Newlife Centre Pty Ltd v Dymocks Book Arcade Pty Ltd; Dymocks Book Arcade Pty Ltd v Newlife Centre Pty Ltd

[2021] NSWCATCD 26

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Newlife Centre Pty Ltd v Dymocks Book Arcade Pty Ltd; Dymocks Book Arcade Pty Ltd v Newlife Centre Pty Ltd [2021] NSWCATCD 26

Hearing dates:

16 April 2021

Date of orders:

15 June 2021

Decision date:

10 June 2021

Jurisdiction:

Consumer and Commercial Division

Before:

G Ulman, Senior Member

Decision:

(1) In application COM 20/50480

(a) Declaration pursuant to section 72(1)(f)(iii) of the Retail Leases Act 1994 that that Newlife Centre Pty Ltd is liable to Dymocks Book Arcade Pty Ltd the sum of $9190.47.

(b) Declaration pursuant to section 72(1)(f)(iv) of the Retail Leases Act 1994 that from the $10,910.68 security bond held by the Office of the Small Business Commissioner as security for Newlife Centre Pty Ltd’s obligations under the lease dated 14 October 2019 of suite 10, Level 8, 428 George Street, Sydney New South Wales:

(i) Dymocks Book Arcade Pty Ltd is entitled to receive payment of the sum of $9190.47.

(ii) Newlife Centre Pty Ltd is entitled to receive payment of the sum of $1720.21

(2) Application COM 20/50086 is dismissed

Catchwords:

LEASES AND TENANCIES — Retail leases — Claim for rent, outgoings and make good costs — Claim for rent relief under the Retail And Other Commercial Leases (COVID-19) Regulation (No 3) 2020 — Claim for return of a security bond

Legislation Cited:

Retail Leases Act 1994 (NSW)

Retail And Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW)

Cases Cited:

Nil

Texts Cited:

Nil

Category:

Principal judgment

Parties:

In COM 20/50086:
Newlife Centre Pty Ltd (Applicant)
Dymocks Book Arcade Pty Ltd (Respondent)
In COM 20/50480:
Dymocks Book Arcade Pty Ltd (Applicant)
Newlife Centre Pty Ltd (Respondent)

File Number(s):

COM 20/50086 and COM 20/50480

Publication restriction:

Nil

REASONS FOR DECISION

Background

1. There are two applications to be determined by the Tribunal in these proceedings. Both arise out of the lease of a suite (premises) at the Dymocks building located in George Street, Sydney (building) by Dymocks Book Arcade Pty Ltd (lessor) to Newlife Centre Pty Ltd (lessee). The lease has now come to an end, the lessee having vacated the premises on 15 May 2020.

2. The building is a multi-storey building comprising a mixture of over 100 commercial and retail tenants. The premises had an area of approximately 61m² and were located on level 10 of the building.

3. By its application, the lessor is claiming the sum of $9787.47 from the lessee. This amount is made up of $3,220.47 for rent and outgoings in respect of the period 1 April to 15 May 2020, inclusive of GST, and make good costs in the amount of $6,567, inclusive of GST. The lessor seeks an order that the amount claimed be deducted from the lessee’s $10,910.68 security bond (bond) that is held by the Office of the Small Business Commissioner.

4. The lessee says that it only owes $2,162.47 inclusive of GST in respect of rent and $338.88 inclusive of GST in respect of outgoings. These are amounts are based on the lessee’s interpretation of the Retail And Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Regulation) and the National Cabinet Mandatory Code Of Conduct: SME Commercial Leasing Principles during COVID-19 (Code). By its application, the lessee seeking a declaration the lessor is not entitled to the whole or any part of the bond, and the return of the bond.

5. The lessee first entered into occupation of the premises pursuant to a lease dated 8 March 2016 (first lease) that commenced on 1 March 2016 and ended on 28 February 2019. The use of the premises was described in that lease as “Women’s health clinic including acupuncture services, massage, nutrition, and other allied health professionals”.

6. The lease the subject of these proceedings is dated 14 October 2019. It commenced on 1 October of that year and was for a term of six months ending on 31 March 2020. There was no change to the use. The rent payable was $32,538.94 per annum (excluding GST) for the term of the lease or $2711.58 per month (excluding GST). The lessee was also required to pay a proportion of the outgoings, calculated by reference to the net lettable floor area of the premises to the total net lettable floor area of the building in which the premises are located, and a promotional levy.

7. Clause 5 of the lease contains the holding over provision as well as what must be done when the lessee leaves the premises. Relevantly the clause provides as follows:

5.4 If the Tenant continues to occupy the Premises after the termination or expiry of this Lease with the Landlord’s approval, it does so under a monthly tenancy which either party may terminate on 1 month’s notice ending on any day. The monthly tenancy is to be on the same terms and conditions as this Lease except for those changes necessary to make the Lease appropriate for monthly tenancy. Where this Lease holds over pursuant to the terms of this clause, the defined term "Term" is deemed to include a reference to any hold over period.

5.5 On the earlier of the Expiry Date and the date this Lease is terminated the Tenant must vacate the Premises leaving the Premises in good, clean condition and repair and reinstate the Premises to their condition before any alterations were made in connection with the fitting out of the Premises including those to any services and those made to facilitate the fitout of the Premises for the Tenant.

5.6 Except in the case of termination by re-entry and unless the Landlord and Tenant have made a written agreement to the contrary, the Tenant must remove from the Premises during the 14 days immediately before the day the Premises must be vacated all Tenant's property including all fixtures, fittings, furniture, plant, machinery and equipment. Any such removal must only occur during hours reasonably approved by the Landlord.

5.8 The Tenant must immediately make good any damage caused to the Premises or the Building by the Tenant's property, including all fixtures, fittings, furniture, plant, machinery and equipment, being removed from the Premises or the Building.

8. Schedule 3 of the lease contains special conditions, clause 1 of which is relevant to the question of make good. It reads:

1. Removal of Prior Tenant’s Fixtures and Fittings

1.1 The Tenant takes the Premises subject to all plant, fixtures, fitting, equipment and property (Old Fitout) situated in the Premises at the Commencement Date.

1.2 At the expiry of the Term the Tenant must remove the Old Fitout from the Premises and comply with the obligations set out in clause 12 of the Lease. To avoid doubt, in determining the scope of the Tenant’s obligations under clause 12 the Old Fitout is to be treated as being the property of the Tenant.

9. Clause 12 of the lease contains the parties obligations to repair and maintain the premises. Relevantly the tenant is required to keep and maintain the premises and any property brought by it on to the premises in good repair as first-class retail premises.

10. Clause 19 of the lease sets out the lessee’s obligations in relation to the bond (refer to as a “security deposit”) and the lessor’s rights in relation to the bond. Clause 19.2 required the lessee to provide the bond, which was to be an amount equivalent to 3 month’s rent plus GST, and the lessee was required to lodge the bond with the Director General. It is not in dispute that both parties comply with their respective obligations under this clause.

11. Clause 19.3 provides as follows:

The Landlord is entitled to deduct from the security deposit an amount equal to any monies due but unpaid by the Tenant to the Landlord under this Lease.

12. From 1 April 2020 the lessee was occupying the premises under clause 5.4 of the lease, the holding over provision.

13. On 20 March 2020, Dr Patricia Diaz (Dr Diaz), the lessee’s director, sent an email to the lessor’s property manager, Mr Mark Licuria (Mr Licuria) referring to the COVID -19 and the impact it was having on her business. Dr Diaz asked whether, apart from temporarily ceasing the promotion fund, which the lessor had stated it would do, was there any other financial relief the lessor can provide tenants? In an email sent to Dr Diaz three days later, Mr Licuria said that the lessor was also facing similar significant adverse financial impacts from COVID -19 but had no blanket rent abatement policy in place. Each request from the tenant would be reviewed on a case-by-case basis. He then said that the lessor will consider Dr Diaz request to vary the lease terms based on the review of the specific financial information which he then described in the email.

14. Dr Diaz responded on 31 March 2020 in an email to Mr Licuria. Dr Diaz reiterated that her business was under financial hardship as a result of the pandemic, made reference to the Prime Minister’s announced encouragement of commercial landlords and tenants to negotiate arrangements to allow businesses to “hibernate and be able to reopen once the current issues of eight” and to relief being offered by other businesses including banks.

15. Mr Licuria replied by email on 1 April 2020. He said that like Dr Diaz, the lessor was waiting for the Prime Minister to announce measures regarding commercial/retail leases for both landlords and tenants and added this:

The landlord has agreed to defer 50% of the rent and outgoings for the April rent and the promo levy will not be charged in April to June. Can you please ensure that 50% of the April rent has been paid.

16. In an email dated 14 April 2020 from Dr Diaz to Mr Licuria and Ms Cathy Tiberia (Ms Tiberia), the lessor’s Finance Director and Managing Director – Property, Dr Diaz gave notice on behalf of the lessee of its intention to vacate the premises on 30 April 2020. The reason given by Dr Diaz was the financial hardship caused by the COVID 19 outbreak and the significant impact it had on the lessee’s business. Dr Diaz also said that she would “like to discuss an amicable arrangement that can suit both parties regarding the ‘make good’ at the end of the lease.”

17. Mr Licuria wrote to Dr Diaz the next day. In addition to informing Dr Diaz that base rent, outgoings and the promotional levy as well as other “miscellaneous charges (were) payable up to and including the date of vacation and completion of the make-good”, Mr Licuria said this:

A pre-make good inspection must be arranged with Mark Licuria (Property Manager) to determine which of the checklist items overleaf apply to you and to what degree. - To arrange an appointment, phone (provided) or email (provided).

The premises require restoration in accordance with your lease to discharge your obligations. Your lease sets out your obligations as to removal of partitions, fixtures and fittings, and making good of the premises including patching the walls and painting all surfaces with two coats of paint.

18. By email sent on 17 April 2022 Dr Diaz, Mr Licuria confirmed that the lessor would require the lessee “to complete the make good of the suite per the vacate notice sent… on Wednesday… which is in accordance with (the) lease.”

19. In On 23 April 2020, Ms Tiberio sent an email to Dr Diaz under the subject “Vacating follow-up”. Referring to a phone conversation some days earlier, Mr Licuria acknowledged the difficult times and said the lessor would do what it can to assist. In the same email Ms Tiberio informed Dr Diaz that the make good obligation under the lease required the lessee to remove the fit out that was there when the lessee took over the premises, something she said Dr Diaz would have been aware of when signing the lease. Ms Tiberio made reference to the advice from Dr Diaz that as she was under financial distress and unable to undertake the make good work. Ms Tiberio requested specific financial information in the form of a statutory declaration and what make good works Dr Diaz planned to do on vacating the premises. In particular he said “you indicated you would ‘fix the walls’ but I am sure (sic) what this exactly entails. Please advise so we can consider this further.” Ms Tiberio also pointed out that there was a liability for rent up until 30 April and also until 15 May.

20. On 24 April 2020, Dr Diaz sent an email to Ms Tiberia in which she set out what was intended to be done in terms of the make good of the premises having regard to what was said to be “the financial hardship (the lessee was) suffering, due to the coronavirus pandemic.” Included with the email was a letter from Dr Diaz’ accountants who said that they expected a 90% drop in the lessee’s turnover for the rest of the financial year. In relevant part Dr Diaz’ email goes on to read as follows:

Furthermore, our intentions as good tenants are to continue to keep good faith and to bring the premises back to shell - i.e. back to its state when we first moved in, this includes;

3 office rooms, with doors,

Single wall partition.

Kitchen basin and,

Bare concrete floor.

Since we moved into the premises at Suite 10/Level 8, on Monday the 1st of March 2016, we have;

Replaced the bare concrete floor with new wooden floorboards,

Freshly painted the premises (this had not been done as part of a make-good by the previous tenant).

Installed white designer wall tiles, as part of our feature walls in each room, and

Installed a new water basin in the first room to which all had been approved by Dymocks the Landlord and approved by the City of Sydney Council as per our DA.

Moving forward, as discussed, we would like to make good and leave the premises with

- The wooden floorboards (adding greater value to the premises than the monthly rent requested),

- 3 perfectly intact rooms with doors and single wall partition, and basins

- Remove all the white designer wall tiles and have them replaced with new freshly painted walls, as requested by Mark. The paint to match existing finishes.

- Remove the vinyl decal on our shop front glass window.

Our intentions are to leave the premises nice and clean, and in a much better state than when we moved in. As such, we believe that this a significant improvement In the tenancy, and as an act of good faith Dymocks should not place us under further financial hardship.

Further to our discussions, I have included in this email, a letter from our accountant Brendan Byrne, detailing the significant drop of 88% in turnover suffered by Newlife Centre for Women. Also attached are our 2019 Financial Statements and ITR, as requested by Dymocks as further proof of our financial hardship.

As you are aware, our lease agreement is currently on holdover. No signed lease agreement is in place. Please note, due to the financial hardship we are experiencing we have requested to leave on the 30th of April. This was agreed to by Dymocks, as stated in an email received from Mark on Thursday the 15th of April- please see letter attached, 'Vacating and Making Good.' We have now received a request for us to leave on the 15th of May, which will further add to our financial hardship, regardless of our prior arrangements.

21. On 27 and again 28 April 2020 Dr Diaz sent emails to Ms Tiberio following up Dr Diaz seeking a response to her 31 March 2020 email requesting rent relief and the 24 April 2020 email regarding make good.

22. On 27 April 2020, Mr Licuria attended the premises with a prospective tenant and one other person to inspect the premises. It is not in dispute that Dr Diaz, who was in the premises at the time, refused permit the inspection. According to Dr Diaz, this was because she considered the premises in the lead up to a final inspection on 30 April 2020 to be unsafe for unauthorised persons.

23. On 28 April 2020, Ms Tiberio requested Dr Diaz to provide the statutory declaration that had been requested in her 23 April 2020 email. Later that day Dr Diaz sent an email to Ms Tiberio. Dr Diaz again requested a response to her rent relief request. Dr Diaz said everything requested had been provided, the additional documentation being requested by the lessor fell outside the scope of the Code and she requested a response by 5 PM that day. Again that day Ms Tiberio said she may not be able to but would do her best to respond by 5 PM.

24. Dr Diaz sent an email to Mr Licuria on 29 April 2020 requesting a joint inspection of the premises and to complete an end of tenancy condition report at 3:30 PM on 30 April 2020. She asked Mr Licuria to let her know if this was not convenient so an alternative date could be organised. Later that day, Mr Licuria sent an email to Dr Diaz saying that a 3:30 PM meeting “tomorrow is fine”.

25. The lessor responded to Dr Diaz’ request for rent relief by email from Ms Tiberio to Dr Diaz on 29 April 2020. The email also deals with make good. In relevant part it reads as follows:

1. Rent Relief

a. The rent payable under your lease for April and May is as follows:

i. Rent for April: $2,874.27 ex GST

ii. Rent from I May to 15 May $1.298.06 ex GST $4.172.33 ex GST

b. We will reduce this rent by 86% based on the financial information you have provided as follows:

i. 43% of the rent being $1,794.10 plus GST will be waived - a credit note for this will be sent in due course;

ii. 43% of the rent being $1,794.10 plus GST will be deferred and must be paid over a period of 24 months; and

iii. 14% of the rent being $584.13 must be paid immediately by you direct or from your bond.

2. Outgoings

The outgoings payable under your lease for April and May are $1,484.14 and must be paid by you direct or from your bond.

3. Make Good

a. You are obliged under your lease to restore the premises to their original state, fair wear and tear excepted;

b. We have a prospective tenant which may be interested in the premises and if that prospective tenant signs a lease to take the premises, we will only require you to undertake that part of the make good that is required by the new tenant;

c. We cannot, however, progress this issue because you declined our request to allow the prospective tenant to inspect the premises.

d. I accordingly renew our request that you allow the prospective tenant to inspect the premises;

e. If the prospective tenant does not sign a lease of the premises, then we will obtain a quotation for the make good and will deduct that sum from your bond.

4. Final Inspection

Mark has committed to meet you at 3pm tomorrow for this.

26. Dr Diaz and Mr Licuria met at the premises on 30 April 2020, as arranged. Dr Diaz and Mr Licuria do not agree as to what was said at that meeting regarding make good. According to Dr Diaz, Mr Licuria agreed that no further work was required in order to make good the premises and that he had no concerns or made any suggestions with regards to the removal or restoration of existing plasterboard petitions, a common sync and floor boards. This is denied by Mr Licuria. Mr Licuria says that when he attended the premises on 30 April 2020, at 3:30 PM, he thanked Dr Diaz for cleaning up the premises as it would help him find a new tenant and Dr Diaz apologised for not permitting him into inspect the premises “but her insurance would not cover people coming into the suite in the state it was in”.

27. A Mr Pasquale Vaccarrella (Mr Vaccarrella) has provided a statutory declaration on behalf of the lessee. He says he was present when Mr Licuria attended the premises on 30 April 2020, and says he overheard a conversation between Dr Diaz and Mr Licuria. He says that when asked by Dr Diaz if there is anything else required in order to satisfy the make good, Mr Licuria said: “No, all looks good and I know you have been working hard.” Also according to Mr Vaccarrella, he observed Mr Licuria inspecting the premises “and showed no concerns about completing or removing any fixed structures when asked, such as the partition walls, sink or floor boards.”

28. The lessee vacated the premises on 30 April 2020. Efforts were made to arrange a mediation of the dispute but one never took place and a certificate under section 68(2) of the Act was issued by the Deputy Registrar, Retail Tenancy Disputes. The reason why the parties did not participate in a mediation will not affect the outcome of their dispute. During the course of the hearing I suggested to the parties that they try and settle their differences in an adjournment. The suggestion was taken up but unfortunately they were not able to reach a settlement.

The claims

29. The lessor says that the lessee has failed to pay rent and outgoings from 1 April 2020 to 15 May 2020. The amount claimed is $3,220.47. The following extract from the lessor’s ledger shows how this amount is said to be calculated:

Description                 Total including GST($)

Outgoing Outgoings – General         1,124.65

Tenant Promo Contributions         75.42

Tenant Promo Contributions         (75.42)

Base Rental – Retail            3,161.70

Outgoing adj FY20 outgoings YTD 30      (785.77)

April 2020 COVID            

Outgoing Outgoings ● General         507.90

Promo Tenant Promo Contributions      34.06

Promo Tenant Promo Contributions      (34.06)

Base Rental – Retail            1,427.87

43% abatement for April 2020         (1,359.53)

43% abatement for May 2020         (613.99)

Adj April 2020 reverse            (178.96)

increase

Adj May 2020 reverse            (80.93)

increase

COVID adj April 2020 abate         76.96

based on Rent at end of Term

COVID adj May 2020 abate         (59.53)

now 50% based on Rent at end of

Term

Balance in AUD:               3,220.47

30. The lessor says that due to the pandemic it initially abated the rent payable by the lessee in April and May by 43% and then later by 50% to take account of the reduction in the lessee’s turnover. The lessor also says that although a rent increase was initially applied, that was later reversed for both April and May. The lessor continued to charge the lessee for outgoings said to be payable under the lease.

31. The lessee disputes the quantum of the amount claimed. It says that the lessor has failed to properly apply the Regulation and the Code in calculating the outstanding amounts. It says the total amount owing is $2,501.35 comprising rent is $2162.47 and outgoings is $338.88, both inclusive of GST. This is how the lessee calculates these amounts:

April        $          May (not trading)     $    Total (inc GST)

Outgoings     1,124.65    Outgoings        0.00

Rent        2,982.74    Rent           1,342.20

Outgoings           Outgoings

Abatement     (785.77)    Abatement        0

COVID-19     (1491.37) COVID-19       671.10

50% abatement        50% abatement

Balancing Owing 1,830.25    671.10            2,501.35

32. The lessee says that only 50% of outgoings should be paid for April, in accordance with the Code, and no outgoings should be paid in respect of May when was no longer trading from the premises, having vacated on 30 April 2020.

33. The lessor’s claim for make good costs of $6,567 is made up of the following quotations:

1. ABS Buildworx quotation dated 13 April 2021 to remove existing vinyl floor tile containing asbestos & replace with new vinyl floor tile; all rubbish removed and site cleared             $935 inclusive of GST

2. ABS Buildworx quotation dated 18 June 2020:

Disconnect existing power points and switches and make safe    $6000

Disconnect and remove existing sink, water point and drainage   $400

Demolish and remove existing plasterboard partitions           $2500

Remove existing timber floating floor

Patch and repair any damage to inter tenancy walls           $300

Replace any damaged ceiling tiles                $200.00

Replace any missing aluminium skirting

Repainting of inter tenancy and back walls of suite          $900.00

All rubbish removed and site cleaned subtotal             $4100

GST   $490

Total   $5390

3. Elite Air Climate Control dated 20 May 2020 to disconnect the existing Mitsubishi thermostat; extend cables and install on another wall; test controller $242 inclusive of GST.

34. The lessee says that it is not liable for any make good costs. It says that the lessor agreed on 30 April 2020 that it was satisfied with the make good of the premises said to have been undertaken by the lessee. It also says the lessor failed to communicate its make good wishes or requirements before the lease end on 15 May 2020 and acted unconscionably in not allowing the lessee to rectify the makegood. Further, the lessee says that it complied and met its obligations to make good the premises back to the original state of repair and condition of the lease property at the commencement date which was 1 March 2016. Finally the lessee says that the premises are heritage listed and it has complied its obligations as stated in a development application and in accordance with the requirements of the City of Sydney Council.

35. The lessee also says that it will agree to pay $2,501.35, which it concedes is owing, over 24 months, as required by the Code. It also seeks an order an order the monies claimed by the lessor are not due and payable, and the return of the bond.

Jurisdiction

36. It is not in dispute that the Tribunal has jurisdiction under the Retail Leases Act 1994 (Act) to determine the dispute between the parties.

37. For clarification I would add this. In his declaration dated 5 March 2021, Mr Licuria says that the building “is home to some 120 specialty stores and businesses tenanted by a multitude of users ranging from hairdressers and beauty specialists to first aid, jewellers, financial planners and photography.” Mr Forsyth, who is a director of the lessor and also a solicitor, and who appeared for the lessor at the hearing, also informed me that the building contains a multitude of retails shops and the outgoings paid by tenants in the building include a charge for marketing. The use of the premises as described in the lease is not one of the businesses that appears in Schedule 1 to the Act. However, on the basis of Mr Licuria’s evidence and what I have been told by Mr Forsyth, I am satisfied that the building is a “retail shopping centre” as defined under the Act. Accordingly, because the premises are a retail shopping centre, they are a “retail shop” and the lease is a “retail shop lease” as defined by the Act over which the Tribunal has jurisdiction to determine the disputes the subject of these proceedings.

Hearing

38. Dr Diaz appeared at the hearing for the lessee and Mr Forsyth appeared for the lessor.

39. The hearing was listed to be conducted by audio visual link (AVL). Unfortunately the AVL only worked intermittently and at times the parties representatives were either unable to connect or unable to be heard. As a result, part way through the day the hearing continued by telephone. These technical difficulties did not, in my view, affect the hearing or the outcome.

40. None of the parties witnesses were cross examined during the hearing.

Evidence

41. The lessee’s evidence consists of four statutory declarations. Dr Diaz made three declarations dated 4 January 2021, 10 February 2021, 12 February 2021 and 31 March 2021. Mr Vaccarrella also made a declaration dated 4 January 2021.

42. Dr Diaz’ 4 January declaration sets out her version of the meeting at the premises with Mr Licuria on 30 April 2021. In short she says that Mr Licuria said no further work was required for make good and he “and showed no concerns or made any suggestions with regards to the removal or restoration of the plaster board partitions (walls), a common sink or floor boards.”

43. The declaration Dr Diaz made on 10 February 2021 refers to Mr Licuria’s 15 April 2020 letter. Dr Diaz says that she relied on that letter and believed it was the lessor’s consent for the lessee to vacate the premises and that it would not be charge additional rent after 30 April 2020. As she also says that she arranged for remover lists and contractors “to assist in the ‘make good’ of the premises to ensure we were out by due date.”

44. Dr Diaz’ 12 February 2021 declaration simply refers to a letter from her to a Ms Valkov, whom she described as a building surveyor from the City of Sydney Council. The letter in evidence is simply addressed “Dear Emelia” and refers to a meeting on 10 May 2016 to inspect the premises. The letter states that it is intended to notify the Council that the lessee has not made any work in the premises. The letter goes on to describe what is in the premises, that the lessee intends to continue to preserve the heritage building and there is wheelchair access.

45. The 31 March 2021 declaration made by Dr Diaz deals with three topics; asbestos, images and photographs and mediation. In relation to the topic of asbestos, Dr Diaz says she was advised by the lessor’s former building manager that there was asbestos in the building she provides a photo of a cracked tile taken on 1 March 2016 of what she says was asbestos found on cracked tiles in the premises. Under the topic of images and photographs, Dr Diaz provides photographs of the premises taken on 24 February 2021, and screenshots of advertisements from real estate websites. In relation to the mediation topic Dr Diaz attaches to the declaration an email from a mediation officer at the Office of The Small Business Commissioner.

46. The lessee’s evidence also consists of email correspondence between the parties, copies of the lessor’s invoices, photographs of the premises taken in 2016, a 2016 architect’s plan of the premises and a developed application made in 2016 by Dr Diaz to the City of Sydney Council in respect of the premises and the Council’s notice of determination

47. Mr Vaccarrella’s declaration sets out his version of what occurred at the meeting with Mr Licuria and Dr Diaz on 30 April 2021. His evidence generally accords with that contained in Dr Diaz’ 4 January 2021 declaration.

48. The lessor’s evidence consisted of three statutory declarations made by Mr Licuria dated 8 February, 5 March and 13 April 2021.

49. Mr Licuria’s 8 February 2021 declaration sets out the background to the matter the lessor’s evidence of the make good and rent and outgoings issues as well as correspondence, the lessor’s rental and outgoings ledger for the lessee, and Elite Air’s quotation and ABS Buildworx’ first quotation. Also annexed to the declaration is correspondence relating to the parties failed attempts to mediate the dispute.

50. Mr Licuria denies Dr Diaz’ and Mr Vaccarrella’s versions of the conversation on 30 April 2021.

51. Mr Licuria says the ledger shows that the rent for April and May 2020 was reduced by 86% of which 43% was waived and 43% deferred in accordance with the Regulation as it was at the time. The calculation of the waiver and deferral was, according to Mr Licuria, to be based on financial information provided by the lessee. He accepts that the 86% reduction was an error and that the intended rent reduction for April and May should have been 88%., Mr Licuria says that some months after the lease ended the rental waiver was increased to 50%. He also says that lessor continued to charge outgoings for April and May 2020.

52. Annexed to Mr Licuria’s 5 March 2021 declaration is a report by Nicholas Brady Valuations. It is dated 4 March 2020 but this appears to be a mistake and the correct date is 4 March 2021. The report is said to be for the purposes of determining the lessor’s loss of rent attributable to the lessee’s failure to make good. Mr Licuria in his declaration provides commentary on this. Since no claims is made by the lessor for loss of rent as a result of the lessee’s alleged failure to make good, the declaration in my view is not relevant for the purposes of the determining the issues in dispute between the parties.

53. Mr Licuria’s 13 April 2021 declaration annexes the APS Buildworx 13 April 2021 quotation to remove and replace tiles. In the declaration he also describes the steps taken by the lessee to re-lease the premises. As I have already decided, that subject is not relevant to the matters in issue.

Issues for determination

54. The issues for determination, in my view, are as follows”

1. How much is owing by the lessee to the lessor for rent and outgoings? Is it $3220.47 as claimed by the lessor or $2501.35 as asserted by the lessee?

2. Should an order be made that any amount found to be owing to the lessor rent and outgoings be payable by the lessee to the lessor to be repaid over a period of 24 months?

3. Has the lessee complied with its make good obligations under the lease and if not, what if any amount is the lessor entitled to for the make good costs.

4. What is to happen to the bond?

Consideration

Rent and outgoings from 1 April to 15 May 2020

55. The first issue for determination is what is owing by the lessee to the lessor for rent and outgoings. The sum of $3220.47 is claim by the lessor. The lessee, on the other hand concedes that $2501.35 is owing but says it should be paid over 24 months and not deducted from the bond.

56. How the lessor has arrived at the amount claimed is set out in paragraph 29 above. It says that it has complied with the Regulation and Code by eventually arriving at a rental figure which abated or waived 50% of the rent, waived the promotional contribution and did not pass on any rent increases. It says that it is entitled to charge outgoings.

57. Dr Diaz submits that the lessor in arriving at the amount it claims has not complied with the Regulation or the Code.

58. Dr Diaz submits that by reason of the Code, only 50% of outgoings should have been charged for the month of April and no outgoings at all charged for the 15 days in May when it did not trade.

59. In order to determine this issue it is necessary to have regard to the legislative framework that applies to retail leases affected by the Covid 19 pandemic. In an attempt to alleviate some of the financial impact of the pandemic on parties to commercial as well as retail leases, a regime was put in place by the Federal Government and the New South Wales Government. It is comprised of the Code and three successive Regulations promulgated in New South Wales. They are

1. Retail and Other Commercial Leases (COVID-19) Regulation 2020 that commenced on 24 April 2020;

2. Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 that commenced on 24 October 2020; and

3. Retail and Other Commercial Leases (COVID-19) Amendment Regulation (No 3) 2020 that commenced on January 2021.

60. For convenience I will simply referred to all three Regulations as “the Regulation”.

61. The Regulation applies to an “impacted lease” which means a commercial lease to which an “impacted lease” is a party (clause 3). An impacted lessee is defined to mean, in effect, one who qualifies for jobkeeper (clause 4). Dr Diaz, at the hearing, said that the lessee did apply for and receive jobkeeper benefits. Mr Forsyth said that the lessor does not contest that the lessee was entitled to those benefits. I am satisfied that the lessee was while the lease was on foot an impacted lessee and the lease was an impacted lease for the purpose of the Regulation.

62. Clause 6 of the Regulation prohibits rent being increased during what is referred to as the “prescribed period” that a lessee is an impacted lessee. Under the regulation the prescribed period is 24 April 2020 to 28 March 2021 The lessor is also prohibited during this period from taking what is referred to as “prescribed action” against an impacted lessee for breach of the lease where there has been a failure to pay rent. Clause 3 of the regulation defines “prescribed action”. There is a lengthy list of steps that a landlord must not take during the prescribed period. The lessee is not accused of taking prescribed action contrary to the Regulation.

63. Clause 7 of the Regulation sets out a regime for the parties to renegotiate, in good faith, the rent and other terms of an impacted lease consistent with the obligations contained in the Code. Clause 8 of the Regulation extends Part 8 (Dispute Resolution) of the Act to an impacted commercial lease dispute. Such a dispute is defined to mean, inter alia, any obligation to pay money under an impacted lease.

64. Clause 9 provides that when the Tribunal is considering whether to make a decision in relation to, amongst other things, the exercise or enforcement of a right of the lessor under an impacted lease in addition to the recovery of possession or termination of the lease, it is to have regard to the leasing principles set out in the Code.

65. The relevant leasing principles in the Code the purposes of these proceedings are:

1. Principle 3: Landlord must offer tenant’s proportionate reductions in rent payable in the form of waivers or deferrals… of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID 19 pandemic period and a subsequent reasonable recovery period.

2. Principle 4: Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID 19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease. Regard must also be had to the landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement of a 50% minimum waiver by agreement.

3. Principal 5: Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

4. Principle 6: Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.

5. Principle 8: Landlords should where appropriate seek to waive recovery of any other expenses (or outgoings payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.

6. Principle 9: If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID 19 pandemic ending (as defined by the Australian government) or the existing lease expiring, and take into account a reasonable subsequent recovery period.

7. Principle 11: Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee personal guarantee) during the COVID 19 pandemic and/or a reasonable subsequent recovery period.

8. Principle 13: Landlords agree to a freeze on rent increases (except for retail leases based on a turnover rent) for the duration of the COVID 19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.

66. The Code, despite the use of the word “mandatory” in its title, does not of itself impose obligations on the parties to do what the Code states. Rather, as the preamble to the principles indicates, the purpose of the code “is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, where the tenant is an eligible business of the purposes of the Commonwealth government’s Jobkeeper programme.” The preamble goes on to say that:

These principles will apply to negotiating amendments in good faith to existing leasing arrangements – to aid the management of cash flow for SME tenants and landlords on a proportionate basis – as a result of the impact on commercial disruption caused by the economic impacts of industry and government responses to the declared Coronavirus (COVID-19) pandemic.

67. The Code also states that “it will be given effect through relevant State and Territory legislation or regulation is appropriate. The code is not intended to supersede such legislation but aims to complemented during the COVID-19 crisis period.”

68. As I read the Code and Regulation, parties to a retail lease are required to have regard to the leasing principles in the Code when negotiating, in good faith, amendments to existing lease arrangements due to the impact of the pandemic. The Code of itself does not have any legislative status and therefore parties to an impacted lease are not obliged to comply with it to the letter. That said, if they are unable to reach agreement after good faith negotiations over amendments to the lease, the dispute may be referred to the Tribunal and, in determining the dispute, the Regulation requires the Tribunal to have regard to the leasing principles set out in the Code. That is the approach I propose to take in determining dispute in these proceedings.

67. There is no doubt in my mind that that the pandemic had a significant impact on the lessee’s business and I accept the lessee’s evidence that its business was reduced by 88%. However, as is evident from the lessor’s rental ledger, as a consequence of being told by the lessee of the downturn in its business it did, ultimately, agree to waive initially 43% and then 50% of the rent. In addition, the lessor waived the marketing charge which would otherwise have been payable by the lessee and recredited to the lessee’s account rent increases which it was otherwise entitled under the lease to charge. I also accept that the lessor offered to accept repayment of the balance of the rent over 24 months.

68. In so far as the rent is concerned, I am comfortably satisfied that the lessor’s conduct in granting these concessions to the lessee was consistent with the requirements of the Code. The concessions granted were also, in my view, eminently reasonable and fair. I also accept the lessor’s calculations of the outstanding rent having regard to these concessions. The monthly rent figure used is consistent with the rental amounts payable under the lease. Insofar as the rent is concerned, I am therefore satisfied that the amount owing by the lessee to the lessor is $2373.69.

69. So far as outgoings are concerned, the lessor claims entitlement to payment of the outgoings from 1 April to 15 May 2020 in full. The lessee says that outgoings four April should, like the rent, be reduced by 50% and no outgoings should be payable for May, when it was no longer trading from the premises.

70. Leasing principle 6 provides that the lessor is to pass on to the lessee the benefit of any reduction in statutory charges or insurance in the appropriate proportion applicable under the lease terms. Mr Forsyth informed me that the only reduction in statutory charges was land tax and that was on 30 September 2020. He says that the amount of credit the lessee would have received had it continued in occupation under the lease was $366.87. Since the lease ended on 15 May 2020, he says that benefit should not be passed on to the lessee after the lease came to an end. I agree. Once the lease it is at an end, the lessee is no longer liable for outgoings such as land tax and therefore it should not have the benefit of any reduction in land tax that accrues thereafter. Since there has been no other reduction in statutory charges or insurance during the term of the lease, all outgoings for April are payable.

71. The situation in relation to the outgoings for the period of 15 days that the lease was still on foot is in a slightly different category. The lessee says that it did not trade and therefore, by virtue of leasing principle 8, the outgoings that period should be waived. Leasing principle 8 refers to a situation where the tenant is unable to trade. Here, the position is entirely different because the lessee chose not to trade after 30 April 2020. Having chosen not to trade, I do not consider it appropriate, or consistent with leasing principle 8, for May outgoings to have been waived by the lessor.

72. I am therefore satisfied having regard to the lessors rental ledger, which I accept as conclusive evidence of the calculation of outstanding outgoings, that outgoings in the amount of $846.78 inclusive of GST are owing by the lessee to the lessor for the period 1 April to 1 May 2020.

73. Accordingly, I find that the total amount owing by the lessee to the lessor for rent and outgoings is $3,220.47.

Terms for repayment of the rent and outgoings

76. The powers the Tribunal may exercise in relation to retail tenancy claims such as this are found in section 72 of the Act. In relevant part that section reads as follows:

1. In proceedings for a retail tenancy claim lodged with the Tribunal under this part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:

1. an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid to a specified person

…..

2. The Tribunal may make such ancillary orders as it considers necessary for the purpose of enabling an order under this section to have full effect.

3. The Tribunal may impose such conditions as it considers appropriate when making an order under this section.

77. I am satisfied that the provisions of section 72 to which I have referred permit me to not only order that the lessee is to repay the amount of rent and outgoings for which I have found it liable to the lessor but also order that the amount is to be repaid over a period of time.

78. I am mindful of what leasing principle 3 of the Code says in terms of the repayment of deferred rent. In this context, I note that Mr Forsyth also said at the hearing that the lessor does not ask for payment immediately. I am, however, also conscious of the fact that at the time the hearing there was no current financial information about the lessee’s financial circumstances and that despite the lessee acknowledging that some rent and outgoings work payable, no payment has been made by it since it vacated the premises on 15 May 2020.

79. Weighing these factors up, in a particular having regard to the lessee’s admission that it owed rent and outgoings and has made no payments to the lessor despite that admission, I do not propose to order the repayment of the outstanding rent and outgoings by instalments. That money is to be repaid out of the bond.

Make good claim

80. The lessor is also claiming $6,567 which is the sum total of three quotations obtained make good costs. The costs have yet to be incurred. The lessor says that clauses 5.5, 5.6 and 5.8 of the lease and the special condition 1 in schedule 3 of the lease impose an obligation on the lessee to make good the premises by removing certain fixtures and fittings that it failed to remove prior to vacating the premises. The amount claimed represents the costs of undertaking the make good work that the lessee failed to do in breach of the lease.

81. The lessee has not disputed the quantum of the lessor’s claim for make good costs. It does though deny liability for the make good costs on the following grounds:

1. At the final inspection on 30 April 2020, Mr Licuria said he was satisfied with the lessee’s make good work.

2. The lessor failed to inform the lessee of the defective 'make good' claim.

3. The lessor failed to communicate its wishes on 'make good' of the premises prior to end of lease on 15 May 2020.

4. The lessor engaged in unconscionable conduct in failing to comply with its obligations to allow the lessee the opportunity to undertake the make of good work.

5. The lessee complied with its obligations to make good the premises and returned the premises to its original state of repair and condition of the leased property at the commencement date which was 16 March 2016.

6. The premises is heritage listed and the lessee has complied with its obligations as stated in Development Application DA: 2016/429 and in accordance with the Principle Certifying Authority at City of Sydney Council.

82. I will consider each of these reasons in turn.

Ground 1

83. Relying on the declarations made by Dr Diaz and Mr Vaccarrella on 4 January 2021, the lessee asserts that Mr Licuria in effect agreed at the meeting on 30 April 2020 that no further work was required in terms of make good. This is disputed by Mr Licuria.

84. In deciding where the truth lies it is not simply a case of saying that the lessee’s version of what was said is supported by two declarations whereas the lessor’s version is only supported by Mr Licuria’s declaration. In circumstances where the evidence of individual witnesses conflicts, it is appropriate, in my view, to have regard to the contemporaneous correspondence in order to determine where the truth lies as this is, my experience, the best evidence of what actually took place.

85. Relevantly, this starts with Dr Diaz’ 14 April 2020 email to Mr Licuria giving notice of the lessee’s intention to terminate the lease. In relation to make good, Dr Diaz said this:

In addition to the undue financial hardship, we would like to discuss an amicable arrangement that can suit both parties regarding the 'make good' at the end of the lease.

86. Mr Licuria sent a letter to Dr Diaz on 15 April 2020, the day after receiving a notice from her that the lessee intended to vacate the premises. His letter expressly draws Dr Diaz attention to the fact that the premises require restoration “in accordance with (the) lease to discharge (the lessee’s) obligations.” It goes on to say this:

Your lease sets out your obligations as to removal of partitions, fixtures and fittings and making good of the premises including patching the walls and painting all surfaces with two coats of paint.”

87. The letter also includes a make good checklist which repeats the requirement for the removal of partitions, fixtures and fittings.

88. On 17 April 2020 in an email to Dr Diaz, Mr Licuria confirmed that the lessee was required to complete the make good of the premises as per the letter that had been sent which he says, “is in accordance with your lease”.

89. Mr Licuria reiterated the lessee’s make good obligations in an email to Dr Diaz on 23 April 2020.

90. The next day, that is 24 April 2020, Dr Diaz sent a lengthy email to Ms Tiberio in effect seeking concessions to the make good obligations based on financial hardship. As I read that email, which is in relevant part reproduced above at paragraph 20, Dr Diaz was asking the lessor to accept the premises in the condition they were in at the time.

91. In her 29 April 2020 email to Dr Diaz, reproduced in relevant part at paragraph 25 above, Ms Tiberio restated that the lessee was obliged to restore the premises to their original state. She did, however, say that there was a prospective tenant who may be interested in the premises and renewed a request to allow that prospective tenant to inspect the premises. Ms Tiberio said that if the prospective tenant signs a lease for the premises, the lessor will only require the lessee to undertake that part of the make good that is required by the new tenant. Ms Tiberio added that if that prospective tenant does not sign a lease of the premises then the lessor will obtain a quotation for the make good and deduct that sum from the security bond.

92. On 15 June 2020, Dr Diaz sent an email to a member of staff at the Office of the Small Business Commissioner. This was a time when the parties were attempting to organise a mediation. In the email Dr Diaz said this:

Also, the quote attached from APS Buildworx Pty Ltd only shows a lump sum for the ’demo and make good and not a breakdown of the cost per unit as shown in the other quote attached from Elite Air – Climate Control.

……

To avoid any discrepancies, could you please kindly send me a copy of the following:

…..

A clear breakdown of the cost per unit from

93. The next day, in another email to the same member of staff at the Office of the Small Business Commissioner, Dr Diaz relevantly said this:

In the event maintaining transparency between both parties, can you:

…..

Proceed to obtain a breakdown of the builders cost/s - APS Buildworx Pty Ltd quotation.

Please note that there was a verbal contract agreement between the building manager (Marl Licuria) and myself regarding the make good.

94. It is clear to me from the correspondence to which I referred that the lessor steadfastly maintained that the lessee was obliged to carry out its make good obligation. There was only one occasion where this was qualified that was when Ms Tiberio informed Dr Diaz that if another tenant could be found who would take the fit out as is, then the lessee would only be required to make good that part of the premises that is required by the new tenant. Another feature of the correspondence generally which I consider to be significant is that Dr Diaz, Mr Licuria and Ms Tiberio were in the habit of communicating by email and recording significant matters in those emails. It is relevant to note therefore, in the context of deciding whether an agreement was reached in terms alleged by the lessee, that at no time did Dr Diaz or the lessor’s representatives with whom she was dealing confirm in any correspondence the agreement Dr Diaz maintains took place with Mr Licuria on 30 April 2020. It indeed it was not until correspondence to do with arranging a mediation that Dr Diaz mentioned this so-called agreement. Even then, that particular email came a day after an email from Dr Diaz requesting further information about the make good quotation something that strikes me as quite inconsistent with the stance taken by Dr Diaz about the agreement she alleges was made with Mr Licuria.

95. In the circumstances, the conclusion I have come to, based on this correspondence to which I referred, is that no agreement was reached on 30 April 2020 between the lessor and the lessee to waive the lessee’s make good obligations under the lease.

96. In case it is ultimately found that my conclusion that no agreement was reached on 30 April 2020 is wrong, I will add this.

97. Clause 5.6 of the lease relevantly provides that the obligation imposed upon the lessee to remove its property, including fixtures and fittings, from the premises is mandatory “unless the Landlord and Tenant have made a written agreement to the contrary…”. There is no evidence of any written agreement to the contrary, and therefore the lessee is required to comply with clause 5.6 and make good the premises.

98. In the same vein, it is to be noted that clause 26.8 reads as follows

No party to this Lease may rely on the words or conduct of any other party as a waiver of any right unless the waiver is in writing and signed by the party granting the waiver.

99. There is no evidence that the lessor in any document signed by on its behalf waived the right to require the lessee to make good the premises in the manner for which it now contends. Even if Dr Diaz version of that conversation with Mr Licuria on 30 April 2020 is accepted, it did not amount to a waiver of the lessee’s make good obligations under the lease because that waiver was not in writing signed by or behalf of the lessor.

Ground 2

100. The lessee’s next ground for denying liability for the make good claim is that the lessor failed to inform the lessee of the defective 'make good' claim. By that I take the lessee to be saying that the lessor failed to inform the lessee that the work carried out in the premises prior to vacating did not satisfy its obligations under the lease to make good the premises. In my view, even if what is being asserted by the lessee is correct, I do not consider this to be a proper basis for the saying that it absolves the lessee of any responsibility the consequences of not making good the premises. The provisions of clause 26.8 of the lease also applies.

Ground 3

101. The next ground for the lessee denying liability for the make good claim is that the lessor failed to communicate its wishes on make good of the premises prior to end of lease on 15 May 2020. I reject the lessee’s assertion. The correspondence to which I have referred starting with the lessor’s letter of 15 April 2020 through to Ms Tiberios 29 April 2020 make perfectly clear what the lessor’s wishes were in relation to make good which was, that the lessee had to comply with its make good obligations under the lease.

Ground 4

102. The lessee’s next ground for denying liability for make good claim is that the lessor engaged in unconscionable conduct in failing to comply with its obligations to allow the lessee the opportunity to undertake the make good work. There is simply no evidence whatsoever to substantiate this allegation. The lessor promptly and clearly informed the lessee of its obligations to make good as soon as notice of intention to terminate lease was given. It repeatedly reminded the lessee of these obligations. Furthermore, nowhere in the correspondence or in the parties evidence is there any suggestion that the lessor has been denied the lessee the opportunity to make good. For completeness I would add that there is not a skerrick of evidence to support the claim of unconscionable conduct.

Ground 5

103. The lessee next resists the claim for make good on the basis that it has complied with its obligations to make good the premises and returned the premises to its original state of repair and condition at the commencement date which was 16 March 2016.

104. The lease imposes very clear obligations on the lessee as to the state it must leave the premises prior to the expiration of the lease. First, it is required to leave the premises in a “good, clean condition and repair and reinstate them to the condition before any alterations were made in connection with the fit out the premises (clause 5.5). The lessor does not suggest that the lessee has not complied with this obligation.

105. Second, the lessee must remove during the 14 days immediately before it vacates the premises all of its property including fixtures, fittings, furniture, plant, machinery and equipment (clause 5.6). Special condition 1 of schedule 3 of the lease also requires the lessee prior to the expiry of the term of the lease to remove the “Old Fitout” which is defined as mean “plant, fixtures, fitting, equipment and property situate the Premises at the Commencement Date.” The lease defines Commencement Date as 1 October 2019. To avoid doubt, special condition 1 also expressly states that the Old Fitout “is to be treated as being the property of the (lessee).”

106. There remained in the premises after the lessee vacated three internal partitions or plasterboard walls, a sink, floating floor boards and floor tiles located below those boards. In my opinion these are clearly lessee fixtures and fittings as contemplated by clause 5.6 of the lease and special condition 1. There was therefore an express obligation to remove them which the lessee has failed to do. It matters not in my view that the commencement date of the lease was 1 October 2019 rather than 16 March 2016, the commencement date of the first lease. If the items I have mentioned were part of the fit out, then they belonged to the lessee and had to be removed. If they were part of a later fitout installed by the lessee, it was still required under the terms of the lease to remove them. I accordingly reject the assertion that lessee has complied with its obligations to return the premises to their original state of repair and condition.

Ground 6

107. I now come to the final ground by which the lessee denies that it is not liable for the make good costs. The lessee asserts that because the premises are heritage listed and the lessee has complied with its obligations as stated in Development Application DA: 2016/429 and in accordance with the Principle Certifying Authority at City of Sydney Council it is not now required to make good the premises.

108. At the hearing that Dr Diaz said that the premises are in a heritage building and items that the lessee was being asked to remove, namely the partitions, sink, floating floor boards and tiles our heritage items. While it is not in dispute that the building is a heritage building, the lessor disputes that the items it says the lessee is required to remove as part of its make good obligations are heritage items.

109. The only evidence upon which the lessee relies is a development application lodged in 2016 with the City of Sydney Council to conduct the lessee’s business. In that application the lessee acknowledges that the building is a heritage item all within a conservation area. The application goes on to say this:

No changes to structural or heritage material or items. Using existing internal layout/fitout which is gyprock construction.

110. I reject the lessee’s assertion the premises are heritage listed. While I am highly sceptical of the assertion that the items in question are heritage items, I have decided to reject the assertion on the basis that it is simply not supported by any of the evidence presented by the lessee. If as the lessee contends the items are of some heritage significance, then it was incumbent upon it to adduce evidence to support that contention. It is not supported by the developed application to which the lessee refers, and which makes no mention of the specific items, and no other evidence has been adduced.

110. Accordingly, I find that the lessee in breach of clause 5.6 and 5.8 of the lease and special condition 1 of the schedule 3 to the lease, failed to comply with its make good obligations.

111. Clause 5 of the lease does not provide for the landlord to be able to recover make good costs in the event of the lessee’s failure to do so. Clause 6(e), however, provides that the lessee must pay to the lessor in cleared funds “the reasonable costs incurred by the (lessor) as a consequence of the (lessee’s) breach of this Lease”. The lessee having breached clauses 5.6 and 5.8 and special condition 1, I find that the lessor is therefore entitled to its reasonable make good costs.

112. The lessor relies on the three quotations to which I referred for its make good costs. The lessee has not adduced any evidence to suggest that those costs are unreasonable. I am comfortably satisfied that the costs of the make good work as set out in those quotations are reasonable. Since GST is not payable on damages, the lessor will be entitled to the sum total of the quotations less GST which comes to $5970.

The bond

114. That then leaves the question of what to do with a bond. Clause 19.3 of the lease permits the lessor to deduct from the bond “an amount equal to any monies due but unpaid by the (lessee) to the (lessor) under (the) Lease.”

115. The lessor having been successful in its claim for rent and outgoings and make good, I propose to order that out of the bond the amount of $9190.47 (being $3220.47 for rent and outgoings and $5970 for make good costs) be released and paid to the lessor. The balance of the bond, amounting to $1720.51, is to be released and paid to the lessee.

Conclusion

116. As a result of my findings, the lessee is liable to the lessor in the sum of $9190.47 and is entitled to be paid the amount owing to it from the security bond with the balance to be paid to the lessee. Declarations will be made to give effect to this. It follows that the lessee’s application will be dismissed

Orders

117. These are the orders of the Tribunal:

1. In application COM 20/50480

1. Declaration pursuant to section 72(1)(f)(iii) of the Retail Leases Act 1994 that that Newlife Centre Pty Ltd is liable to Dymocks Book Arcade Pty Ltd the sum of $9190.47.

2. Declaration pursuant to section 72(1)(f)(iv) of the Retail Leases Act 1994 that from the $10,910.68 security bond held by the Office of the Small Business Commissioner as security for Newlife Centre Pty Ltd’s obligations under the lease dated 14 October 2019 of suite 10, Level 8, 428 George Street, Sydney New South Wales:

1. Dymocks Book Arcade Pty Ltd is entitled to receive payment of the sum of $9190.47.

2. Newlife Centre Pty Ltd is entitled to receive payment of the sum of $1720.21

2. Application COM 20/50086 is dismissed

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 05 August 2021