Paringa Holdings v Chadha & Anor No. DCCIV-95-1556 Judgment No. D3780
[1998] SADC 3977
•19 March 1998
PARINGA HOLDINGS PTY. LTD V RAJESH CHADHA
AND BULLOCK & CO (REAL ESTATE) PTY. LTD.
Civil
Judge Lowrie
Background Summary
The plaintiff company owns a commercial real estate property at 13 Hindley Street, Adelaide and in late 1994 requested its agent, the third party, to obtain a tenant for portion of those premises. The agent and plaintiff thereafter entered into negotiations with the defendant which culminated with the defendant signing an offer to lease such shop premises dated the 28th of November, 1994. The defendant offered to pay an annual rental of $38,000 for a five year term conditionally upon the plaintiff carrying out certain building works. The plaintiff accepted the offer and thereupon carried out such works. The defendant entered into occupation of the premises in early January 1995 and thereafter traded in fashion clothing and accessories and made rental payments. On the 17th of June 1995 the defendant without prior notice vacated the premises. The plaintiff viewed such action as an abandonment of the premises and thereafter instructed his agent to find an alternate tenant. Such a tenant was found in the ensuing month at a considerably lesser rental. The plaintiff consequently sues the defendant alleging it has suffered damage. The defendant has denied that he is responsible for the plaintiff’s damages.
Pleadings
The plaintiff filed a very detailed Statement of Claim in which is recited all of the relevant details and summarised the amounts sought by way of damages. The defendant, whilst admitting many of the specific allegations in the Statement of Claim, pleaded that the plaintiff failed to install proper air conditioning in the premises and consequently "should have known of the defendant’s likelihood to vacate the premises". The defendant claims that the plaintiff in any event had failed to mitigate its loss.
Plaintiff’s Evidence
The plaintiff gave evidence through its principal officer a Mr Athanasios Economos and called its real estate agent Mr Bullock, and, an air conditioning specialist, a Mr Bonkowski.
The evidence of Mr Economos in all important aspects was confirmed by Mr Bullock. In August 1994 the shop premises became vacant. It was a shop which had formerly been a café. The plaintiff placed that property in the hands of Mr Bullock of Bullock Real Estate to find a suitable tenant. The plaintiff said that detailed negotiations took place between Mr Bullock and the defendant which eventually resulted in the plaintiff receiving an offer to lease document being Exhibit P4 whereby the defendant offered to lease the premises for an annual rent of $38,000 for a period of five years. The use of the premises was stated to be a fashion, jewellery and gift shop. In that lease was the following condition - Clause 22:
"Lessor’s Works: Prior to the commencement of this lease the Lessors will undertake the following works at their cost and expense in all things in a proper and workmanlike manner:-
Remove all existing internal fit out including the raised timber floor, timber cladding to the walls and lowered ceiling, the evaporative airconditioning, cooking equipment, flues, surplus plumbing and electrical services.
Install new suspended plasterboard ceiling tiles, fitted with recessed florescent light fittings.
Install reverse cycle ait-conditioning to serve the premises being either a ducted or under ceiling type unit.
Make good walls and repaint in a light blue/grey tone.
Lay a new polypropylene
Install a new shopfront window to the tenancy of timber or aluminium framework to form a recessed central entry door with an opening width of approximately l.6 metres, with display cases to each side which extend to the street alignment. Make provision for tenants illuminated signage to extend the full shop width above the shopfront.
Remove the existing partition wall between the front shop area and the present kitchen and extend appropriate steps across the full width of this opening.
Install a new partition wall to the rear of the premises approximately 1 metre North from the existing rear wall to create a new rear wall for the tenancy and re-install a sink and cupboard unit within the rear room of the premises.
Relocate the electrical sub-board to within the premises and upgrade electrical wiring and fittings to the reasonable satisfaction of the Lessee."
The plaintiff accepted the defendant’s offer to lease. The document was dated the 28th November, 1994. The plaintiff said immediately thereafter he embarked on the upgrading works. Mr Economos is a registered builder and he personally arranged and supervised all the relevant building works. With the offer to lease the plaintiff received the initial rental monthly payment of $3,166.67. The first payment of rental under the offer commenced on the 20th January, 1994 but the plaintiff agreed that for the first month no rental was payable, and, the rental payments would commence on 20th February, 1995. The works included a redesign of the front of the shop. Initial plans prepared showed a double door that was recessed from the front of the premises. The plaintiff said the defendant required a building with a straight shop front so that more show cases could be installed. The plaintiff then altered the shop front design to fit in with the defendant’s requirements.
Mr Economos said the defendant physically moved into possession at the premises in late December 1994 as he was endeavouring to obtain some Christmas trading. He said at that time the majority of the building work was completed but items such as adjustment of air conditioning had to be completed. However, such work was completed by the first week in January. This evidence was confirmed in the correspondence which passed to the defendant from the plaintiff’s agent Mr Bullock. Mr Economos said the defendant was trading in the premises as from the first week in January and was aware that Mr Bullock had written to the defendant on the 20th January advising that all of the works had been completed and again confirming the prior rental arrangement. Mr Bullock stated in that letter:
"The owners are awaiting further advice in respect to the operation of the air conditioning equipment in your premises and it is hoped that the performance will be improved further in the next few days."
Mr Economos said that at this time he had requested his broker Mr Pappas to prepare a lease in registrable form incorporating the relevant details as set out in the Offer to Lease. Mr Economos said the defendant paid the rent for the period 20th February to 19th March and from March to April.
Mr Economos said that on the 20th April the defendant paid the sum of $2,000 and not the full rent of $3,166.67. Mr Economos said at that time the defendant approached him and he eventually had a meeting with the defendant and Mr Bullock at his office. Mr Economos said at this meeting the defendant said that his business was trading poorly and pleaded for a reduction in the rent until the business was established. Mr Economos said :
"After a lot of discussion we agreed to pay $2,000 per month for five months from the 20th May", and on the understanding that the outstanding amount of rent would be paid. Mr Bullock recorded this in a letter which he forwarded to Mr Chadha on the 21st April, 1995 in regard to the outstanding fees for the preparation of lease. He wrote on a copy of that letter the following:
"5.5.95
Athanasios Economos agreed to rent $2,000 for next 5 months starting now subject to payment on time and balance being paid now. We to try and find replacement if possible and Mr Economos noted that and said that was the agreement."
Mr Economos said this arrangement was confirmed by a letter from Mr Bullock to the defendant dated 10th May, 1995 which was in the following terms:
"Dear Rajesh,
Re: 13 Hindley Street, Adelaide
Following our clients verbal agreement with you in respect to a reduction in rental for the next 5 months to assist you in becoming established, we have been advised that your Landlord is concerned as he has not received the balance of last months rental ($1,666.67) as was a condition of such arrangement and is further concerned that you may be late with the next months rental (at the reduced rate) to be paid on the due date (next Tuesday morning) as agreed.
We would be pleased if you would rectify this matter immediately and telephone the Landlord to confirm the same.
Yours faithfully,
BULLOCK & CO (REAL ESTATE) PTY LTD
BILL BULLOCK
Managing Director."
He said that that letter only referred to the balance of $1,1666.67 as a condition of such arrangement. Mr Economos said he expected to receive the rental of $2,000 for the months of May, June, July, August and September 1995. Mr Economos said no further moneys have been received from the defendant. He said he was aware that on Saturday 17th June, the defendant, without notice, vacated the premises and removed all of his stock. Consequently, a letter from his agents was sent to the defendant dated 19th June 1995 noting that he had removed the stock from the premises and pointing out that the plaintiff proposed to hold him responsible in accord with his offer to lease and that steps were being taken to obtain an alternate tenant for the balance of the lease term.
Mr Economos produced a bundle of invoices, he believed in total approximately $35,000 for items related to the renovation of these premises. He said the work which was carried was in a proper and workmanship manner.
Mr Economos confirmed that he instructed the agents to endeavour to release the premises and eventually acting on the advice of such agents, on the 13th July, 1995, signed an offer to lease the premises from a Ms Annette Carr at an annual rental of $26,000 for a three year period commencing on the 21st July, 1995.
Mr Economos said that he was aware that the rental was substantially less than agreed with the defendant. However, he accepted the advice of Mr Bullock that this was the preferable tenant for such premises and the best offer then available. Mr Economos said the agent advised him that by mid 1995 that there had been a decline in the rentals in the Hindley Street area, and, consequently felt obliged to accept the advice of Mr Bullock.
Mr Economos said that in the early period the defendant complained about the airconditioning and he immediately asked the installer to inspect such plant. He outlined that in earlier years there had been an evaporative unit, but, at the request of the defendant that had been removed and he had installed a reverse cycle airconditioning system. At that time he had obtained two quotes and eventually accepted a quote and the new airconditioning plant was installed. He said the air conditioning was an ongoing problem and he believed the airconditioning installer had returned many times to the premises and felt the airconditioning unit was operating effectively. Eventually it was apparent that there were difficulties because the two front doors of the premises were being left open for the whole period of trading. Initially the doors had been installed and had openers fitted at the top of each door for self closing. He noted that these opening mechanisms had been removed and he assumed by the defendant. He recalled that on one occasion as the doors were open a very strong north wind caused considerable movement with light fittings and some of the diffusers were moved but said they immediately attended and repaired the same and there was no further complaint from the tenant.
Mr Bullock’s evidence was confirmatory of that of Mr Economos. He outlined that he had in late 1994 received instructions to lease the premises and subsequently was contacted by Mr Chadha. He said there were numerous dealings and debate about rental and eventually the Offer to Lease was signed. He said in this time Mr Chadha attended the premises on many occasions. Mr Bullock was aware that after the premises were occupied by Mr Chadha airconditioning became a problem. He said Mr Chadha advised him on the hottest of days the plant was not adequately cooling the shop. On behalf of the owner he had discussions with the airconditioning contractor, S & E Electrical who had installed the system. He also contacted Carrier Air Conditioning as there was a suggestion that the unit may be undersized. Eventually there came the comment that with both doors of the shop permanently open that fact was not assisting the normal functioning of the unit, and, if the doors were closed the unit would perform satisfactorily. Mr Bullock confirmed that there was a meeting when Mr Chadha attended at the office of Mr Economos when he was present and eventually the reduced rental for the five month period was agreed. It was Mr Bullock’s view that, by the time of this meeting the long periods of heat were not being experienced, and, in his view the air conditioning at that point was not then a major issue. He said the next incident was that he was advised that the defendant had abandoned the premises on the 17th June and that came "out of the blue". He said he then took instructions from Mr Economos after obtaining the keys, and, took active steps to obtain a new tenant, and, eventually secured Ms Carr for the rental figure of $26,000 a year.
Mr Bullock confirmed that this rental figure was substantially less than the rental agreed with Mr Chadha but by that time trading in Hindley Street had deteriorated, and, the only inquiries they had were for a substantially lower rental and bearing all these considerations the offer of Ms Carr was reasonable and he recommended to Mr Economos the acceptance of Ms Carr’s offer. He viewed that course as being a prudent act by Mr Economos and the offer had his recommendation.
As a measure of precaution the plaintiff called Mr Bonkowski who is a mechanical engineer and who, at the request of the plaintiff, had inspected the air conditioning plant. Mr Bonkowski noted that the air conditioning unit was placed in a light well and this may cause some elevation of temperatures in that light well. He commented that the air conditioning plant was satisfactory if the front doors during trading were self opening, that is, opened automatically to allow customers to enter and leave the premises. However, if the tenant proposed to leave the doors open then air curtains could be installed which in effect prevent air entering the shop at about a cost of $2,000. If air curtains were not acceptable then, with doors permanently open, the only alternative would be to install an evaporative system and the cost of that would be about $8,000. Mr Bonkowski commented that if the doors were left open and the temperature did not exceed 30 degrees celsius the air conditioning unit would operate satisfactorily. He said that if the outside temperature was in the region of 30 degrees to 35 degrees internal temperatures would start creeping up to 26 degrees or 27 degrees and consequently "would be warm". Over 35 degrees with the front doors open Mr. Bonkowski said the interior of the shop would be uncomfortable, and, consequently unsatisfactory. Mr Bonkowski accepted meteorological evidence that there are only 60 hours in any average year when the temperature is above 35 degrees thus perhaps sixteen to seventeen days.
Defendant’s Evidence
Mr Chadha gave evidence about his background and the reason for entering negotiations to secure the premises and his signing the Offer to Lease document. Mr Chadha gave evidence at length about the uncomfortable and, what he regarded as, stuffy nature of the shop which he said prevented him from effectively trading. He called shop assistants, a Ms Nielson, Mrs Singh and his wife who gave evidence about the uncomfortable nature of the shop, and, because of this they were unable to sell clothes. Mr Chadha said that the airconditioning was, in his view, totally unacceptable. He realised that his trading was poor. He said he did not confer with Mr Economos at his office but phoned Mr Economos who agreed to reduce the rent. Mr Chadha said as he was suffering trading losses and on the verge of bankruptcy he had to leave the premises. Mr Chadha said the reason he left the premises was the failure of the plaintiff to rectify the airconditioning problem in the five month period of his tenancy. Mr Chadha maintained that on 5th May in the phone call to Mr Bullock he discussed the reduction of rent and told him that he wanted to leave the premises and vacate and said "I don’t want to stay in your premises any more". He said that he was told that he was bound by his lease. He said he advised Mr Bullock that he should look for an alternate tenant.
Mr Chadha also made allegations on what he believed to be the cost of the repairs carried out by Mr Economos and said the figure was more likely to be $15,000 to $20,000. Mr Chadha said when he entered the lease Mr Economos said he would spend $40,000 on the alterations and because of this he had agreed to pay a rental of $38,000.
Ms Angela Nielson said she commenced working in these premises in January and tradesmen were still working on the shop. She said that the air conditioning was "too hot and stuffy". She said she complained to Mr Bullock and said the conditions were unacceptable for people who were trying on fashion clothing. Mrs Singh also said she had worked at the shop on some occasions and again was inconvenienced by the atmosphere. Mrs Chadha gave evidence to the same effect.
The defendant called a Mr Stan Szalbert who was the principal of the firm that had installed the airconditioning for Mr Economos. He said after he had received instructions for the installation of airconditioning and he then made certain recommendations and installed what he called a three horse power unit with ducting for the premises. He said he was subsequently contacted and had discussions with Mr Economos and Mr Bullock about that airconditioning plant. Eventually he conferred with Carriers and it became evident in his view, that if the doors were to be left permanently open the unit would, in his words "struggle". Mr Chadha also called a Mr Freeman, an engineer who had read the report of Mr Bonkowski and has provided a number of reports. It was apparent from the evidence of Mr Freeman that he was taking issue with many, indeed, small points with the report in an endeavour to prove the inadequacy of such findings. I found his evidence not at all convincing, and, eventually, after considerable questioning, he conceded very much in summary the evidence of Mr Bonkowski that when the doors were open and the temperature was 35 degrees or more the unit would be unsatisfactory. After much questioning Mr Freeman argreed that if the doors were closed and the outside temperature was 32 degrees or 30 degrees or less then it would be adequate. Again he eventually conceded if the outside temperature was in the "high 20’s" there would not be a problem which air conditioning. Mr Freeman’s evidence at the end of the day is not a great variance from that of Mr Bonkowski. Mr Freeman tended to become the defendant’s advocate rather than focus on the areas in dispute.
Credibility
There was little divergence between the evidence of Mr Economos and Mr Bullock and it was supported by the correspondence which past between Mr Bullock and Mr Chadha.
I accept the evidence of Mr Bullock that the negotiations with Mr Chadha commenced in early October and extended for some six to eight weeks and in this period Mr Chadha inspected the premises on numerous occasions. Mr Chadha was obliged to move from his shop premises in the Southern Cross Arcade and consequently was anxious to secure other premises in the area.
I accept, as did Mr Bullock, that on the very hot days during the summer months of January and February the air conditioning unit was unsatisfactory. The plaintiff, following complaints, called in the installer and eventually it was apparent that with the doors left open, and if the temperature was above 35 degrees the air conditioning unit would not be effective.
However, what was becoming apparent with the passing of each week that the business trading was not as expected by Mr Chadha which led to his request for a rental reduction. Mr Bullock said by May the air conditioning, although an issue, was not prominent but what was the simple issue was the poor trading of the shop. No doubt there were many factors for this position which were not in any way related to air conditioning.
Where there is a conflict between Mr Economos, Mr Bullock and Mr Chadha I prefer the evidence of the former. The detailed correspondence that was forwarded to Mr Chadha supports the plaintiff’s evidence. I have no doubt that the important discussion about reduction of rental took place in the office of Mr Economos and not as described by Mr Chadha in a telephone call to Mr Bullock. One has to make allowance when a litigant is in person but the times he specified in his evidence were at variance in regard to matters as agreed in his own very detailed and explicit defence and counterclaim.
I accept that Mr Bullock represented to Mr Chadha that the landlord may spend up to $40,000 in upgrading the premises. This had to be seen in the nature of Mr Bullock’s estimate for the building work and the tenour of his discussions with Mr Chadha. I am told that the total of tendered invoices that related to the job was in the order of $35,000 with Mr Economos himself supervised such building work. Consequently, that comment could not in any way be seen as a misrepresentation to induce Mr Chadha to sign the offer for lease. Clearly Mr Chadha was anxious to secure the premises as I accept he told Mr Bullock that he had been unsuccessful earlier in obtaining shop premises in Hindley Street.
I find Mr Chadha, despite his evidence that he never read the offer document, was fully aware of its contents and anxious to secure the shop premises in the terms of such offer. However, after taking up his tenancy and as the months progressed his trading was obviously much less than his expectation which resulted in his abandoning the premises.
Findings:
The defendant, after a detailed examination of the premises, signed the Offer For Lease which was dated the 21st of November, 1994 for the premises fully aware of the contents of the same.
The defendant then entered into possession in late December and by the first week in January had transferred all of the fashion stock from his Southern Cross premises into the Hindley Street shop and thereafter commenced trading by the first week in January.
The defendant paid the initial rental payments in accord with the offer for lease.
The airconditioning plant was satisfactory with the doors closed. After initial discussions the premises had been fitted with self opening doors. The defendant and/or his employees had removed the automatic closing mechanism of such doors. The defendant and his employees left the front doors open at all times and at times used the doors for display purposes. I accept the doors were permanently open and indeed, when the temperature exceeded 35° the airconditioning plant would be unsatisfactory. The answer was that on these occasions the conditions would have been comfortable in the shop if the doors were closed. That would make working conditions tolerable on those very hot days. However, certainly by May, the airconditioning issue was not an issue but the substantial problem was the poor trading performance of the shop.
I accept that on 5th May the defendant conferred with Mr Economos at his office with Mr Bullock when the rent was reduced for the following five months. I am unable to make any specific finding that the defendant was made aware that if there was a failure to pay the reduced rental the original rent would apply. The only condition referred to specifically in writing was in relation to the payment of the balance rent then outstanding. The verbal evidence is totally lacking on this further alleged condition nor was it confirmed in any correspondence. Consequently, I am not prepared to find that a specific condition of the reduction in rent was that if default was made the original rent would apply.
The premises were abandoned by the defendant on 17th June and all stock removed. The defendant did not give any notice of this course and must be viewed as termination of his tenancy.
The action taken thereafter by the plaintiff was prompt in the reletting of the premises within a matter of a month. I accept Mr Bullock’s evidence that in the prevailing economic conditions the terms of the new offer for lease represented a fair and reasonable rental offer for those premises. Mr Bullock’s evidence gives some indication of the vagaries of rentals in this strip shopping area of Hindley Street. The rental of the prior tenant was $27,000 plus the tenant was to pay outgoings assessed at about $7,000 per annum, thus a total annual expenditure by the tenant of $34,000 Mr Chadha’s annual rental was $38,000 with the lessor bearing outgoings including rates and taxes. The substitute tenant, Ms Carr agreed to pay annual rent of $ 26,000 with the lessor bearing the outgoings.
The defendant, without sufficient cause, abandoned the premises. There was no breach by the plaintiff in any way in regard to its bargain with the defendant, nor, could there possibly be any acts on the part of the plaintiff which could be viewed as a repudiation of its obligations under the Lease. The acts of the defendant in his vacating the premises without any notice amounted to a repudiation on his part of the agreement. The subsequent action of reletting the premises on terms and conditions must be viewed as reasonable. Consequently the plaintiff is entitled to recover damages for the loss of benefit by reason of the defendant’s default under that clause.
Consequently I assess the damages of the plaintiff in the following manner:-Period from commencement of lease until 30th September 1995 (the period when the rent reduction applied)
Date Rent Payable Paid Amount Due
20.2.95 3,166.66 3,166.66 -
20.3.95 3,166.66 3,166.66 -
30.4.95 3,166.66 2,000.00 1,166.66
30.5.95 2,000.00 2,000.00 -
1,166.66 -
30.6.95 2,000.00 -
30.7.95 2,000.00 -
30.8.95 2,000.00 -
30.9.95 2,000.00 8,000.000
New Tenant - Ms Carr
21.7.95 2,166.66
21.8.95 2,166.66
21.9.95 2,166.66
----______--___
6,499.98
Balance owing $1,150.00
20th October, 1995 to 20th December, 1995 Mr Chadha’s monthly rental $3,166.66 less $2,166 payable new tenant - loss of $1,000 per month - $3,000.00
20th January 1996 to 20th January 1997.
12 month loss $12,000.00
20th January 1997 to 20th January 1998 12 month loss - $12,000.00
20th January 1998 to 20th July 1998
(Expiration of lease of substitute tenant) $6,000.00Mr Chadha’s offer document was for a 5 year term commencing on 15th January 1995. Ms Carr’s offer was for a 3 year term commencing on 20th January 1995 and terminating on 27th July 1998. The plaintiff has claimed the full amount of monthly rental payable by Mr Chadha from 21st July 1998 until 20th January 2000, a total amount of $56,999.00. The plaintiff is not entitled to the full amount of rental for this 18 month period as he is obliged to take steps to mitigate his loss by finding a new tenant for the premises. I have no evidence at all of current market rentals for this property, or, what is important the probable rental of these premises for a two year term commencing in July of this year. Rentals in Hindley Street in the last 3 years may have been dormant, decreased or for that matter increased. It is not for me to embark on guess work to reach a conclusion. Consequently the plaintiff has not proved its loss from 21st July 1996 until 20 January 2000.
Loss of rental increase.
Mr Chadha in clause 7 of his offer for lease agreed to pay annual rental increases of 5% except the third year when the clause provided:
"Except for the third year of the lease and renewal terms when the rental shall be reviewed to the lesser of market rental value or 8%..."There was a provision in Ms Carr’s lease providing for annual rent increases of 5%. The plaintiff is entitled to a 5% increase on the balance owing for rent for the first two years of the tenancy which I assess as $1,200.00
Default Interest
The offer in clause 10 of the lease agreement had a default interest clause on monies remaining unpaid by the tenant. The interest rate was fixed at 2% greater than" National Base Rate of National Australia Bank. The exhibit P24 sets out relevant banking interest rates. A schedule has been provided. I allow the same as claimed. $4,385.00
In any event the plaintiff would have been entitled to interest on the amounts found to be due by the defendant.
Conveyancing fees owing $1,160.00
Costs of releasing $2,166.00
$43,061.00
I enter judgment for the plaintiff in the sum of $43,061.00.
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