Perhauz & Anor v SAF Properties Pty Ltd & Ors
[2007] NSWADT 122
•12 June 2007
CITATION: Perhauz & Anor v SAF Properties Pty Ltd & Ors [2007] NSWADT 122 DIVISION: Retail Leases Division PARTIES: FIRST APPLICANT
Claudio Perhauz
SECOND APPLICANT
Jodie Lynne Taylor
FIRST RESPONDENT
SAF Properties Pty Ltd
SECOND RESPONDENT
Stephen ross Glendenning
THIRD RESPONDENT
Jenny-Lyn MacDonaldFILE NUMBER: 065154 HEARING DATES: 20 and 21 March 2007 SUBMISSIONS CLOSED: 21 March 2007
DATE OF DECISION:
12 June 2007BEFORE: Chesterman M - ADCJ (Deputy President); Fagg N - (Advisory) Non Judicial Member ; Fairweather R - (Advisory) Non Judicial Member CATCHWORDS: Claim for compensation - misleading or deceptive conduct - Claim for declaration of rights, obligations and liabilities under a lease - Damages - Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Conveyancing Act 1919
Real Property Act 1900
Retail Leases Act 1994CASES CITED: Arjay Investments Pty Ltd v Morrison’s Outdoor Catering Pty Ltd, Unreported, Supreme Court of NSW, 1 May 1995
Aspromonte Pty Ltd v Zagari [1999] NSWSC 831
Dellwest Pty Ltd v Cafabe Pty Ltd, Unreported, Supreme Court of NSW, 26 November 1997
Duncan’s Catering Pty Ltd v Bankstown City Council [2005] NSWADT 158
Four Seasons International Agriculture Pty Ltd v Iacullo [2002] NSWADT 91
Gamvrogiannis v Blackshaw [2000] NSWSC 314
Jarre Pty Ltd v Vumbaca & Anor (1998) NSW Conv R 55-832
Landsmiths Pty Ltd v Hall [1999] NSWSC 735
Lend Lease Financial Planning Ltd v Southcap Pty Ltd [1998] QCA 117
Long v Piper [2001] NSWCA 342
Napatarra v Perpetual Trustee [1999] NSWSC 750
NZI Insurance of Australia Ltd v Barycka [2003] NSWSC 190
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4
Rolet v Baron [2002] NSWADT 136
Smith v Hughes (1871) LR 6 QB 597
Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17
Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521REPRESENTATION: APPLICANTS
FIRST RESPONDENT
N Carney, barrister
R Colquhoun, barrister
SECOND AND THIRD RESPONDENTS
R Barraclough, solicitorORDERS: 1. Declare to the effect that on or about 23 June 2006, the First Respondent agreed by its agent to grant to the Applicants a retail shop lease of the premises known as Shop 6, Pacific Arcade, 48 Wharf Street, Forster, on terms including the following: a commencement date of 17 July 2006; a leasing period of three years with an option to renew for two years; rent to be $14,000 plus GST for the first year; annual increases of 5% thereafter; outgoings to be paid by the lessee; a rent-free period of five weeks; permitted use as a restaurant.; 2. The matter is set down for further directions at 9.30 a.m. on 20 June 2007.
Introduction
1 The principal issue arising in this case was whether an agreement to lease premises (‘the Premises’) as a retail shop, alleged to have been concluded orally between an agent of the owner of the premises and one of the two intending lessees, was binding upon the parties by virtue of provisions of the Retail Leases Act 1994 (‘the Act’).
2 The Premises were known as ‘Poets Corner’, being Shop 6, Pacific Arcade, 48 Wharf Street, Forster. The owner of them was SAF Properties Pty Ltd (‘SAF’), the First Respondent. The land was registered under the Real Property Act 1900.
3 The two Applicants, Mr Claudio Perhauz and Ms Jodie Taylor, instituted proceedings on 18 September 2006. They claimed that in late June or early July 2006, in the course of discussions between Mr Perhauz and Mr Luke Felsch, a real estate property manager employed by Forster/Tuncurry Professionals (‘the Professionals’) and authorised by SAF to make leasing agreements on its behalf, an oral agreement was concluded for a lease of the Premises to them by SAF for the purposes of a restaurant. They sought a declaration to this effect, an order that the agreement for a lease be specifically performed, an order that a caveat that they had placed on the title to the Premises be extended and, in the alternative, damages on the grounds of unconscionable conduct and misleading or deceptive conduct.
4 By an order made on 12 October 2006 on the application of Mr Perhauz and Ms Taylor, Mr Stephen Glendenning and Ms Jenny-Lyn Macdonald were joined as Second and Third Respondents. The basis of this order was the existence of a lease of the Premises to them, granted by SAF on or about 26 July 2006 and governed by the Act.
5 While SAF denied that any binding agreement to lease the Premises to the Applicants had been reached, it acknowledged that if such an agreement were held to have come into existence, it would be such as to fall within the definition of a ‘retail shop lease’ in the Act.
6 Since the proceedings instituted by the Applicants included a claim of unconscionable conduct on the part of SAF, the Tribunal is constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.
Outline of the evidence
7 Preliminary matters. The principal witnesses in the case were Mr Perhauz and Mr Felsch. Both of them were cross-examined at some length on affidavits. Mr Perhauz in fact swore two affidavits, of which the later contained responses to the contents of Mr Felsch’s sole affidavit. There was brief cross-examination of Ms MacDonald on an affidavit that she had sworn.
8 In addition, affidavits sworn by Ms Taylor, by Mr David Rankin (a director of Forster Networking Pty Ltd, which was the proprietor of the Professionals), by Mr Richard Crowther (a real estate agent employed by the Professionals) and by solicitors respectively representing the Applicants, the First Respondent and the Second and Third Respondents were admitted into evidence. None of these six witnesses was cross-examined.
9 The Applicants sought to tender an accountant’s report relating to the financial loss allegedly suffered by them because of SAF’s decision not to grant them a lease. This report was intended to supplement a one-page estimate of the Applicants’ financial losses (totalling $139.000) annexed to one of Mr Perhauz’s affidavits. The tender was opposed by all the Respondents, principally on the ground that since copies of the report were served on them only one day before the start of the hearing (being six weeks after the time stipulated in the Tribunal’s directions), they had had no opportunity to consider it or to prepare evidence in reply. The Tribunal rejected the tender on this ground, stating that if the occasion arose for a further hearing dealing with the extent of any financial loss suffered by the Appellants, opportunities would be provided for the filing and serving of further evidence relating to this topic. The Tribunal also indicated that in this eventuality it might have to consider whether the Applicants should suffer any cost penalty because of their failure to file and serve the accountant’s report at the proper time.
10 The Applicants also sought to tender seven handwritten statements by individuals designed to show that at the time when a lease of the Premises to the Applicants was under consideration Mr Perhauz believed that they had a lease. This evidence as well was only served on the Respondents one day before the hearing. The Tribunal rejected the tender on the grounds that the Respondents were prejudiced by the late service and that the evidence was of little relevance to the issues to be decided.
11 Since 2004, the Applicants have been the co-owners of a restaurant business called ‘Claudio’s By the Lake’, in Shop 5, Pacific Arcade, Forster, opposite the Premises. They have had a retail shop lease from SAF.
12 In November 2005, Mr Crowther asked the Applicants whether they would be interested in buying the restaurant business then carried on at the Premises. He gave them a copy of the lease that SAF had granted to the current tenants. Ms Taylor stated in her affidavit that they ‘went through’ this lease with their solicitor. She found it to be ‘similar to’ the lease that they themselves held from SAF. Relevantly, it contained a demolition clause and a provision for the tenants to contribute to outgoings.
13 After considering this proposal by Mr Crowther, the Applicants rejected it, because SAF had indicated that the lease that it would offer to them would have a term of only two years.
14 The conversations between Mr Perhauz and Mr Felsch. The events of importance in this case took place during June and July 2006. In the ensuing account, conflicting statements on particular matters made by Mr Perhauz and Mr Felsch, who are the two key witnesses, are noted.
15 On Wednesday 21 June (according to Mr Perhauz – Mr Felsch’s affidavit said ‘on or about 20 June’), Mr Felsch visited the Applicants’ restaurant. He advised Mr Perhauz that the tenants of the Premises would soon be leaving and that the Premises would be available for lease. Mr Felsch testified that he added that the tenants were due to vacate the Premises on 13 July 2006. According to Mr Perhauz, he said also that they were holding an auction to sell their equipment (Mr Felsch thought this matter may have been raised at their next conversation). Mr Felsch asked if the Applicants would be interested in leasing the Premises. In response to a question from Mr Perhauz, he said that the terms of the lease being offered included rent at $14,000 for the first year, with annual increases of 5% thereafter; a leasing period of three years with an option to renew for two years; and a demolition clause, which according to Mr Felsch was to come into effect at the end of the first period. Mr Perhauz said words to the effect that he would discuss the proposal with Ms Taylor.
16 According to Ms Taylor’s affidavit, on 21 June Mr Perhauz told her about this conversation. In the account that he gave to her, he described the rent stipulated as $14,000 + GST + outgoings.
17 A further conversation between Mr Felsch and Mr Perhauz took place on Thursday 22 June. According to Mr Perhauz, he said to Mr Felsch that he would ‘take the lease’. Both in his affidavit and in cross-examination, Mr Felsch said that Mr Perhauz indicated only that the Applicants were ‘interested’ in leasing the Premises. Mr Perhauz stated that he would like to start work on a new fitout on 17 July, so that the business could commence by the end of August. According to Mr Perhauz, he requested a rent-free period of six weeks (in Mr Felsch’s version, no specific period was mentioned). Mr Felsch said that he would have to ask the landlord about that.
18 According to Mr Perhauz’s account of this conversation, he also indicated (a) that the Applicants planned to run a café in the Premises, as well as their existing business; (b) that he was reasonably sure that he would have council permission to run a café or restaurant in the Premises, since the existing restaurant was closing; (c) that he asked if he could paint the exterior of the two shop fronts, in response to which Mr Felsch said that he would check with the landlord; (d) that at Mr Felsch’s request he supplied the name and address of the Applicants’ solicitors; (e) that Felsch said that he would have a lease drawn up and sent straight to them; and (f) that while Mr Felsch said in relation to certain matters, such as Mr Perhauz’s requests for a rent-free period and for permission to paint the exterior, that the landlord would have to be consulted, Mr Felsch did not at any stage say that no binding agreement existed until a written lease was signed.
19 In cross-examination, Mr Perhauz was asked a number of questions as to whether he believed that, as a result of the conversations of 21 and 22 June, the Applicants ‘had a lease’ even though no lease documents had been prepared or signed. His responses were to the following effect. He was aware that the completion of a lease generally involved the preparation and signing of a document, but he believed that nonetheless all relevant terms had been agreed between him and Mr Felsch. In one of his affidavits, he said that ‘he believed the lease was just a formality and the finer points could be sorted out later’.
20 According to Mr Felsch, this conversation on 22 June also included a discussion of what the existing tenants of the Premises were doing with their equipment (in the course of which Mr Felsch said that in a forthcoming auction they would be selling everything except for an awning) and a request by Mr Perhauz for access to the Premises for himself and a valuer, in order that the equipment owned by the current tenants.
21 In relation to these particular matters, Mr Perhauz said that his request for access was made four days later, on 26 June. He also denied any mention by Mr Felsch of an awning being left out of the current tenants’ sale of their equipment. Attached to his affidavit was a copy of an advertisement for the auction in a local newspaper, in which an awning was listed as one of the items to be sold. The date for the auction was 5 July.
22 Mr Felsch testified also that, according to his recollection, his discussion with Mr Perhauz about four of the matters listed above at [18] did not occur on 22 June, but on 26 June. These matters were the issue of painting the premises, Mr Perhauz’s indication of being reasonably sure of being permitted to run a café or restaurant, Mr Felsch’s request for the name and address of the Applicants’ solicitors and his indication that a draft lease would be sent to them.
23 In her affidavit, Ms Taylor said that after this conversation Mr Perhauz told her that ‘Luke said the lease is ours’. She said further that on the next day, Friday 23 June, she and Mr Perhauz met their solicitor (Mr Laurie Hagan of Baker and Borthwick). They told him that they had taken up Mr Felsch’s offer of a lease and that he would receive a written lease once a few minor details, such as a fitout period, were settled.
24 Also on 23 June, Mr Felsch called into the Applicants’ restaurant and gave Mr Perhauz a copy of the NSW Retail Tenants’ Guide. Mr Felsch said that the landlord would give a rent-free period of only four weeks. Mr Perhauz replied that he needed a period of six weeks. Mr Felsch, according to his affidavit, said that he would need to refer the matter to the landlord. Mr Perhauz’s version was that he asked Mr Felsch if they could ‘split the difference’ and Mr Felsch replied that that would be ‘fine’. Following this conversation, Mr Perhauz took some preliminary steps (of which details need not be given here) to find a buyer for the Applicants’ existing business.
25 A further conversation occurred on Monday 26 June. According to Mr Perhauz, this simply comprised his request to Mr Felsch for access to the Premises and Mr Felsch’s response.
26 Mr Felsch described a distinctly longer conversation on that day. According to him, it included the four matters, just mentioned, which according to Mr Perhauz were discussed on 22 June. It also included two statements by Mr Felsch to which Mr Perhauz replied ‘Okay’. These were, first, that the landlord would offer a rent-free period of five weeks and secondly, a statement which Mr Felsch set out in his affidavit as follows:-
- The terms of the proposed Lease are subject to the approval of the landlord and yourself and include a 3 year term with demolition clause able to be effected after 2 and a half years, two year option, rent is $14,000 + GST + outgoings, annual increase of 5% each year, two month rent as bond.
27 In oral evidence, Mr Felsch said that in the course of the conversations outlined so far he advised Mr Perhauz that the negotiations for a lease of the Premises were subject to the landlord’s approval and to the signing of a written lease. It was suggested to him that there was no allegation of his communicating a requirement for the landlord’s approval in his affidavit. He replied that there was such an allegation with regard to Mr Perhauz’s requests for a rent-free period and for permission to paint the exterior of the Premises. In making this reply, he overlooked the fact that, as just mentioned, he had stated in his affidavit that on 26 June 2006 he advised Mr Perhauz that the terms of the ‘proposed lease’ were ‘subject to the approval of the landlord and yourself’.
28 According to Mr Perhauz, two brief conversations between him and Mr Felsch occurred on Thursday 29 and Friday 30 June respectively. In the first of them, Mr Felsch replied to a question as to what was happening with the lease by saying that the solicitor (Mr Ian Graham of Walker Smith) was sick but that he would try to get a lease the next day. In the second, Mr Felsch’s reply to a similar question was that he would ‘definitely’ have the lease by Monday.
29 Mr Felsch’s affidavit did not mention these conversations.
30 On Monday 3 July, Mr Perhauz received a completed form of schedule to a Real Property Act lease and a disclosure statement prepared by Walker Smith. Each page of these documents was marked ‘draft’.
31 On the following day, having discussed the documents with Mr Hagan, the Applicants noted a few amendments and returned them to Mr Felsch. The amendments were as follows: (a) the insertion of a first right of refusal for the Applicants if the demolition clause were acted on; (b) the substitution of 10% for 12% as the interest rate on overdue amounts due from them; (c) the insertion of a clause permitting painting of the exterior; and (d) the inclusion of the lettable area of the Premises in the disclosure statement. Mr Felsch said in relation to each of these that he would have to discuss them with the landlord but that he did not anticipate any problem. According to Mr Perhauz, Mr Felsch said also that the lease should be ready for the Applicants the next day, before the auction of the equipment owned by the current tenants.
32 Mr Felsch said in cross-examination that he had had authority from SAF to offer the Premises for lease at an annual rent of $14,000, but not to accept any offer from a prospective tenant to take a lease. He testified also that he was the exclusive agent to find a tenant for the Premises.
33 During the remaining days of July 2006, a number of further conversations occurred between Mr Perhauz and Mr Felsch. In their evidence, they disagreed markedly as to what was said. There also occurred a meeting at the Professionals at which both of them, together with Mr Rankin and (according to Mr Perhauz) Mr Crowther, were present. Again, there is a considerable degree of conflict between the relevant witnesses as to what happened at this meeting. For the purposes of the present judgment, it is not necessary to review this evidence.
34 The negotiations between Mr Felsch and the Second and Third Respondents. Mr Felsch testified that on Wednesday 28 June Ms MacDonald contacted the office of the Professionals to ask about the departure of the current tenants from the Premises. When he contacted her the next day, she asked about leasing the Premises and/or buying the business. He told her that another party was interested in a lease and quoted a purchase price of $35,000 for the business on a ‘walk in walk out’ basis.
35 According to Mr Felsch, on Saturday 1 July, Ms MacDonald told him that at that stage she and her partner Mr Glendenning were not interested in buying the business at the Premises.
36 On Tuesday 4 July, however, Mr Felsch received a handwritten letter, bearing that date, from the Second and Third Respondents advising that they were interested in leasing the Premises for as long as possible, since they would like to relocate their existing business, Sotos Café, in the Premises.
37 According to Ms MacDonald, at some time (it would seem) between 1 and 6 July, Mr Felsch told her that the rent for the Premises would be $16,500 + GST + outgoings, with annual increases of 5%. There would be an initial three-year period, then a demolition clause during a two-year option period. They could purchase the business of the current tenants for $30,000. He said finally that if they could get a cheque to him within the next three days they could have the business and a lease.
38 On 4 or 5 July, the Second and Third Respondents agreed with the current tenants of the Premises to buy the exhaust fan, the awning and the goodwill, but not the name ‘Poets’ Corner’, for $15,000. It would appear that they also inspected the Premises and decided that they were suitable.
39 On 6 July, Mr Felsch told them that if they wanted a lease of the Premises they should confirm this in writing. Later the same day, they delivered a handwritten letter to him containing an offer to lease the Premises at ‘a fixed annual rate of $16,500 plus GST and outgoings for a period of three years, with an option of two years with an annual increase of 5% thereafter’.
40 Subsequent developments. During July 2006, following these negotiations conducted separately by Mr Felsch with the Applicants and with the Second and Third Respondents, Mr Graham sent formal lease documents out to the solicitors acting for these parties, indicating that they were drafts only and that no binding agreement would arise until SAF had executed one or other of them. Both the Applicants and the Second and Third Respondents returned signed copies to him.
41 At no time did Mr Felsch or Mr Graham or anyone else on behalf of SAF ask the Applicants if they would be prepared to pay an initial annual rent higher than the figure of $14,000 stipulated by Mr Felsch on 21 June. When asked in cross-examination why he had not made a suggestion of this nature to the Applicants, Mr Felsch replied that he wanted to avoid a ‘bidding war’.
42 On or about 24 July, SAF determined that it would grant a lease to the Second and Third Respondents. In communicating this decision shortly thereafter to the Applicants, Mr Felsch described it as a commercial decision, based amongst other things on considerations of tenancy mix and on doubts entertained by SAF as to whether the Applicants could effectively run two businesses. In cross-examination on this matter, Mr Felsch referred to the difference between a café (presumably referring to Mr Perhauz’s statement during their negotiations that this was the type of business envisaged by the Applicants) and a restaurant (this being the permitted use stated in the lease to the Second and Third Respondents).
43 On 27 July, Mr Hagan instructed law stationers in Sydney to lodge a caveat on the title to the Premises based on a claim to an unregistered lease commencing 17 July 2006. He also claimed in letters to Mr Graham and to the solicitor for the Second and Third Respondents (Mr Richard Barraclough, of Barraclough Jones & Associates) that the Applicants had a prior entitlement to a lease of the Premises. These claims were denied.
44 On 7 August 2006, Mr Barraclough advised the Second and Third Respondents that he had received from SAF an executed copy of a lease of the Premises. Its commencement date was 19 August 2006. According to Ms MacDonald’s affidavit, she and Mr Glendenning commenced business in the Premises on 18 August.
45 On 7 September 2006, SAF issued a lapsing notice requiring removal of the Applicants’ caveat within 21 days.
Assessment of this evidence
46 Neither Mr Perhauz nor Mr Felsch made contemporaneous notes of their conversations during late June and early July 2006. Mr Perhauz said that towards the end of July, when he knew that litigation might be occurring, he ‘wrote everything down’ in a diary. The diary was not tendered at the hearing. Mr Felsch said that the first occasion on which he tried to recall the contents of these conversations was shortly before he signed his affidavit on 11 October 2006.
47 In the Tribunal’s opinion, Mr Perhauz was generally a truthful and credible witness. Because the transaction being discussed was of major importance to him, there is a reasonable likelihood that his recollection of conversations with Mr Felsch was generally accurate, even though he took no notes at the time. There were however a few minor matters in relation to which his two affidavits were not entirely consistent with each other.
48 Mr Perhauz’s account of these conversations received some corroboration from passages in Ms Taylor’s affidavit setting out how he reported them to her. She was not cross-examined. But the Tribunal accepts a submission from Mr Colquhoun, counsel for SAF, that because this was hearsay evidence, it cannot be given great weight in assessing the truth of what Mr Perhauz allegedly told her.
49 The Tribunal regards Mr Felsch’s testimony as less reliable. Since he was a real estate property manager with (presumably) a number of transactions to deal with at any time, the fact that he kept no contemporaneous notes of his conversations with Mr Perhauz creates a likelihood that his recollection was faulty on some matters at least.
50 The Tribunal considers it significant that no representative of SAF gave written or oral evidence. One consequence is that the only evidence provided as to the extent of Mr Felsch’s authority to bind SAF in dealing with intending lessees such as the Applicants was a brief oral statement provided by Mr Felsch himself. There was nothing in the evidence to suggest that any employee of SAF, whose address for the purposes of these proceedings is in the Central Business District of Sydney, was present in Forster at any material time.
The issues to be resolved in this judgment
51 The single question with which this judgment is concerned is whether a binding agreement for a lease of the Premises arose at any time between SAF and the Applicants. If the answer is no, the Applicants’ case must be dismissed. If the answer is yes, the question of what remedies, if any, should be granted remains for determination.
52 It is evident that from the time when Mr Graham, on SAF’s behalf, first sent lease documents via Mr Felsch to the Applicants (i.e., on or about 3 July 2006) SAF did not intend to enter into any such agreement except by the formal execution of a written lease. This was made clear both by the handwritten annotation ‘draft’ appearing on each page of the first set of documents sent by Mr Graham and in subsequent correspondence. Mr Carney, counsel for the Applicants, appeared to accept this proposition.
53 Appropriately therefore, in the Tribunal’s opinion, the submissions advanced towards the end of the hearing were concerned almost entirely with the question whether a binding agreement for lease was created at an earlier stage between SAF and the Applicants, that is, in the course of the conversations between Mr Perhauz and Mr Felsch occurring between 21 and 30 June 2006. As the Tribunal pointed out during the hearing, such an agreement would remain binding even though subsequently the solicitors for the Applicants and for the First Respondent proceeded on the basis that a formal lease would be required and, indeed, contemplated changes to some terms on which there appeared to have been prior consensus.
54 The specific issues to be resolved in determining whether a binding agreement was created are as follows: (a) whether, as a matter of law, a binding agreement for the lease of retail shop premises can arise in the absence of a document, other written evidence or acts amounting to part performance; (b) whether Mr Felsch had authority – actual and/or ostensible – to act as SAF’s agent in concluding an agreement to lease the Premises; and (c) whether the necessary conditions for concluding an agreement for lease as claimed by the Applicants were in fact satisfied in the course of the relevant conversations.
55 The Tribunal will address these issues separately.
Can a binding agreement for the lease of retail shop premises be concluded by word of mouth only?
56 It is established law in New South Wales that, where no special statutory regime such as the Act has established for retail shop leases is applicable, a purely oral agreement for lease is unenforceable unless conduct amounting to part performance is proved to have occurred: see Conveyancing Act 1919, s. 54A. The Applicants did not allege any such conduct.
57 Mr Carney claimed however that by virtue of the broad definition of ‘retail shop lease’ in s. 3 of the Act, an oral agreement for such a lease is valid and enforceable even in the absence of part performance. This definition is as follows:-
- retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:
- (a) whether or not the right is a right of exclusive occupation, and
(b) whether the agreement is express or implied, and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing.
58 In Jarre Pty Ltd v Vumbaca & Anor (1998) NSW Conv R 55-832 at 56,515 – 56,520, the Commercial Tribunal engaged in a lengthy discussion of the interaction between a number of provisions of the Act and provisions relating to the formal requirements of leases in the Conveyancing Act 1919 and the Real Property Act 1900. In the course of this discussion, it stated that s. 3 of the Act is ‘broadly based’ and that it ‘creates a statutory legal interest… irrespective of s. 23B of the Conveyancing Act’ (see 56,516).
59 That case was not concerned with an oral lease or agreement for lease. But the present Tribunal has on occasions held expressly or by implication that by virtue of s. 3 a purely oral lease or agreement for lease may be valid if it relates to a retail shop: see e.g. Four Seasons International Agriculture Pty Ltd v Iacullo [2002] NSWADT 91 at [13], [18]; Rolet v Baron [2002] NSWADT 136 at [12 – 17], [24]; Duncan’s Catering Pty Ltd v Bankstown City Council [2005] NSWADT 158 at [12].
60 It was put to the Tribunal, however, both by Mr Colquhoun and by Mr Barraclough, appearing for the Second and Third Respondents, that if a retail shop lease is to be valid, some further conditions, which s. 8 sets out and s. 7 renders mandatory, must be satisfied. Sections 7 and 8 state as follows:-
- 7 This Act overrides leases
This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease.
8 When the lease is entered into
(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).
(2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease.
Note. Therefore, if the lessee starts to pay rent as lessee or enters into possession as lessee, the lease is considered to have been entered into even if neither party has executed the lease at that time. Money paid in advance (purportedly as rent) as a deposit to secure premises for a proposed lease does not constitute rent paid as lessee under the lease.
61 In Mr Colquhoun’s and Mr Barraclough’s submission, the intention of s. 8 is to require that no enforceable lease can arise under the Act unless and until there occurs at least one of the three events to which the section refers. These are (1) entry into possession in accordance ‘as lessee’, (2) payment of rent ‘as lessee’ and (3) execution of the lease by both lessor and lessee. This line of argument requires careful consideration.
62 In Whiteway House (No. 100) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521 and Aspromonte Pty Ltd v Zagari [1999] NSWSC 831 at [52], Hodgson CJ in Eq held that the stipulation that entry into possession or payment of rent must be effected by the relevant person ‘as lessee’ implies that at this point of time there must have been ‘consensus’ between the parties as to ‘the terms of the lease’.
63 In Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4, the Tribunal discussed the operation of s. 8 at some length, taking account also of the impact of the definition of ‘retail shop lease’ in s. 3. This discussion included the following passages:-
- 26 If [a paragraph quoted from Whiteway House ] is relied upon to support the proposition that where there is no subsequently executed lease then Section 8 does not apply, then in my opinion that submission should be rejected…. In my opinion the submission goes against the definition of "lease" in Section 3 of the Act where it is defined as meaning:
- "any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop ...."
28 So, it seems to me, there is no requirement for the operation of Section 8 that there be at some stage or other after the lessee has entered into possession and paid rent the execution of a lease document. This must be the case because the definition of ‘lease’ means ‘any agreement’, whether express or implied, oral or in writing or partly oral and partly in writing. It is predicated on there being an “agreement” – once it is established that there is an agreement and otherwise the terms of Section 8(1) are satisfied then there is created a statutory lease for the minimum term under section 16. The real question is always:
- “Is there an agreement; if so what are the terms of the agreement; and has the lessee entered into possession of the retail shop as lessee under the agreement or has the lessee began to pay rent as lessee under the agreement (whichever happens first)?”
30 There is nothing in the combination of Sections 3 and 8 that requires the person granting or agreeing to grant the right of occupation to agree with the occupier or proposed occupier to all the terms of the right of occupation. The definition of “lease” in Section 3 (set out in paragraph 26 above) is in very simple terms and the legislative intent of Section 8 is to create a statutory lease in the particular circumstances such that the occupant is protected by a statutory lease. Once that interpretation is accepted then there is no requirement for there to be “consensus” as to the terms of, or each and every term of, the right of occupancy simply because the statute creates the lease (Section 3). Once the statutory lease is created then the only question is: what are the terms of that lease? In order to answer that question one needs to look at the extrinsic evidence that is available in order to establish the other terms of the agreement between the parties.
31 It is not my understanding that the law requires there to be a concluded agreement between the parties before Section 8 applies. Mr Jacobs for the Respondent has strongly urged that proposition and for the reasons that I set out later in this Judgment I am of the view that the combination of Section 8 and the definition of “lease” in Section 3 is supportive of a different legislative regime designed to protect persons who enter into occupation or pay rent of defined premises such that the section “fills in the blanks” (so to speak) of contract law which would deny a concluded contract in circumstances where the evidence showed that there had not been agreement as to all the terms and in those circumstances would deny the occupant of retail shop premises the protection offered by Section 8….
38 There is perhaps an alternative argument available to the Applicant, although not agitated before me. In the definition of “lease” the legislature has seen fit to use the word “agreement” in contradistinction to the word “contract”. Although not expressing a final view on this aspect, it may well be that the use of the word “agreement” imports something less than a full-blown contract but is rather directed to the parties reaching an agreement such that the Lessor permits the lessee into occupation of the lessor’s premises (a rather dramatic event in reality) or accepts rent for those premises and in either case thereby creates a lease under Section 8.
It seems to me that the legislature has deliberately used the general word “agreement” and avoided the more legal word “contract”. There is good reason for this. The Retail Leases Act is, in many of its provisions, purposive and protective. It is directed, in this aspect, to the commercial reality of Lessors and Lessees “agreeing”, as distinct from “contracting”, such that upon “agreement” plus entry into possession or payment of rent the Act creates a statutory lease and a statutory regime for captured leased premises. It is protective because it creates a statutory minimum term and regime to protect the parties, in particular the lessee….
Persons in their ordinary activities can reach “agreement” about numerous matters without being contractually bound by that agreement. In simplistic terms (for example) a person can agree to take another to the theatre but will not be contractually bound to carry out that promise. However, what the Retail Leases Act does is effectively create (in my view) a statutory contract where the circumstances envisaged by Section 8 apply. Section 8 itself refers to “the lease” (twice) and “the lease” is the lease defined in Section 3. There is nothing (it seems to me) in the Section 3 definition that requires agreement to be reached between the parties on all terms. And, for the reasons set out in paragraph 27 above, the manner in which the parties actually reach agreement can be varied and the terms of the agreement can even be (theoretically) can be implied and oral and (in my view) it is not necessary for the terms to be all inclusive.
64 In Helou & Ors v Bong Bong Pty Ltd & Anor t/a Regional Retail Properties [2006] NSWADT 128 at [82], the Tribunal endorsed the proposition in Randi Wix that in order to reach the ‘consensus’ that constitutes a prerequisite to the operation of s. 8(1), ‘it is not necessary that the parties reach agreement on all the terms of the right of occupation’. It added:-
- This is an implicit consequence of the broad definition of ‘lease’ in s 3, embracing ‘any agreement’, express or implied, and whether oral, in writing, or partly oral or partly in writing, ‘under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop’.
65 While these cases provide useful insights into the interpretation of s. 8 and, to a lesser extent, of s. 3, none of them dealt with the particular issue posed in the present case. This is whether, in the absence of any of the three ‘events’ to which s. 8 refers, a purely oral agreement for the lease of a retail shop is binding. The reason why this issue was not directly addressed in these cases is that the factual situations being considered in them involved a claim that an entry into possession or a payment of rent such as s. 8(1) contemplates had been effected by the would-be lessee. What the Court or Tribunal was called on to decide was whether this claim was made out and/or whether the necessary underlying ‘consensus’ existed.
66 In the Tribunal’s opinion, three matters that have not yet been specifically mentioned are of significance in resolving the question presently before it.
67 The first is the distinction, well recognised in land law, between a lease and an agreement to lease. While in equity a valid and binding agreement to create a lease in the future confers on the lessee many of the rights and entitlements enjoyed by a lessee strictly so-called, such an agreement without more still leaves the would-be lessee in a less secure position (see e.g. P Butt, Land Law, 4th edn, 2001, [1531] – 1534]). Notably, he or she is liable to be defeated by a bona fide purchaser of a legal interest taking without notice and there are significant limitations on the availability of the remedy of specific performance. Nevertheless, the law recognises (see e.g. Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 25-27) that if two parties on 1 January make a contractually valid agreement, which they both intend to be binding, to the effect that on 1 July one of them will become the lessee of premises owned by the other for a specified period and at a specified rent, that agreement may be enforced by appropriate contractual remedies, such as an award of damages to be paid by the party in breach.
68 The existence of this distinction is recognised in the definition of ‘retail shop lease’ in s. 3 of the Act. It refers to ‘any agreement under which a person grants or agrees to grant… a right of occupation…’ (emphasis added). It is also recognised in the definition of ‘lessor’ in s. 3, which commences as follows:-
- lessor means the person who grants or proposes to grant the right to occupy a retail shop under a retail shop lease… (emphasis added)
69 Secondly, the opening words of s. 8(1) are: ‘For the purposes of this Act, a retail shop lease is considered to have been entered into…’ (emphasis added). The concept of a lease being ‘entered into’ also appears in the heading to the section. In the Act, there are numerous other provisions where the notion of a retail shop lease being ‘entered into’ appears. For example, the right conferred on a lessee by s. 11(2) to terminate a lease because a disclosure statement was not supplied by the lessor or was incomplete or misleading may only be exercised within six months after the lease was ‘entered into’. Under s. 16(1), the minimum term of five years (subject to exceptions) for a retail shop lease is formulated as ‘the term for which a retail lease is entered into’. These aspects of the Act (some of which are discussed in Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17 at [22 – 28]) suggest that the function of s. 8 is that of defining when a prior agreement for a lease, or a series of negotiations, ripens into a fully established lease transferring a legal interest in the land to the lessee. It is not intended to affect the validity of an agreement for lease.
70 Thirdly, the Tribunal is inclined to the view that in s. 8 the phrases ‘execute the lease’ and ‘executed the lease’ refer to the act of signing or sealing a formal lease document, not to signing a written agreement for a future lease or a set of documents (such as an exchange of letters) that taken in combination will constitute such an agreement. This interpretation would seem to accord with the meaning generally assigned by conveyancers to these phrases. If it is correct, then the approach to s. 8 urged on the Tribunal by Mr Colquhoun and Mr Barraclough would have the result that written, not merely oral, agreements for a future retail shop lease would be unenforceable unless one of the three ‘events’ mentioned in the section occurred. On the other hand, if the agreement was not for a retail shop lease, then so long as it was written, or was evidenced in writing to the extent required by s. 54A of the Conveyancing Act 1919, it would be enforceable.
71 Taking account of these considerations, the Tribunal concludes that the legislature, in enacting s. 8, did not intend to render unenforceable a valid agreement for a lease of retail shop premises, stipulated to commence at a future time, in circumstances where none of the events mentioned in the section ever occurs. Although some of the observations of the Tribunal in Randi Wixs may appear to convey this implication, the Tribunal in that case was not directly addressing this question. The intention of the section appears instead to be to extend, at least for the purposes of the Act, the range of circumstances in which a lease, as opposed to an agreement for a future lease, comes into being.
72 This interpretation of s. 8 leaves it open to the Tribunal to conclude that the definition of ‘retail shop lease’ in s. 3, including as it does agreements for such a lease made orally, to operate in the manner contemplated in the authorities cited above at [58 – 59]. Just as this definition extends the concept of leases to include licences and allows for the possibility that an agreement for a lease may be implied, it eliminates pre-existing statutory requirements of writing for agreements for leases that are intended to be binding, so long as the contemplated lease relates to a retail shop. But this conclusion does not mean that a consensus reached in the relevant conversations between the parties or their agents is enforceable as an agreement for a future lease where the words that they have used, considered in the light of the surrounding circumstances, state or imply that the parties are not to be legally bound unless and until a formal lease has been executed. In many cases arising in practice, this will indeed be the common intention, or will be a stipulation made clearly by one or other of the parties.
Did Mr Felsch have authority to enter into a binding agreement for lease on SAF’s behalf?
73 On this question, Mr Carney argued that a ‘presumption’ that Mr Felsch, being an estate agent acting on behalf of a lessor company that played no prominent role in dealing with the Premises, had ostensible authority to bind SAF had not been rebutted. He drew attention to the fact that the Applicants were already tenants under a lease from SAF and would therefore be assumed to be suitable to take another lease.
74 The principal argument put forward on behalf of the Respondents was that according to Mr Felsch, he told Mr Perhauz on 26 June 2006 that the conditions of any lease being negotiated were subject to the landlord’s approval. It was submitted that Mr Perhauz did not deny this assertion in either of his affidavits.
75 In the Tribunal’s opinion, it need not determine whether Mr Felsch had actual authority (express or implied) to bind SAF. The only evidence given on this issue was Mr Felsch’s statement that he did not have such authority. It is an open question, which need not be resolved, whether SAF’s decision not to call any witness from within its own staff would justify the Tribunal’s inferring that it had conferred the necessary authority on Mr Felsch.
76 The Tribunal’s conclusion is that Mr Felsch did have the requisite ostensible authority, at least until the commencement of his conversation with Mr Perhauz on 26 June 2006. It bases this conclusion on the following considerations advanced by Mr Carney, coupled with two further matters.
77 These are as follows. First, Mr Felsch was the sole agent representing SAF in finding a tenant for the Premises. Secondly, it is quite plausible that estate agents seeking tenants at comparatively low rents for premises in a country town will possess the authority to conclude binding agreements with parties already known to them and to their principals without needing specific authorisation from an absentee landlord.
78 As to the Respondents’ claim that Mr Perhauz did not seek to rebut Mr Felsch’s assertion relating to the conversation of 26 June 2006, the Tribunal would observe that Mr Perhauz did in fact contain a version of this conversation that omitted much of what Mr Felsch claimed to have occurred. In any event, as just indicated, the Tribunal’s finding on this issue of authority does not cover the period during which this conversation occurred.
Were the necessary conditions for concluding an agreement for lease in fact satisfied?
79 On the application of standard principles of contract law, the question whether an oral agreement to lease the Premises was concluded during the conversations between Mr Perhauz and Mr Felsch (acting as agent for SAF) before 26 June 2006 depends on two matters: (a) whether there was an intention to conclude a binding agreement and (b) whether agreement was reached on all the essential terms of the contemplated lease.
80 To resolve both of these matters, the Tribunal must choose between the competing versions of these conversations put forward in the evidence of the two participants.
81 For reasons outlined above at [46 – 50], the Tribunal prefers the evidence of Mr Perhauz to that of Mr Felsch. It considers that Mr Perhauz is more likely than Mr Felsch to have retained an accurate recollection of what occurred and it takes account of the extent to which Ms Taylor’s evidence provides corroboration.
82 Intention to conclude a binding agreement. In this context, the test is whether a reasonable person would interpret the words used on both sides, taking due account of the context in which their conversations occurred, as expressing a joint intent to conclude a binding agreement. The test is not whether this was or was not the belief of the participants themselves (see e.g. Smith v Hughes (1871) LR 6 QB 597 at 607; J W Carter & D J Harland, Contract Law in Australia, 4th edn, 2002, [110], [206]).
83 Accordingly, although Mr Perhauz, according to his evidence and that of Ms Taylor, stated both to her and to third parties (such as his solicitor) soon after 22 June 2006 that he believed that the Applicants ‘had a lease’, this would not resolve the issue in their favour if, objectively interpreted, the words used by Mr Felsch indicated that he was not purporting on SAF’s behalf to agree to a lease. At most, it supports the inference that nothing explicitly and clearly said by Mr Felsch conveyed the message that there was no intention on his part to arrive at this stage at a binding agreement.
84 By the same token, a finding that Mr Felsch had reservations about concluding an agreement without first consulting SAF and indeed believed that he had communicated these reservations to Mr Perhauz would not resolve this issue in SAF’s favour if on an objective interpretation of what he said this message was not conveyed.
85 According to the evidence of Mr Perhauz, as supplemented by that of Ms Taylor and summarised above at [15 – 24], Mr Felsch told him on 21 June that a lease was being offered, indicating the identity of the Premises, the terms as to rent, duration and possible demolition and that the Applicants would be liable for outgoings. On 22 June, he told Mr Felsch that the Applicants would ‘take the lease’ and that they wished to move into the Premises on 17 July (this being four days after the departure of the existing tenants). On 23 June, the issue of a rent-free period was resolved, although on the preceding day Mr Felsch had said that he would have to consult SAF about this. An issue also said by Mr Felsch on 22 June to require consultation with SAF was the painting of the exterior of the Premises. At no time during these conversations, according to Mr Perhauz, did Mr Felsch say that the question whether a lease was to be granted to the Applicants at all had to be referred to SAF. Indeed, Mr Felsch’s evidence on this point (see [27] above) was to the effect that he did not mention the necessity for general approval by SAF until 26 June.
86 This evidence, which for reasons already given the Tribunal accepts as generally accurate, tends to support a conclusion that the words used at these conversations of 21, 22 and 23 June 2006, when objectively interpreted, expressed a joint intent to conclude a binding agreement. But as already indicated, it is important also to take into account the context in which these conversations occurred.
87 Appropriately, Mr Colquhoun and Mr Barraclough relied on a presumption or ‘expectation’ regarding commercial leases that is conveniently summarised in the following statement of Young J in Arjay Investments Pty Ltd v Morrison’s Outdoor Catering Pty Ltd, Unreported, Supreme Court of NSW, 1 May 1995:-
- Where one has a lease of commercial premises one normally expects that the lease will only come into existence after there has been an exchange of formal documents… if one can see in the negotiations that the parties had in mind the preparation of a more formal document by a solicitor, one tends to think that they did not intend to be bound until the more formal document was produced and exchanged.
88 In this case, according to Mr Perhauz, both he and Mr Felsch contemplated from as early as 22 June 2006 that a formal lease would be prepared by solicitors and executed by the parties.
89 But this is an expectation only, as Bryson J pointed out in Dellwest Pty Ltd v Cafabe Pty Ltd, Unreported, Supreme Court of NSW, 26 November 1997, and repeated in Napatarra v Perpetual Trustee [1999] NSWSC 750 at [8]:-
- Judges of the Equity Division have… approached allegations that there has been an agreement to grant a commercial lease with the knowledge that commercial practice is that a binding relationship is made at the point of execution and delivery of the lease. However that is no more than an approach, as it is quite open to persons in negotiation for a commercial lease to proceed as they choose and to make an agreement for lease in an informal way, by correspondence or orally; if they do come to an agreement in that way the Court must recognise this is so and act on their agreement.
90 In Long v Piper [2001] NSWCA 342, a Court of Appeal decision dealing with this issue, it is noteworthy that the conclusion that no binding agreement arose until the execution of a formal lease was significantly influenced by the considerations that what was contemplated was ‘a relatively major lease of a hotel with an option to purchase’ and that on the formal commencement of the lease the lessee was to pay a substantial sum by way of premium (see the judgment of Giles JA at [55] and [74 – 75]). For further discussion of the matters that may be relevant when resolving this question, see e.g. Landsmiths Pty Ltd v Hall [1999] NSWSC 735; Gamvrogiannis v Blackshaw [2000] NSWSC 314; Lend Lease Financial Planning Ltd v Southcap Pty Ltd [1998] QCA 117.
91 In the Tribunal’s opinion, a number of factors in the present case suggest the conclusion that, in the absence of an express stipulation to the contrary, the informal agreement concluded in the conversations on 21, 22 and 23 June was intended to be binding on the parties before the execution of a formal lease. These factors are as follows: (a) the existence of a current lease of other retail shop premises between the Applicants and SAF; (b) the fact that less than a year ago the Applicants had been given a copy of the lease from SAF to the existing tenants of the Premises; and (c) the two factors cited above at [77] in support of the Tribunal’s conclusion that Mr Felsch had ostensible authority to enter into a binding agreement on behalf of SAF.
92 Having regard to these aspects of the context in which the conversations of 21, 22 and 23 June between Mr Perhauz and Mr Felsch occurred, the Tribunal concludes that the requisite intention to enter into a binding agreement was discernible from the words used by the two participants during those conversations.
93 Agreement on all essential terms. Mr Colquhoun and Mr Barraclough argued that an agreement for lease could not have arisen in the manner claimed by the Applicants because a number of essential matters had been left unresolved. They referred specifically to four matters: the duration of a rent-free period; whether the Applicants were to be liable for outgoings; if so, what proportion of total outgoings for the whole building would apply; and whether the Applicants would be permitted to paint the exterior of the building in the course of fitting out the Premises for their proposed business.
94 As to the first of these, the Tribunal, contrary to a submission by Mr Carney, would not regard the length of a rent-free period as a non-essential matter. In NZI Insurance of Australia Ltd v Barycka [2003] NSWSC 190 at [32 – 33], the Court of Appeal of South Australia held that the duration of a rent-free agreement was an essential term of a lease because of its impact upon the amount of rent payable within the first year of the lease.
95 The Tribunal has found, however, that on 23 June 2006 Mr Felsch agreed on SAF’s behalf to a rent-free period of five weeks.
96 With reference to the question whether outgoings were payable, the Tribunal has found that in the conversation between Mr Perhauz and Mr Felsch on 21 June 2006, Mr Felsch stipulated that the Applicants would be liable for outgoings. Although Mr Perhauz did not state this in either of his affidavits, it does appear in the affidavit of Ms Taylor, who was not cross-examined.
97 In addition, the Tribunal accepts the submission of Mr Carney that, since both the lease that SAF had previously granted to the Applicants and the lease currently governing the Premises (of which the Applicants had obtained and kept a copy) provided for the payment of outgoings, a term to this effect, if not express, would be implied in the agreement concluded orally between Mr Perhauz and Mr Felsch.
98 This last consideration applies, in the Tribunal’s opinion, to the accompanying question of what proportion of total outgoings would be payable by the Applicants. In addition, the Tribunal notes that in Lend Lease Financial Planning Ltd v Southcap Pty Ltd [1998] QCA 117 the Court of Appeal of Queensland did not consider the formula for calculating the proportion of outgoings payable by the lessee to be an essential term of a lease.
99 Finally, the question of whether the Applicants would be permitted to paint the exterior of the building could not be regarded as an essential term. In NZI Insurance of Australia Ltd v Barycka [2003] NSWSC 190 at [31], the Court of Appeal of South Australia in fact listed only the following matters as ‘essential’: the parties, the premises, information from which the commencement and duration could be ascertained and information from which the amount payable as rent could be ascertained.
100 For the foregoing reasons, the Tribunal holds that a binding agreement for a lease was in fact concluded between Mr Perhauz, representing the Applicants, and Mr Felsch, representing SAF, in their conversations on 21, 22 and 23 June 2006.
Concluding observations
101 In the course of arguing for conclusions such as the Tribunal has in fact reached, Mr Carney maintained that (as indeed Mr Perhauz had said in evidence) the effect of what SAF and Mr Felsch had done had been to cause the Applicants to be ‘gazumped’ and that, in policy terms, this was a form of treatment of would-be lessees by property owners that the Act was intended to prohibit.
102 In this connection, Mr Carney claimed that in a Second Reading Speech for the Retail Leases Amendment Bill 2005, the role of the Act as a whole in preventing such conduct by or on behalf of property owners had been mentioned. The Tribunal finds no such statement in the Second Reading Speech in either of the two Houses of Parliament. It recognises, however, that as was said in the Tribunal’s judgment (quoted above at [63]) in Randi Wixs Pty Ltd v Pokana Pty Ltd (No 2) [2003] NSWADT 4 at [38], the Act does have as one of its broad purposes the protection of the legitimate interests and expectations of lessees and would-be lessees. It sees the ruling in this judgment regarding informal agreements for lease as contributing to this aim.
103 At the same time, this ruling does not in any way imply that informal discussions between potential lessors and lessees, or their agents, will inevitably, or indeed normally, produce the conclusion that a binding agreement for a lease has arisen. If it encourages such people to record carefully in writing – preferably as a joint exercise – what has and what has not been decided in the course of such discussions, that will, in the Tribunal’s opinion, be a desirable outcome. A simple note that no set of terms to which the parties or their agents have given provisional assent is binding until a formal lease has been prepared and executed will be enough to refute any later claim such as the lessees have made in this case.
104 It was recognised by counsel for all parties that if the Tribunal held that a lease or an agreement for lease had been created, the question of what relief might be available to the Applicants would require at least the submission of further arguments. In addition, the Applicants, if not also the other parties, might seek leave, as noted above at [9], to tender further evidence. Accordingly, the future conduct of these proceedings will be a matter for consideration at a directions hearing.
105 Without wishing to foreclose the particular question of whether relief might be available to the Applicants against the Second and Third Respondents, the Tribunal emphasises again that its ruling is that only an agreement for a lease from the First Respondent, not a ‘full-blown’ lease, arose from the relevant conversations.
106 As formulated so far, the grounds for the Applicants’ claim for damages against SAF are breach of the agreement for lease, unconscionable conduct under s. 62B of the Act and misleading or deceptive conduct under s. 62E. As the Tribunal currently views the matter, the principal components of any award to them would be the net amounts of the estimated losses associated with their being deprived of (a) an alleged opportunity to sell their current business at Claudio’s By the Lake and (b) an alleged opportunity to achieve an increase in profits by carrying on a similar business in the Premises, which had a sufficient area to permit expansion of the business.
107 Under s. 74 of the Act, the Tribunal is required to use its best endeavours to bring the parties to proceedings to an acceptable settlement. It may adjourn proceedings with a view to achieving this result. In making provision for a further hearing in this case, the Tribunal is not, of course, acting pursuant to s. 74. But in conformity with the policy underlying this section, it reminds the parties that, since the present decision has resolved a major matter of dispute between them, they should consider carefully the possibility that the costs of continuing to litigate, rather than settle, the question of consequential relief will outweigh any benefit that any of them are likely to derive.
The Tribunal’s orders
108 The orders of the Tribunal are as follows:-
- 1. Declare to the effect that on or about 23 June 2006, the First Respondent agreed by its agent to grant to the Applicants a retail shop lease of the premises known as Shop 6, Pacific Arcade, 48 Wharf Street, Forster, on terms including the following: a commencement date of 17 July 2006; a leasing period of three years with an option to renew for two years; rent to be $14,000 plus GST for the first year; annual increases of 5% thereafter; outgoings to be paid by the lessee; a rent-free period of five weeks; permitted use as a restaurant.
2. The matter is set down for further directions at 9.30 a.m. on 20 June 2007.
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