunised from the interest consequences.
79 As to the operation of the limitations provision, this was another fall-back argument by the lessee. The lessee submitted that any liability should be limited to exclude the outgoings that belong to the first three years. The lessor issued proceedings on 12 April 2007. Section 71(2) provides that ‘a claim may not be lodged more than 3 years after the liability or obligation that is the subject of the claim arose’. ‘Liability’ and ‘obligation’ are distinguished by the provision. This may be significant to estimating the start time for the limitations period: see Heatherway Pty Ltd v Dykes & Wildie [2006] NSWADT 354 at [118]-[133] per Chesterman DP (not affected on this point by the decision on appeal varying one of the final orders, Dykes and Wildie v Heatherway Pty Ltd (RLD) [2007] NSWADTAP 26).
80 The lessor contended that the liability under cl 2.22 arose only on demand, i.e. in July 2006, and therefore there was no limitation problem. While there may be cases where liability only arises, on a proper construction of the lease, on the giving of a demand (as was found in Heatherway), it seems to me that the position may be different where it is necessary to construe the lease clause in conjunction with provisions of the RL Act stipulating time periods within which demands are to be given. It may be that in these cases the proper construction, close to the position put by the lessee in this case, is that the period for making the demand should be read down to the period contemplated by the RL Act and time should run from that point. This is also closer to the position adopted by the Tribunal in Davies v Lyndhurst Developments Pty Ltd [2000] NSWADT 196, a case involving liability to outgoings, but with no ‘on demand’ clause in the lease. In light of my primary conclusion, it is not necessary to reach a final view on this question.
(3) Rent Payable since 9 May 2006; and Interest thereon
81 There is little in the submissions made at hearing or subsequently in writing going to this head of claim.
82 The Lease provided an option for renewal for a further term of five years (cl 3.6.1). The lessee did not exercise the option, understandably, given the continuing dispute about the non-completion of the sale. The lease went on to deal with the position if the lease was not renewed, and provided for the possibility of a change in the rent (cl 3.6.2). There is a holding over clause (cl 4.2). The two provisions are:
- ‘3.6 OPTION OF RENEWAL
3.6.1 AND IT IS HEREBY AGREED AND DECLARED that if the lessee shall desire to take a renewed lease of the demised premises for a further term of (five) [sic] (5) years from the expiration of the term hereby granted and of such desire shall prior to the expiration of the said term give to the lessor not less than three (3) calendar months’ but not more than six (6) calendar months’ previous notice in writing and shall in the meantime duly and punctually pay the rent reserved hereby and provided there shall not at the expiration of the term be any subsisting breaches of any other of the lessee’s covenants the lessor will at the cost of the lessee demise to the lessee the said premises for a further term of five (5) years at an annual rental being the rental payable by the lessee to the lessor the twelve (12) month period immediately preceding the date of the further term plus 10% AND subject to the same covenants agreements and provisions as are herein contained (except this present provision for renewal).
4.2 TENANCY FROM MONTH TO MONTH
4.2.1 That upon the happening of any such event as last aforesaid this lease shall at the option of the lessor become a tenancy from month to month and terminable by one months notice to quit in writing expiring at any time and such option may be exercised by written notice by the lessor to the lessee.
4.2.2 That if the lessee holds the demised premises with the express or implied permission of the lessor after the expiration or sooner determination of the said term hereby granted or any extension thereof the lessee shall be deemed to hold the demised premises as tenant from month to month at a monthly rental as nominated by the lessor or failing such nomination at the same monthly rental which was payable immediately prior to the expiration of this lease or such further term (as the case may be) payable monthly in advance and shall hold the demised premises subject to the covenants and conditions hereinbefore contained so far as the same shall be applicable to a monthly tenancy and the tenancy so constituted may be determined by three (3) month notice to quit on either side which may be given so as to expire at any time.’
83 The notice purporting to increase the rent was given on 9 May 2006 by Mr McNaughton on behalf of the lessor, and the material parts were as follows:
- ‘FUTURE LEASE PAYMENTS
For the present time we intend to increase the lease payments by ten percent to $17,160 per annum and add to that the additional insurance premium of $1,590 per annum. This amounts to $18,750 per annum, which is $1,562.50 per month plus GST of $156.25 being a monthly payment of $1,718.75 including GST. However, your payment for May was only $1,300, so the payment for June will be an additional $262.50 plus GST , being $2,006.95.’
84 The notice appears to have been an exercise of the power given by cl 4.2.2 on a holding over allowing the lessee to hold over ‘at a monthly rental as nominated by the lessor’, with the amount of 10% reflecting the rent fixed if the 5 year option to renew had been taken up pursuant to cl 3.6.1.
85 The lessor submits that this nomination is sufficient to satisfy the Lease. The lessee refers to various provisions of the RL Act that govern rent increases.
86 Part 3 of the RL Act deals with ‘Rent and Outgoings’. Sections 17-21A, and 31A-33 deal with this subject. None of these provisions contemplate ‘nomination’ as an acceptable method of fixing rent.
87 The rent charged under the original rent is ‘base rent’ within the meaning of the RL Act. Section 18 provides:
- ‘ 18 Restrictions on adjustment of base rent
(1) In this section:
base rent means rent, or that component of rent, which comprises a specified amount of money (whether or not there is provision for the amount to change).
Note. Turnover rent (rent determined by reference to the lessee’s turnover) is not base rent because turnover rent is not a specified amount of money (it varies according to the lessee’s turnover).
(2) A retail shop lease must not provide for a change to base rent less than 12 months after the lease is entered into and must not provide for a change to that rent less than 12 months after any previous change to that rent. This subsection does not apply to a change to base rent by a specified amount or specified percentage.
Note. For example, subsection (2) prevents a lease providing for an increase to current market rent more than once in 12 months. It does not prevent a lease providing for the rent to increase by $100 every 6 months. Nor does it prevent a lease providing for the rent to be increased to current market rent after 12 months and then to be increased by 2% every 6 months after that.
(3) A provision of a retail shop lease is void to the extent that it:
(a) reserves or has the effect of reserving to one party a discretion as to which of 2 or more methods of calculating a change to base rent is to apply on a particular occasion of a change to that rent, or
(b) provides for a method of calculating a change to the base rent but reserves or has the effect of reserving to one party a discretion as to whether or not the base rent is to be changed in accordance with that method on a particular occasion, or
(c) provides for base rent to change on a particular occasion in accordance with whichever of 2 or more methods of calculating the change would result in the higher or highest rent.
(4) If a retail shop lease provides for a change to base rent in a way that has the potential to cause that rent to decrease (such as a provision for the rent to change to current market rent), a provision of the lease is void to the extent that it:
(a) prevents or enables the lessor or any other person to prevent base rent decreasing pursuant to the change, or
(b) limits or specifies, or allows the limitation or specification of, the amount by which the base rent is to decrease.’
88 It will be seen that this provision, and many which follow, seek to preserve a mutuality in the relationship between the lessor and lessee in connection with increases in the rent. In my view, s 18(3) voids cl 4.2.2 of the Lease, and the notice given 9 May 2006 was ineffective. Read as a whole, the provisions contemplate that rent will be increased either by reference to current market rent (s 19), to turnover (s 21) or by reference to the Consumer Price Index (s 21A(3)). Nomination is not an acceptable method.
89 I have not made a declaration on this matter, as sought by the lessee, as, again in my view, the dismissal of the lessor’s claim in this respect is sufficient to dispose of the matter.
(4) Lessee’s Application for the Costs of the Proceedings
90 The Tribunal’s general power to award costs is governed by s 88 of the Administrative Decisions Tribunal Act 1997 which provides:
- ‘ 88 Costs
(1) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that there are special circumstances warranting an award of costs.
(2) The Tribunal may:
(a) determine by whom and to what extent costs are to be paid, and
(b) order costs to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis.
(3) However, the Tribunal may not award costs in relation to proceedings for an original decision unless the enactment under which the Tribunal has jurisdiction to make the decision provides for the awarding of costs.
(4) In this section, costs includes:
(a) costs of or incidental to proceedings in the Tribunal, and
(b) the costs of or incidental to the proceedings giving rise to the application, as well as the costs of or incidental to the application.’
91 The requirement of sub-section (3) is met by the RL Act, s 77A which provides:
- ‘The Tribunal may award costs under section 88 of the Administrative Decisions Tribunal Act 1997 in respect of proceedings commenced by an application made under this Part.’
92 In my view this is a case where a costs award should be made in favour of the lessee.
93 The special circumstance, in my view, can be summarised as the long delay that has been caused to Mr Naim in having the sale completed, now four years.
94 The possible implications of the amendments the lessor sought to make to cl 13 by way of cl 30.2 were immediately appreciated by Mr Naim’s solicitors. By letter dated 9 July 2004, the solicitors for Mr Naim noted that the contract provided that the sale was a taxable supply but sought clarification on whether the margin scheme was to apply. The letter stated that, on settlement, Mr Naim should be provided with a tax invoice in relation to 1/11th of the price.
95 There was a hiatus in the correspondence at this point.
96 Mr Naim’s solicitors pressed for completion by letters dated 18 November 2005 and 9 December 2005.
97 On 20 December 2005 the lessor’s solicitors transmitted a copy of the intended Tax Invoice to accompany the transaction showing an amount for GST of $138.80, and requiring Mr Naim to pay to it the balance. The following day the solicitors for the lessor wrote formally, and expressed the opinion that their client had met the requirements of cl 3.5.1 for the price to be ‘inclusive’ of GST, and their client had met its obligations. They referred to an Australian Taxation Office fact sheet explaining the operation of the margin scheme provisions.
98 In reply dated 17 January 2006 Mr Naim’s solicitors stated that again they did not concede that the vendor is entitled unilaterally to require the margin scheme to be applied to the transaction in a situation where the option provision and the standard contract did not provide for use of the margin scheme. Since 2004, Mr Naim’s solicitors have, in my view, pressed the correct position.
99 In these circumstances, the lessee is entitled to an award of costs. Reflecting a similar approach, see Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 at [56]-[57].
ORDERS
- Application No 075016
The Tribunal declares that:
1. The Respondent/Lessor is not entitled under the Lease to apply the margin scheme to the GST payable in respect of the sale of the premises to the lessee consequent on the lessee’s exercise of the option to purchase.
2. The Respondent/Lessor is to pay the applicant’s costs of the proceedings to date, as agreed or assessed.
Application No 075060
1. Applicant/Lessor’s application dismissed.
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