Oz Sushi Pty Ltd v Lloyd Bennett & Associates Pty Ltd as Trustee for the LR Bennett Family Trust
[2002] QDC 220
•23 August 2002
DISTRICT COURT OF QUEENSLAND
CITATION:
Oz Sushi Pty Ltd v Lloyd Bennett & Associates Pty Ltd as Trustee for the LR Bennett Family Trust [2002] QDC 220
PARTIES:
OZ SUSHI PTY LTD (ACN 084 504 487)
Applicantv
LLOYD BENNETT & ASSOCIATES PTY LTD (ACN 009 836 202) AS TRUSTEE FOR THE LR BENNETT FAMILY TRUST
Respondent
FILE NO:
D2256/02
PROCEEDING:
Originating Application
DELIVERED ON:
23 August 2002
DELIVERED AT:
Brisbane
HEARING DATE:
1 August 2002
JUDGE:
Judge Brabazon Q.C.
ORDER:
Respondent to repay rent increases.
CATCHWORDS:
LANDLORD AND TENANT – Retail shop lease – application for declaration that lease provision was void – where lease provided for rent review on either of two bases – where lease provided for rent review so that result would be higher of two bases – ss20, 27 and 36 Retail Shop Leases Act (Qld) 1994 – lease held to be void
Retail Shop Leases Act (Qld) 1994 Acts Interpretation Act (Qld) 1954
Decision of the Retail Shop Leases Tribunal (20/11/98) David Securities & Ors v Commonwealth Bank of Australia (1992) 109 ALR 57
COUNSEL:
Mr C Harding for the Applicant
Mr I R Perkins for the RespondentSOLICITORS:
Sia and Sia for the Applicant
Connor O’Meara for the Respondent
REASONS FOR JUDGMENT
This is a dispute between landlord and tenant. What did they actually agree about a rent review mechanism? Was their agreement contrary to the provisions of the Retail Shop Leases Act 1994? If so, does the increased rent have to be repaid?
The landlord owns premises at 45 Sherwood Road, Toowong. The building contains a restaurant. It is common ground that the provisions of the Retail Shop Leases Act 1994 apply to a lease of the restaurant. It is also common ground that the 1994 provisions apply to the present case, despite amendments to the rent review provisions, effective from 1 July 2000. That is correct - section 27 of the 1994 Act continues to apply to a retail shop lease entered into before 1 July 2000 and any extension or renewal of the lease, as if the 1999 amendments to the Act had not commenced.
The Agreement for Lease
On 23 October 1998 the parties signed an agreement to lease. The term was to be five years, with an option for a further five years. The written agreement referred to the gross rental and to rent reviews in these terms:
“First year $90,000
Second year $90,000
Third year - CPI (but not less than previous year)
Fourth year - CPI (but not less than previous year)
Fifth year -CPI (but not less than previous year)
Sixth year - Review to market (but no less than previous year)
Seventh year - CPI (but no less than previous year)
Eighth year - CPI (but not less than previous year)
Ninth year - Review to market (but no less than previous year)
Tenth year - CPI (but no less than previous year).”
So, from the third to the tenth year, the rent can not go down, though it might go up, depending on the CPI and market rental.
The Lease
The lease was signed by the lessor and the lessee on 30 October and 26 October 1998, respectively. It is necessary to see what it says about the rent reviews. The essential details of the lease are contained on the first page, Form 7. Item 7 says that the rental will be, “$90,000 for first year, rental thereafter in accordance with the Schedule hereto”.
The Schedule then extends for 22 pages. The terms “rental” or “the rent” are defined. They mean the rental payable pursuant to the First Schedule of the lease. The First Schedule appears at pp 19 and 20. Clause 2.1 says that the rent for the first and second years will be that stated in item 7 of Form 7 – that is, the $90,000. Then, cl 2.2 says that there will be a CPI formula applied to fix the rent for the third, fourth and fifth years of the five year term, and for the second, third and fifth years of any option period.
Clause 2.3 then provides that a market rent will apply for the first and fourth years of the option period.
Clause 2.4 describes those mechanisms as rental reviews. The first rental review is to occur two years after the commencement date of the lease. That is consistent with the rent being fixed at $90,000 for the first two years. See cl 2.4(c).
The lessee promises to pay the rental in accordance with that First Schedule – cl 4.1(a) of the lease.
Clause 8 of the lease is the option for renewal for a further five years. It sets out the rental to be calculated:
“(a)For the first and fourth years of the further term the amount so determined as the current market rental in accordance with the First Schedule to this lease (but no less than previous year); and
(b)For the second, third and fifth years of the further term the amount calculated in accordance with the First Schedule – CPI (but no less than previous year).”
So, that provision appears to be inconsistent with the rent reviews in the First Schedule.
Page 18 of the lease is a document in Form 20 called The First Appendix. Item 7 says that there will be an option to renew for five years. Item 8 then goes on to set out the gross rental, in terms identical to those in the lease agreement:
“First year $90,000
Second year $90,000
Third year - CPI (but not less than previous year)
Fourth year - CPI (but not less than previous year)
Fifth year - CPI (but not less than previous year)
Sixth year - Review to market (but no less than previous year)
Seventh year - CPI (but no less than previous year)
Eighth year - CPI (but not less than previous year)
Ninth year - Review to market (but no less than previous year)
Tenth year - CPI (but no less than previous year).”
Is there an inconsistency? There is no inconsistency about the option for a second five-year term. The parties agreed in clause 8.1 of the lease, that the rent would be no less for the sixth to tenth year.
However, there is some difficulty in reconciling the provisions about the rent for the first five years. The lessee promises to pay rental in accordance with the First Schedule, and that Schedule does not say that the rental cannot go down.
On the other hand, item 8 of the First Appendix does introduce that restriction. It is also consistent with the parties’ agreement to lease.
The better conclusion is that the First Schedule is primarily concerned with the mechanisms for fixing the CPI and market rent. They establish a Base Rental (cl 2). The parties have then in terms added the further restriction, that for some years the rent may not go down. The rent for the option period is in
cl 8 of the lease and those restrictions also appear there. That then leaves the inconsistency between cl 4.1 and item 8 of the First Appendix. The parties’ agreement is ambiguous. The natural course is to look at their declared intentions which only a few days before were set out in the agreement for lease. That is the background against which the terms of the lease should be construed.
At first, the parties’ submissions were made on the common assumption, that such was the correct approach. It was only later, in an exchange of further written submissions, that counsel for the landlord submitted that the restriction did not apply to the original term.
It should be held that the effect of the lease is that the restriction applies from the third year to the tenth year.
The Retail Shop Leases Act
Part 6 of the 1994 Act provides for minimum lease standards. These are the relevant requirements:
Act Prevails over inconsistent leases:
20. If a provision of this Act is inconsistent with a provision of a retail shop lease, the provision of this Act prevails and the provision of the lease is void to the extent of the inconsistency.”
Rent may be reviewed on only 1 basis
27.(1) If, under a retail shop lease, the rent payable under the lease or any renewal or extension of the lease is to be reviewed during the term of the lease or under an option to renew or extend the lease, the lease must state the timing of the reviews and the basis on which the reviews are to be made.
(2) The reviews must be made using only 1 basis for each rent review.
(3) The basis for a rent review must be-
(a)an independently published index of prices, costs or wages; or
(b) a fixed percentage of the base rent; or
(c) a fixed actual amount; or
(d) the current market rent of the leased shop; or
(e) another basis prescribed by regulation.
(4) …
(5) If, under a retail shop lease, the rent is to be reviewed during the term of the lease or any renewal or extension of the lease using more than 1 basis for a rent review, the rent payable for the rental period after the timing of the review is the same as the rent payable before the timing of the review.”
Certain rent review provisions of leases void
36. A provision of a retail shop lease is void to the extent that it-
…
…
…
(d)reserves, or has the effect of reserving, to a party a discretion to apply 1 of 2 or more methods of calculating the rent of the leased shop on a particular review of the rent; or
(e)provides for the rent of the leased shop to change on a particular review of the rent in accordance with whichever of 2 or more methods of calculating the change would result in the higher or highest rent. (emphasis added)
It was submitted for the tenant that the method of rent review contained in this lease had the effect of allowing the landlord to take advantage of the higher of the two methods of calculating rent. It was submitted that there was more than one basis for each rent review - that is, the CPI index, or the current market rent plus the prohibition on the rent going down.
For the landlord, it was submitted that when the rent remains the same, there is no “review” at all. It is a proviso, not a separate basis of review. As for s 36(e), it was submitted, there cannot be a “change” in the rental when it just stays the same.
If there is any ambiguity or uncertainty about the intention of Parliament, then assistance may be obtained from the Minister’s second reading speech, and also from the explanatory notes to the legislation. See s 14B of the Acts Interpretation Act 1954.
Page 576 of the 1994 Explanatory Notes says this:
“If a retail shop lease provides for a review of rent to be undertaken with reference to more than one basis, the rent payable remains the same for the next rental period following a review as the rent which applied to the previous period.
This clause will prohibit the use of “ratchet” clauses (where rent can rise, but not fall, and “multiple rent review” clauses (where rent is reviewed by reference to two or more bases and the method resulting in the highest rent selected).”
At p 8973 of Hansard (30 August 1994) the Minister’s second reading speech is recorded. It contains this statement:
“In general terms, the review of the Act has concluded that the imbalance in market power in lessor/lessee relations is such that continued government intervention in retail tenancy matters is warranted. This imbalance in market power has manifested itself in practices such as “ratchet clauses” and “multiple rent review” clauses in leases where “independently” determined market rents can rise but not fall where the lessor can “select” the highest of a number of rental alternatives … in relation to rent reviews, the Bill prohibits “ratchet” and “ multiple rent review clauses”. On each occasion that the rent payable is to be reviewed, such review must only be undertaken by reference to a single basis, for example CPI, and market rent review, or a fixed dollar amount.”
The only authority mentioned by counsel is the decision of the chairman of the Retail Shop Leases Tribunal, given on 20 November 1998. In that case, as in this, the parties had agreed that the yearly rental, adjusted to the current market rent, should in no case be less than the yearly rental payable for the preceding year.
The learned chairman held that the ordinary meaning of the words “basis for review” did not apply to a provision which in effect meant that the rent is not reviewed. That provision means that a previous rental applies. He observed that such a ratchet clause would be void. If void, it could not be used when considering the impact of s 27(5). He was also influenced by the consideration, that the practical result would be that the previous rental would still apply. That might disadvantage the tenant, as the rent could not go down.
There is no need to turn to the extrinsic materials to see what is meant by s 27. If the reviewer is told to look at the CPI index, or at the current market rent, and also told that the rent must not go down, then the review must be made using two bases. If there were doubt about it, then the extrinsic materials makes Parliament’s purpose, and the meaning of the legislation, quite clear. Ratchet clauses are to be forbidden, and so they are described as a basis for review.
In clause 36(e) there is no difficulty in seeing that the concept of a change in the rent could also include a zero change. In this case, there are two methods of calculating the change. The words used in this case, “but no less than previous year” are void.
It is also clear that such words simply cannot be ignored when the court comes to consider s 27. This Act goes further, than just making void the offending words. Section 27(5) would have no meaning if the offending words were simply regarded as void, and not considered at all. In any case, to say that the prohibition on falling rental is void, is to concede that there are two methods (bases) of reviewing the rent.
Section 27(5) may have harsh consequences. The impact of a ratchet clause is dealt with by saying that it is void. Section 27(5) seems to be an additional provision designed to deter or punish landlords. As s 27 continues to apply to any renewal of a lease, and every review is affected by the clause, then the rent cannot go up or down, in this case.
Restitution
Here there have been reviews, and the tenant has paid an additional $4,063.
It was submitted that the money should be repaid, being made under a mistake – see David Securities & Ors v Commonwealth Bank of Australia (1992) 109 ALR 57, making it clear that money paid because of a mistake, either of fact or law, is recoverable. There was no opposition to the application of that proposition. The money will have to be repaid.
It is ordered that the respondent pay the sum of $4,063 to the applicant. Subject to any further submissions, it will also be ordered that the respondent pay the applicant’s costs of the application, to be assessed on the standard basis.
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