NZI Insurance Australia Ltd v Baryzcka & Anor No. Scciv-01-1005
[2002] SASC 16
•25 January 2002
NZI INSURANCE AUSTRALIA LTD v BARYZCHA & ADELAIDE PROPERTY INVESTMENTS PTY LTD (INTERVENER)
[2002] SASC 16
Magistrate’s Appeal
MULLIGHAN J The appellant, who was the registered legal owner of shop premises known as Shop 2 at 117 King William Street, Adelaide (“the shop premises”) appeals against the judgment of a learned Magistrate sitting as the Magistrates Court in the Civil Jurisdiction declaring that the respondent had an equitable lease of the shop premises. The terms of the judgment are:
“1.I declare that the plaintiff is entitled to a lease of the shop premises which she currently occupies being Shop 2 at the corner of Waymouth and King William Streets known as “the Wild Bunch” for a period of 5 years from and including 17 July 2000 at an annual rental of $27,000.00, the first three months of which period shall be rent free, with annual adjustments for rent at the CPI rate and with regard to other terms on the terms comprised in Document 15 to Exhibit D1 with the exception of any right of renewal.
2.The parties be at liberty to apply on 48 hours notice.”
The respondent had leased the shop premises from the appellant for a period of about ten years pursuant to two consecutive written leases for five years and four years respectively, the second of which concluded on 31st December 1999. Thereafter she continued to occupy the shop premises as a tenant. The basis of that occupation is the subject of the proceedings between the parties. This second written lease is the document referred to in the judgment of the learned Magistrate. The respondent conducted a florist shop under the name of “The Wild Bunch”. The second lease had a right of renewal provision. The respondent did not exercise that right but entered into negotiations with the appellant for a new lease on terms more favourable to her. She remained in occupation of the shop premises from 1st January 2000 pursuant to the holding-over provisions of the second lease during the course of the negotiations in the first part of the year 2000.
During this time, the appellant was attempting to sell the shop premises and other premises within the same building. It is the appellant’s case that the shop premises were sold before any agreement to lease was reached and thereafter no agreement for lease was reached between the appellant and the respondent. It is the respondent’s case that agreement between the parties had been reached on all essential terms of a new lease subject to two matters which are mentioned later and the learned Magistrate was correct in his conclusion that there was an equitable lease.
Before turning to the grounds of the appeal, it is appropriate to mention first the contention of the respondent that the appeal is incompetent. I heard considerable argument on this matter and ruled that the appeal was competent. I said I would give my reasons for that decision later and I now proceed to do so.
After judgment had been entered by the learned Magistrate, but before the hearing of this appeal, the appellant sold all of its estate and interest in the shop premises to an unrelated third party and the appropriate memorandum of transfer was executed and registered. It was submitted by the respondent that there is now no lis inter parties and otherwise no live controversy between the parties. Consequently, it must now be a matter of indifference to the appellant whether or not the respondent has an interest in the shop premises. The judgment of the learned Magistrate is declaratory. The appellant has not been ordered to do anything to perfect the lease, that is to execute a lease in registrable form and no such order could now be made. The purchaser of the premises acquired them with notice of the interest of the respondent and has not sought to intervene in the proceedings and challenge the judgment. Any issues as to adjustment of rent are between the respondent and the new landlord and do not concern the appellant. Pursuant to Statute 32 Henry VIII, c 34, Grantees of Revision Act 1540, which is part of the law of South Australia, see Charmar Electrical Pty Ltd v Minda Incorporated (1990) 55 SASR 112, the assignee of the reversion, the purchaser, is bound and liable to the tenant, the appellant, or the covenants of the lease in every respect. Consequently, there are no outstanding issues between the appellant and the respondent as to the leasehold interest and I was informed that the respondent has no other claim against the appellant relating to the former lease, the equitable lease or at all.
I accepted that if there is no live issue or controversy between the appellant and the respondent, the Court should decline to hear this appeal: Sun Life Assurance Company of Canada v Jervis [1944] AC 111 and Ainsbury v Millington [1987] 1 WLR 379.
However, the appellant asserted that there is remaining controversy between it and the respondent despite the sale of the subject premises.
The first matter is that when the shop premises were sold, the appellant represented to the purchaser that there was no lease in existence. It is submitted by the appellant that it has an interest in overturning the judgment of the learned Magistrate so that there can be no allegation of misrepresentation on its part. In effect, the submission is that if the appellant is successful on this appeal, its position qua the purchaser will be greatly improved if not unassailable. I did not think that was a reason for holding the appeal to be competent. In Sun Life Assurance Viscount Simon LC made the following observation at p 113:
“I do not think that it would be a proper exercise of the authority which this House possesses to hear appeals if it occupies time in this case in deciding an academic question, the answer to which cannot affect the respondent in any way. If the House undertook to do so, it would not be deciding an existing lis between the parties who are before it, but would merely be expressing its view on a legal conundrum which the appellants hope to get decided in their favour without in any way affecting the position between the parties.
…
I think it is an essential quality of an appeal fit to be disposed of by this House that there should exist between the parties a matter in actual controversy which the House undertakes to decide as a living issue.”
The protection of a party from claims by another party does not establish a lis and I rejected this contention. If claims are made against the appellant by other persons, it may defend or otherwise react to them as is appropriate.
The second matter is that the learned Magistrate decided that there should be a rent-free period under the equitable lease for a period of three months. It was acknowledged that a claim by the respondent in that respect must be made against the new owner but it is submitted that any such claim could flow on from the owner to the appellant. I was informed that the respondent has not made any such claim and will not do so. There is no live controversy between the appellant and the respondent in this respect.
The third matter is the costs of the proceedings incurred by the appellant and the respondent in the Magistrates Court. The learned Magistrate reserved the question of costs. The respondent foreshadowed that she would seek an order for costs of the trial against the appellant on the Supreme Court scale. The appellant has an interest in this appeal in overturning the judgment and thereby avoiding having to pay the respondent’s costs. Also, in that event, the appellant may recover its costs of the trial from the respondent.
The question of costs does represent a live controversy between the appellant and the respondent and constitutes a lis between the parties. In Elders Pastoral Ltd v Bank of New Zealand [1990] 1 WLR 1090, the Judicial Committee expressed the opinion, at 1095:
“It appears from the authorities that even if the only effect of a successful appeal between the parties will be to reverse an order for costs made in the courts below, there remains a lis or issue between the parties.”
This observation was cited in Liebler & Ors v Air New Zealand Ltd & Another [1998] 2 VR 525. Phillips JA, with whom the other members of the Court agreed, said, at 529-530:
“So long as there remains the dispute between the parties about existing orders for costs, it cannot be concluded that there is no lis on foot. At first, there was some attraction in the view that, upon the demise of the main issue concerning rectification, the continued existence of any significant lis must be thrown in doubt; but the authorities are to the contrary. It appears to be well established that, so long as the appeal will have direct consequences for the parties, even if it only be in respect of existing orders for costs, there is controversy enough to sustain the appeal: see Elders Pastoral Ltd. v. Bank of New Zealand [1990] 1 W.L.R. 1090 at 1095; Westminster City Council v Croyalgrange Ltd [1986] 1 W.L.R. 674 at 678; [1986] 2 All E.R. 353 at 354; National Coal Board v Ridgway [1987] 3 All E.R. 582 at 593-4, 604, compare at 588-9; Ainsbury v Millington [1987] 1 W.L.R. 379 at 381; [1987] 1 All E.R. 929 at 931 and (in Australia) Veloudos v. Young (1981) 56 F.L.R. 182 at 186, 192, compare at 191.”
I do not think there is any reason to distinguish between an existing order for costs and an entitlement to an order where the question of costs has been reserved as in the present case.
It was said in Elders Pastoral that the court retains a discretion to hear an appeal where the dispute between the parties is reduced to a dispute over costs. In Liebler, Phillips JA accepted that there was a discretion in the Court of Appeal to decline to hear an appeal in those circumstances. I was informed that the appellant’s costs on a solicitor and client basis to the point of judgment in the Magistrates Court were about $43,000 and if the appellant obtained an order for costs in its favour, it would expect to recover about 60 per cent of that amount. The trial before the learned Magistrate comprised about two days, but there were a number of adjournments. I do not have any information as to why such a large amount of costs was incurred by the plaintiff and so I do not make any comment about quantum. I was also informed that the respondents’ costs on the same basis amounted to no more than $17,000. It may be seen that the question of costs is of considerable importance to both parties. I would not exercise the discretion by refusing to hear the appeal.
For these reasons I held the appeal to be competent.
I now turn to the substantive matters on the appeal. There are 27 grounds of appeal alleging errors by the learned Magistrate of fact and law. I do not propose to mention each of them. Indeed they were not all mentioned by Mr Jenner who appeared for the appellant. They were incorporated into his submissions. He argued the principle matters and it is sufficient to deal with the grounds of appeal in that way. Before doing so, I mention some important matters of background which are not in contention.
As has been mentioned, by the time of the trial the respondent had been in possession of the shop premises for a little over ten years. She had, throughout the time, conducted a flower shop business. She first entered into a lease for five years in 1991 and a new lease commencing on 1st January 1996 which expired on 31st December 1999. There was a right of renewal for a period of three years which the respondent did not exercise. The annual rent was initially $28,320 but with periodic review had increased over the duration of the lease.
The appellant and the respondent entered into negotiations for a new lease. Colliers Jardine (SA) Pty Ltd (“Colliers Jardine”) acted as agent for the appellant which owned the building in which the shop premises are situated. Colliers Jardine managed the tenancies in the building, including the tenancy of the shop premises. Mr Buckland, an employee of Colliers Jardine, was the property manager of the building and he carried out the negotiations with the respondent for a new lease.
The respondent has remained in occupation of the shop premises ever since the lease expired. It is not disputed that initially she did so due to the holding over provision in the expired lease which provided, inter alia, that she became a monthly tenant of the appellant which tenancy could be terminated by prior notice of one month. The rent for such tenancy was calculated pursuant to a formula set out in the lease. The holding over arrangement was confirmed in advance at a meeting between Mr Buckland and the respondent on 22nd December 1999.
A considerable body of evidence was placed before the learned Magistrate as to the negotiations between Mr Buckland and the respondent during the first half of 2000. It is unnecessary for present purposes to relate each step in the negotiations. It is sufficient to mention some important stages.
On 5th January 2000 Mr Buckland put two options to the respondent. She could exercise the right of renewal in the recently expired lease, even though the time for doing so had elapsed, for a term of three years commencing on 1st January 2000 or she could enter into a new lease for a term of five years commencing on the same day at a rental of $28,904,64 per annum with a rent-free period of two months and upon the same terms and conditions as in the expired lease. The respondent replied by letter received on 28th January 2000 indicating that she intended to stay at the shop premises under a new lease. She agreed to the term of five years, or for a longer period, the commencement date and to the terms and conditions. However, she proposed a rental of $21,000 because of increased competition in the area, a general decline in the fresh flower industry and the impending impact of the Goods and Services Tax.
Mr Buckland advised the appellant that there was scope for reduction in the rent in view of the rent for other comparable properties in the area, but that rent of $21,000 was too low. He recommended a rent of $27,000 with a fixed annual increase of four per cent. He was instructed to make that offer to the respondent and did so by letter on 9th February 2000. A draft of a lease in those terms was enclosed. In this letter Mr Buckland confirmed her “intention to stay in the premises and accepting the proposal for a new lease term of five years with a two months’ rent free period”. The fixing of four per cent as the rate of annual increase of rent was in lieu of the common use of the consumer price index.
In her evidence the respondent said that she told Mr Buckland, on a date which she could not recall but after 9th February 2000, that she would accept an annual rental of $27,000 but not rent review at four per cent per annum. She said that she told him that she wished to continue to negotiate as to the rate of rent review. It appears from the transcript of the evidence at the trial that Mr Buckland did not give any evidence about that matter.
The learned Magistrate did not express any findings as to the credibility or reliability of the respondent or Mr Buckland who were the only witnesses. Their evidence-in-chief was given by affidavit and they were cross-examined. However, he did find that Mr Buckland was mistaken about one matter and he appears to have accepted the evidence of the respondent or, at least, he did not reject any part of her evidence or make any adverse findings about her. There is no reason to reject this evidence of the respondent.
Mr Buckland wrote to the respondent again on 22nd March informing her, inter alia, that she must “confirm her acceptance of the current lease proposal” within the next seven days. The only issue between the parties at this stage was the rate of annual review of the rent.
The respondent wrote to Mr Buckland on 31st May 2000 as follows:
“As you are aware I have been a tenant at 117 King William Street Adelaide for a period greater than ten years. We have been negotiating the terms of leasing at the above mention (sic) property for the past six months. I still have not come to a decision on the leasing arrangements. During these negotiations we have remained on a monthly tenancy and would appreciate it if we could continue to do so and not a deemed lease of five years until I can make my final decision. I appreciate your patience on this matter.”
It was submitted by the appellant that this document establishes that the respondent knew that she was entitled to a monthly tenancy and consequently no agreement had been reached on the essential terms of a new lease.
I do not accept this submission. It is clear that both Mr Buckland and the respondent had a belief that if she remained in possession of the shop premises for a period of more than six months under the holding over provision of the expired lease, a lease for five years binding upon the parties could exist by reason of the Retail Shop Leases Act 1995 or subsequent legislation. This belief is evident from a file note made by Mr Buckland of his conversation with the respondent on 22nd December 1999.
It is Mr Buckland’s evidence that at this time he regarded the respondent as occupying the shop premises pursuant to the holding over and that she was “negotiating a new lease” and he made a note accordingly in the records of Collier Jardine. He said that the appellant and the respondent never proceeded beyond the negotiating stage. The evidence of the respondent is that she wrote her letter of 31st May 2000 because she did not want to be locked into a new lease at the old rental as she had already agreed with Mr Buckland that the rent would be reduced to $27,000. She said that Mr Buckland had effectively told her that she had to write to him with a decision in order to prevent the old rent from applying. In cross-examination when asked what decision she intended to make at some time after 31st May 2000, she said that she might have been better off taking the option of renewal of the old lease if the appellant was going to insist upon annual review of rent at four per cent. She said she was thinking about whether she would be better off re-opening negotiations. In my view this incident and the letter of 31st May 2000 are entirely consistent with the parties having reached agreement about all matters except the extent of rent review and the rent free period which was of much lesser importance.
The respondent also said that during the period after the expiry of the lease, she was treated as a lessee, and not a monthly tenant, because the appellant required her to effect insurance on the shop premises, including plate glass, contents and public liability insurance as was the position under the expired lease, and to pay the outgoings which she paid under the expired lease. In her evidence the respondent said that as at 31st May 2000, she believed that she and the appellant had reached agreement as to the term of the lease, namely five years, the rental of $27,000 per annum, the right of exclusive possession and quiet enjoyment and all of the other terms set out in the draft lease which had been provided to her.
On 14th July 2000 Mr Buckland and the respondent had a meeting. Mr Buckland reported to the appellant that the respondent:
“….. has moved towards accepting a new leave for a term of five years on the following basis:
Rent $27,000 per gross as per our proposal of 9.2.00
Rent reviews Annually in line with CPI
Rent free The rent free period is increased from 2 to 6 months.”
He made recommendations to resolve any issue about the review of rent and suggested that the rent-free period be increased to three months and further to six months if necessary.
By this time Probity Nominees Pty Ltd had acquired an option to purchase the building, including the shop premises. Mr Buckland was not involved in that transaction. The appellant was willing to accept Mr Buckland’s recommendations but required the views of Probity Nominees. On 20th July 2000 Mr Buckland wrote to Probity Nominees about all tenancies in the building seeking any queries as to proposed leasing arrangements so that negotiations with tenants could be concluded. With respect to the respondent he wrote, “In particular we should secure a new lease with the florist, Wild Bunch, as a priority”.
It was the appellant’s case that Probity Nominees did not respond and according to Mr Buckland he ceased negotiations with the respondent and no agreement with the respondent was concluded.
Probity Nominees assigned the option to purchase to Adelaide Property Investments Pty Ltd. Strata titles were issued for various parts of the building, including the shop premises and they were sold. This very brief description of the sale of the building including the shop premises is incomplete but is adequate for present purposes.
In October 2000 the respondent became aware of the proposed sale of the shop premises through a selling agent. Mr Buckland informed her of the sale of the building and the proposed issuing of strata titles by letter on 10th January 2001, and in particular that the shop premises had been sold. In fact the option had been assigned. He wrote that he was “unable to enter into any further negotiations regarding your tenancy until the status of the sale of the building has been confirmed”.
The respondent consulted solicitors who wrote to Mr Buckland on 23rd January 2001. After setting out aspects of the history of the matter, they wrote:
“We are instructed that despite ongoing negotiations, no agreement was reached in relation to what new rental payable would be under the new lease which our client was to take up.”
They further wrote that the respondent was occupying the shop premises on the basis of a monthly tenancy pursuant to the provisions of the expired lease and that she continued to do so on that basis and subject to the resolution of the rental issue. After setting out her concern about her position, they wrote:
“We are instructed to make our clients position clear, namely:
1That she maintains her position that she wishes to enter a new 5 years lease over the premises; and
2That the only issue to be finalised between the parties is the issue of rental and not the issue of whether or not our client would stay in occupation of the premises; and
3That our client looks forward to receipt of a new lease for her execution in relation to the premises.
We would appreciate it if you could confirm by return facsimile, that our client will be offered a new lease.”
It was the appellants’ case that this letter accurately sets out the true position at that point of time. There was no concluded agreement between the appellant and the respondent and the respondent remained in occupation as a monthly tenant pursuant to the holding-over provisions of the expired lease.
The respondent rejected this interpretation of the letter. She said in evidence that she did not see the letter before it was sent. She said that the assertion in the letter that no agreement had been reached as to the new rent to be paid was not correct and maintained her position that the rent had been agreed at $27,000. She said that she had never stopped to think if she was on a monthly tenancy and that she always thought she “would have [her] lease.” The evidence establishes that the only issues outstanding as at 31st May 2000 were the rent review and the rent free period. It is only in that sense that the rent had not been agreed. The learned Magistrate found that the appellant was minded to accept the proposal of the respondent as to the method of rent review, namely by application of an adjustment pursuant to the Consumer Price Index and to move to a compromise over the rent free period of three months.
It is in these respects that the “rent” had not been agreed. All other essential matters had been agreed and, in my view, the letter from the respondent’s solicitors was poorly expressed. The contents of the letter are not contrary to the respondent’s case.
The respondent made some attempt to purchase the shop premises but was not successful. The shop premises were purchased by Mr D M Larwood, or an entity on his behalf. He was joined as a defendant in this action but took no part in the proceedings at trial or on this appeal. Mr Larwood is also a florist and intended to operate his own business at the shop premises.
I now turn to specific complaints about findings of the learned Magistrate. Reference has been made to the memorandum of Mr Buckland to the appellant dated 17th July 2000. The learned Magistrate sets out parts of this memorandum in his reasons for judgment but he misquoted them. His quote includes that the respondent “has accepted a new lease of five years with a rent of $27,000 per annum with CPI increases and rent-free period increased from two to six months”. As has been mentioned, what Mr Buckland wrote was that the respondent “has moved towards accepting a new lease” with those terms. The appellant contends that this error is significant.
Later in his reasons for judgment, the learned Magistrate said:
“[47] 1. The plaintiff was afforded a lease or draft lease which was the usual draft lease used in the rental of retail premises namely shops not in I presume, shopping centres and there was no objection by the plaintiff to any of the clauses therein except the annual rental, the basis of calculation of annual rent reviews and the period of the rent free occupation.
[48] 2. In the week of 17 July 2000, the plaintiff indicated she would accept a new lease for a term of five years on the following basis: $27,000 per annum rent being the proposal of 9 February from the landlord, rent reviews annually in line with CPI and the rent free period to be increased from two to six months.
[49] 3. On 17 July Mr Buckland communicated to the landlord NZI the following counter offer be accepted. Rent $27,000 per annum, rent reviews annually, year one in line with CPI, year two fixed at four per cent and the following years to be alternately CPI and four per cent and the rent free period be increased from two to three months. As a last resort, Mr Buckland recommended acceptance of CPI reviews. In other words, if the plaintiff insisted on CPI reviews, the recommendation was CPI reviews be accepted to tie up a new five year lease.”
The learned Magistrate accepted that for there to be an equitable lease, there had to be an agreement between the parties as to all essential or critical terms. He referred to Thornby v Goldberg (1964) 112 CLR 597 per Menzies J at 607. Menzies J cited with approval part of the dissenting judgment of Sugerman J in the Full Court of the Supreme Court of New South Wales:
“It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention.”
The appellant submits that there was never any agreement as to a fundamental term in any leasing arrangement which is the amount of rent to be paid.
The learned Magistrate concluded that there had been agreement between the appellant and the respondent as to all essential terms. He referred to the expired lease and said that the matters which had not been agreed upon, were not essential terms in that lease. The learned Magistrate was referring to cl 4.1.1 of the expired lease which defined the essential terms of the lease which do not include the amount of the rent, the rate of review or a rent-free period, but do include the obligation to pay the rent. The terms are the same as set out in the draft lease sent to the respondent on 9th February 2000. He referred to Beer v Bowden [1981] 1 All ER 1070. In that case the parties to a lease had not agreed the rent upon renewal or how the rent was to be fixed and it was held that to give business efficacy to the lease, the court must fill the gap by an implied term which gives effect to the clearly expressed intention of the parties, namely that the tenant should pay a fair rent.
The learned Magistrate applied this decision and said:
“[56] This case in my opinion goes further than the case at bar because the parties had not agreed on two alternatives for calculation of the rent to be paid during the period in question. In the case at bar, we have two alternative methods; one party indicating as a last resort they would agree to the method of calculation of increased annual rent by the tenant and the other party cheekily claiming three months more free occupation which the other party was prepared to allow if there was no alternative to secure a five year lease.”
He found that the respondent had an equitable lease for five years as from 17th July 2000. The appellant submits that the learned Magistrate erred in this finding as there was no agreement as to the rent, the method of review of the rent and the rent-free period and also as to the commencement date. All of the negotiations had proceeded on the basis that a new lease would commence on 1st January 2000. It is the appellant’s submission that the total rental to be paid is an essential term of a lease and it cannot be broken down into components such as annual payments, provisions as to review and rent-free periods.
The respondent contends that the appellant and the respondent reached agreement as to all essential terms of a lease. The parties, the premises and the terms were all ascertained and there was agreement between the parties on these matters. The amount of rent is not an essential term and in the absence of agreement the law will impose an obligation to pay a reasonable rent.
In my view, it was established by the evidence that the parties had reached agreement as to all essential matters and as to the rent at $27,000, however, the evidence of the respondent as to her position at 17th July 2000 is clear and was not rejected by the learned Magistrate. Agreement had been reached on all of the essential matters as well as a rental of $27,000 per annum. Indeed, in my view the evidence establishes that agreement in those terms had been reached by 9th February 2000 and that state of agreement continued thereafter.
The submission that agreement had not been reached is based, at least in part, upon the wording of Mr Buckland’s memorandum to the appellant of 17th July 2000. The use of the words “has moved towards accepting” do not establish, or even necessarily suggest, a lack of agreement about essential matters and the amount of the annual rent. It is not clear why Mr Buckland used that expression. No evidence was given by him about that matter and whether it related to all of the matters set out in the memorandum or only some of them. As has been mentioned there was lack of agreement only about the manner of the next review and the rent free period. Lack of agreement about essential matters should not be inferred from these words, particularly in view of the evidence of the respondent.
As has been mentioned, the evidence establishes that by the end of May 2000 and probably agreement earlier had been reached on all matters, except the manner of rent review and the extent of the rent-free period. It is only in that respect that the “rent” had not been agreed. Also, it must be acknowledged that the negotiations had always proceeded on the basis that the other terms and conditions of the lease would be the same as in the draft lease which were the same as in the expired lease. The lack of agreement about the manner of rent review and the rent-free period does not mean that there was a lack of agreement about rent. In Beer v Bowden there was a binding and valid lease for the period beyond the first five years even though the new rent had not been agreed and there was no agreement as to how the amount of the rent was to be fixed in the absence of an agreement. Despite the argument to the contrary, I think this decision is authority for the proposition that agreement as to rent is not essential for the existence of a lease. Mr Jenner sought to distinguish this decision on the basis that there was a lease in existence although the rent after the first five years had not been agreed. I do not regard that as a valid point of distinction. In the present case there was agreement about all matters except the rent review and the rent free period. I accept that in the absence of agreement as to the amount of the rent, the law will require a tenant to pay a reasonable rent which will be determined by the courts if the parties cannot agree. In Francis Longmore & Co. Ltd v Stedman [1948] V.L.R. 322 Barry J said, at p 323:
“The only necessary characteristic of any tenancy is that it should give the right to exclusive possession to the tenant for an ascertainable period of time (Lace v. Chantler, [1944] 1 K.B. 368, per Greene M.R., at p. 370); reservation of rent is not essential (Landale v Menzies, [1909] 9 C.L.R. 89, per Griffith C.J, at pp.100-101, per Barton J., at p.111; Commonwealth Life Assurance Co. v Anderson, [1946] 46 S.R. (N.S.W.) 47, at p. 49; Burns v. Dennis, [1948] 65 W.N. (N.S.W.) 55, at p.56), …”
Mr Jenner submitted that this decision has no application to the present case because it is concerned with particular regulations in force in the State of Victoria at the time. I reject that submission. The particular regulation did not bear upon the question which had to be decided, namely whether the relationship of landlord and tenant arose even though the premises were occupied under arrangements which did not involve payment of rent.
Next it was submitted that the authorities relied upon by Barry J did not support the proposition that “reservation of rent is not essential”. I do not agree. While Landale v Menzies (1909) 9 CLR 89 was concerned with a tenancy at will between owners of adjoining properties regarding certain land and water at or near a fence, the judgment of Griffith CJ was referred to for the principle which he stated as follows (at 100-101):
“A contract for the exclusive occupation of land for a determinate period, however short, constitutes a lease : R v Morrish 32 L.J.M.C., 245.”
It may be seen that there is no mention of rent, although the frequency of the payment of rent may determine when a tenancy at will may be terminated. In Landale v Menzies Barton J, at 111, referred to the definition of Woodfall (17th Ed. P141) of a lease as “a contract for the exclusive possession of land or tenements for some certain number of years or other determinate period”. Again, there is no reference to rent. In Commonwealth Life (Amalgamated) Assurance Ltd v Anderson (1945) 46 SR (NSW) 47 the Full Court of New South Wales was concerned with whether a weekly tenancy is a tenancy at will and, therefore, unassignable. Jordan CJ, with whom the other members of the Court agreed, said, at p 49:
“But the only essential characteristic of any lease is that it should give the right of exclusive possession of premises to a tenant. So long as the letting is of this character, and is for a specific period, it is a lease for a term, however short the period or periods, continuous or discontinuous, during which it confers rights of exclusive possession; and it creates an estate in the land: R v St Martin in the Fields (1842) 3 QB204; Joel v International Circus and Christmas Fair (1920) 124 LT 459”
In Burns v Dennis [1948] 65 W.N. (N.S.W.) 55 the Full Court of New South Wales when considering whether an arrangement to occupy premises was a tenancy, said, at 56:
“It is true that no rent was to be paid for twelve months from the date of the document; but “the reservation of the rent is not of the substance of the lease, for a lease may consist without any reservation : Knight’s case (1588)5 Co Rep 54b at 55a”.
It may be seen that in neither of the last two mentioned cases was reservation of rent regarded as essential. I regard all of these cases as supporting the principle stated by Barry J in Francis Longmore v Stedman.
The appellant also contended that if the parties had reached agreement that there was to be a lease in the same terms as the expired lease which included the preamble which in part is:
“… and the lessee accepts this lease for the term described in Item 6 of the Schedule and at the rent and payable in the manner set out in Item 7.”
Item 6 contains the terms of the lease and renewals and Item 7 contains the annual rent and manner of payment. The obligation to pay the rent is set out in clause 2.1 which is an essential term of the lease pursuant to clause 4.1.1.
As I understand the submission, if the parties had reached an agreement that there would be a lease in those terms, the agreement could not be concluded until agreement had been reached about the amount of the rent and the additional matters of rent review and the rent free period.
That submission is rejected. As has been mentioned, this form of lease specifically provides that only the obligation to pay rent is an essential term and not the amount of the rent or the two other matters. The preamble to the expired lease does not establish that agreement as to rent is an essential requirement for a lease. At all events, as has been mentioned, the parties had reached agreement about the rent.
Mr Jenner referred to observations of Dixon J in Turner & Ors v York Motors Proprietary Limited (1951) 85 CLR 55 as authority for the proposition that agreement as to rent is essential for a lease. I do not understand these observations to support such a proposition. The Court was concerned with the legal consequences of the circumstances in which defendants entered into possession of land. Dixon J said as follows, at p 68:
“The one position is an entry provisionally and without any agreement but pending negotiations for an agreement or a lease with a common intention that notwithstanding payment of compensation for the use of the land described as rent the occupier shall remain nothing but a tenant at will until a formal lease is executed or an agreement reached. The other position is that the parties agree on the main terms of a tenancy including rent and agree also that the transaction shall be carried out by a proper conveyancing document and that in the meantime the tenant shall hold in pursuance of the agreement. In the latter case at common law payment of rent established a tenancy of a periodical character (usually from year to year) coming to an end automatically with the effluxion of the agreed term : see Moore v Dimond [(1929) 43 C.L.R., particularly at pp. 112,113.]
As can be seen these observations do not establish that reservation of rent is an essential requirement of a lease.
Lastly on this issue, Mr Jenner referred to what he submitted was the statutory framework in South Australia. In s3(1) of the Retail and Commercial Leases Act 1995 a retail shop lease or a lease is defined as an agreement under which a person grants or agrees to grant to another person for value a right to occupy a retail shop for carrying on a business. Section 12 of that Act provides that before a retail shop lease is entered into, the lessee must be given a disclosure statement for the lease stating or containing (inter alia) the amount of base rent payable under the lease and the basis upon which the base rent may be charged. These provisions do not alter the common law as to the essential requirements of a lease. These statutory provisions provide protection for a lessee. For example, if the amount of the lease rent is not disclosed, the Magistrates Court, upon an application by the lessee, may make an order avoiding or varying the lease or for compensation to be paid to the lessee. There is no suggestion in the Act that a consequence of failure to disclose the base rent is that there is no lease. I do not think it is necessary for present purposes to consider the expression “for value” in s3(1) of the Act. There may be value passing to the landlord other than rent but I need not so decide as it is not a consequence of non-compliance with the Act that there is no lease. The consequence may be that a provision in a lease is void to the extent that it is inconsistent with the Act: s 5. Sections 22-24 contain various provisions about restrictions on adjustment of base rent, reviews to current market rent and what is called turnover rent. None of those sections provide for there not being a lease in given circumstances but they do provide for particular provisions in a lease to be void.
I was referred to s 124 of the Real Property Act 1886 which provides that in every lease there shall be implied covenants by the lessee with the lessor including that he will pay the rent reserved at the time therein mentioned. There is no provision that unless rent is reserved there is no lease.
I do not regard any of these statutory provisions as having any bearing on the question of whether there must be agreement as to rent for the existence of a lease.
The evidence permits a finding that the appellant and the respondent had agreed that there should be review of rent each year which was reasonable and that there should be a reasonable rent-free period. However, no agreement had been reached. The learned Magistrate found that the appellant was prepared to accept the respondent’s proposal that the rent reviews accord with the CPI index and that the rent-free period be three months, which was acceptable to the respondent although not put to her by Mr Buckland. Consequently, it may be accepted that these matters are regarded by the parties as reasonable. It was submitted by the respondent that the appellant had accepted a recommendation that the rent-free period be six months but that submission is not supported by the evidence. In his memorandum of 17th July 2000 to the appellant, Mr Buckland did suggest that the appellant make an offer of three months and be prepared to move by a month at a time up to six months if required but the recommendation was as previously mentioned and that is what was accepted.
In my view the learned Magistrate was correct in his conclusion that the respondent had an equitable lease of the shop premises and that the term of the lease was five years. However, he erred in his conclusion as to the commencement date which should have been 1st January 2000. The rent is $27,000 per annum with annual review in accordance with the CPI and there is a rent free period of three months. The lease is capable of specific performance.
The respondent submitted an alternative contention, that if there is no equitable lease, provisions of the Retail Shop Leases Act 1995, as it was then known, create, in effect, a lease for a period of five years from 1st January 2001 on the same terms and conditions as the expired lease. The appellant and Adelaide Property Investments Pty Ltd which was given leave to intervene in this appeal oppose this contention. Adelaide Property Investments Pty Ltd acquired an interest in the shop premises which it sold to the new owners. It did not make any submission on the issue of an equitable lease and adopted the submissions of the appellant on the alternative contention. It was raised before the learned Magistrate and he declined to consider it having found that there was an equitable lease.
If a lease exists pursuant to the Retail Shop Leases Act it could not create any better or worse position for either the appellant or the respondent than under the equitable lease. For this reason, like the learned Magistrate, I do not think it is necessary to consider the alternative contention but it may be considered at some future time should the need arise. The respondent is entitled to have the equitable lease converted to a registrable lease and upon that occurring further consideration of whether there is a deemed lease under the Act will be unnecessary.
The appeal is dismissed.
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