Peter Stefanus Sudarma, Edwina Lim Sudarma and Paul William Duggan v Dublin Group Pty Limited and Jenny Banic
[2014] NSWCATCD 91
•29 May 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: Peter Stefanus Sudarma, Edwina Lim Sudarma And Paul William Duggan v Dublin Group Pty Limited and Jenny Banic [2014] NSWCATCD 91 Hearing dates: 25 November 2013 & 28 January 2014 Decision date: 29 May 2014 Before: G Mullane, Senior Member Decision: 1.The Tribunal declares that the applicants on about 17 May 2013 validly re-entered their retail shop premises at 215 Oxford Street, Darlinghurst and terminated the retail lease registered number AH345042F of those premises to the first respondent.
2.The respondents must pay to the applicants' unpaid rental and outgoings under the lease of $5,628.71.
3.The applicants' claim for damages is dismissed for want of prosecution.
4.The applicants must by 16 June 2014 lodge and serve any submissions and evidence in support of any costs order they propose and the respondents must by 30 June 2014 lodge and serve any submissions and evidence in response or in support of any costs order they seek.
Catchwords: Retail Lease - re-entry and termination - grounds - validity.
Claim for rental - premises not fit for use
Lessor claim for damages for loss of lease - dismissed for want of prosecution.Legislation Cited: Retail Leases Act 1994
Conveyancing Act 1919Cases Cited: Nil Texts Cited: Nil Category: Principal judgment Parties: Peter Stefanus Sudarma, Edwina Lim Sudarma And Paul William Duggan (applicants)
Dublin Group Pty Limited And Jenny Banic (respondents)Representation: Mr J A Darvall, 9th Floor, Windeyer Chambers, 2/25 Macquarie Street, Sydney, NSW, 2000, for the applicants
Mr Zvonok Banic appeared as Agent for the respondents
Thorntons Lawyers, 205 Pacific Highway, St Leonards, NSW, 2065, for the applicants
File Number(s): COM 14/01346 135085 Publication restriction: Nil
reasons for decision
INTRODUCTION
By Lease dated 25 May 2012, Ranko Despot leased the subject premises, being a shop in Oxford Street, Darlinghurst, to Dublin Group Pty Ltd ("the Company"). The Second Respondent Jenny Banic was a party to the Lease as guarantor for the performance by the Company of its obligations under the Lease.
The term of the Lease was from 1 April 2012 to 31 March 2017. On 15 August 2012 the Applicants contracted to purchase the premises from Mr Despot, subject to the lease.
Clause 6.1 of Annexure B to the lease and item 17 of Annexure A require that the Company use the premises as a licensed restaurant. That was the intention of the Respondents.
In January and February 2013 there was water damage to the premises from heavy rain. Mr Banic reported water damage to Mr Despot, but he refused to do any work, or to cause any work to be done, to address the problem. The Company ceased trading as a restaurant. The evidence for the Company was that this was because of the water problems.
On 28 February 2013 the Applicants completed the purchase of the property from Mr Despot, subject to the Lease.
From 28 February the Company did not pay any rent, claiming the premises were not fit for use as a restaurant and repeatedly requesting the landlord to carry out repairs.
At the request of the Applicant's agents made on 4 March 2013 Mr Banic by email provided the Applicant's agent a list of works he considered the Applicants were responsible to carry out. On 20 March he met with Mr Yan from the Applicants' agents, on site and discussed the list.
Subsequently the Applicants required a further inspection of the premises and that occurred on 8 April 2013. The next day the Applicants provided a new list of works which classified most of the work as the tenant's responsibility.
On 11 April 2013 Mr Yan emailed Mr Banic requesting "a copy for the keys so that the landlord could get his contractors to provide quotes/repair the works that the land lord is responsible for". Mr Banic provided the only set of keys the Company had on 15 April. The respondents, without consulting the Company further had some building works carried out and denied that the other work listed by the Company was the responsibility of the landlord.
On 1 May 2013 the Applicant's agents notified the Company by letter that the Applicants had completed all their repair obligations and listed other work said to have been done by the Applicants as well.
The agents on 1 May 2013 invoiced the Company for the May rental and outgoings. On 1 May 2013, the Applicants, by their Managing Agents, advised the First Respondent that the Applicants would be entitled to forfeit the Lease in the event that rent and outgoings were unpaid. The Company replied but did not request the keys be returned. Apparently they had already been returned to the Company or the Company did not seek to access the premises.
The Company did not pay any rent.
On about 17 May 2013 the Applicants re-entered and terminated the lease by having the locks changed and not supplying the Company with any key. They thereafter refused the Company access to, or use of, the premises.
The Applicants seek the following orders:
1) A declaration pursuant to s 72(1)(f)(iii) of the Retail Leases Act, 1994 that in the circumstances of the case the applicants have validly re-entered and terminated the Lease for breach of:
a) the covenant to pay rent;
b) the covenant to provide either a bank guarantee or a security deposit as required by clauses 16 and 17 of the Lease; and
c) the covenant to keep a current insurance policy as required by clause 8 of the Lease.
2) An order pursuant to s 72(1)(a) of the Retail Leases Act, 1994 that the Respondents pay the Applicants the sum of $41,323.64.
3) An order pursuant to s.72(1)(a) of the Retail Leases Act, 1994 that the Respondents pay the Applicants damages to be determined up to date that the premises are re-let.
AGREED FACTS
The agreed facts are:
2. The Second Respondent guaranteed the performance by the First Respondent of all of the First Respondent's obligations under the Lease ("the Guarantee").
Particulars:
Item 10, Clauses 2.3 and 13 of the Lease
3. By Contract dated 15 August 2012, the Applicants purchased the Property from Ranko Despot.
4. Completion of the purchase of the Property by the Applicants took place on 28 February 2013.
6. Following completion of the purchase, the Applicants by their managing agent, Cushman & Wakefield issued Tax Invoices to the First respondent for rent and outgoings for the Property.
Particulars:
Date Description Amount
6 March 2013 Rent and outgoings for March 2013 $10,264.11
11 March 2013 Rent and outgoings for April 2013 $10,264.11
11 April 2013 Rent and outgoings for May 2013 $10,264.11
8 May 2013 Rent and outgoings for June 2013 $10,531.31
TOTAL $41.323.64
7. On 1 May 2013, the Applicants, by their Managing Agents, advised the First Respondent that the Applicants would be entitled to forfeit the Lease in the event that rent and outgoings were unpaid.
Particulars:
Letter from Cushman & Wakefield to the First Respondent dated 1 May 2013.
8. On 15 May 2013, the Applicants, by their Managing Agents, required the First Respondent to pay the outstanding rent and outgoings, provide evidence of insurance, and provide a bank guarantee or security deposit as required by the Lease.
Particulars:
Letter from Cushman & Wakefield to the first respondent dated 15 May 2013.
THE RESPONDENTS' DEFENCES
The Respondents by their reply oppose the application. They deny any breach of the Lease by them. Their defences are:
"(a) No rental or outgoings are payable for the period since the Applicants' acquired the property because of the operation of Clause 8.2.1 of the Lease and s.36(1)(a) of the Retail Leases Act, 1994."
b) The Respondent denies that the Company did not keep a current policy of insurance in compliance with Clause 8.1.1 (Item 18) of the Lease while it occupied the premises "pursuant to the Lease".
c) The Company alleges that there was an oral agreement on its behalf by Zvonko Banic and Ranko Despot that no security deposit was payable under the Lease while ever Ranko Despot owed the First Respondent $50,000.00 "as set out and particularised in the amended Application filed in proceedings 13069".
The following particulars are provided for those defences:
(a) During January and February, 2013 the subject premises (Konoba Restaurant and Bar) were inundated with rain water and plumbing leaks to such an extent that the restaurant and bar business in the premises could not be operated and the first respondent had to cease trading. Details of the damage and its consequences are as alleged in proceedings number 13069 commenced by the first respondent (as applicant). The applicants failed to repair or properly repair the damage despite an agreement so to do made 31 March, 2013, which agreement was partly orally and partly in writing, between Zvonko Banic on behalf of the first respondent and Phillip Yan on behalf of the applicants, made at the said premises on that date. The first respondent relies on the applications and supporting facts, particulars and allegations set out in proceedings 13069 in regard to this agreement.
(b) The first Respondent has provided written particulars of the policy to the Applicants.
(c) The Respondents rely on the facts and particulars set out in the above Amended Application.
That is the Amended Application filed in proceedings 13069. It is not in evidence.
The Respondents say that the Applicants took possession of the premises on an earlier date than 21 May 2013 and that the Respondents were not and are not entitled to re-enter or take possession of the property, and claim possession of the premises. The Respondents say that the particulars of this defence are:
"The Respondents rely on the facts and particulars set out in the above Amended Application."
The Respondents deny any indebtedness to the Applicants.
The Respondents deny any liability for damages payable to the Applicants.
The Respondents deny the Applicants on 17 July 2013 demanded payment of $41,323.64 by the Guarantor and deny that the Guarantor has failed to pay that amount.
THE EVIDENCE
The evidence comprises:
(1) The Application
(2) The Reply by the Respondents
(3) The Lease, which was Exhibit PWD-2 to an Affidavit of Paul William Duggan
(4) Paragraphs 1-4 and 16-18 and annexures PY-1, PY-2, PY-5, PY-6, PY-7 and PY-8 to the Affidavit of Phillip Yan of 25 September 2013
(5) Paragraphs 10, 13, 14, 15 -39 and Annexure to PWD-1 of the Affidavit of Paul William Duggan of 25 September 2013
(6) The Condition Report of John Fransen of 1 August 2013
(7) Affidavit of Paul William Duggan of 8 November 2013
(8) Affidavit of Peter Sudarma of 25 September 2013
(9) Affidavit of Zvonko Banic of 5 November 2013
(10) Affidavit of Zvonko Banic of 8 November 2013
(11) Oral evidence of Mr Paul Duggan on 25 November 2013
(12) Oral evidence of Mr Peter Sudarma on 29 January 2014
(13) Oral evidence of Mr Phillip Yan on 29 January 2014
(14) Oral evidence of Mr Zvonko Banic on 29 January 2014
(15) Oral evidence of Marko Banic on 29 January 2014
(16) Exhibit A1 - Certificate from Independent Liquor & Gaming Authority certifying "key liquor license details recorded as at 4 November 2013" in respect of the premises
(17) Paragraphs 84-85, 87-88, 93-94m 110, 141-142, 144, 170, 173, 174-178, 180-191, 193, 196-221, 223, 225 and 226(a & d) of the Affidavit of Zvonko Banic of 9 September 2013 filed in proceedings 135069 by the Respondents against the Applicant and Ranko Despot.
LEGAL REPRESENTATION
The Respondents have not been legally represented. Mr Banic, who apparently has no legal qualifications or training, has conducted the proceedings on their behalf. That has added much unnecessary complexity to the proceedings and made it difficult to "see the wood for the trees". It has resulted in additional interlocutory applications and listings and has lengthened the hearing unnecessarily.
Mr Banic's Affidavit of 9 September 2013 filed in proceedings 135069, although only a fraction was relied upon in this hearing, also added considerably and unnecessarily to the complexity of the matter and the time taken for the hearing and the writing of the reasons. It appears to be more than 500 pages. The pages are not numbered. The paragraph numbering is of little assistance because often more than one, and often many, discrete issues are addressed in the same paragraph. Annexures are often part of a paragraph and often not given an identifying number or letter. Many "paragraphs" are several pages in length.
In the paragraphs of Mr Banic's Affidavit relied upon in this hearing, there is considerable evidence intended to support various claims by the Company against Ranko Despot and/or the Applicants that are not claims related to the Defence in these proceedings and are irrelevant. It has been quite difficult extracting material relevant to the Defence from the paragraphs of that Affidavit relied upon by the Respondents. Much of the material is irrelevant or merely conjecture. Much of it is submission rather than evidence.
In cross examination of witnesses for the Applicant Mr Banic spent most of his time asking questions irrelevant to the issues raised by the Application and the Reply. Advice from the Tribunal member and requests or directions to ask questions relevant to the issues produced no discernible improvement.
The material in the body of Mr Duggan's affidavit of 25 September 2013 relied upon by the Applicants was only about 3 pages, but on the first day of the hearing Mr Banic spent more than 2.5 hours cross examining Mr Duggan. Despite repeated cautions, he continued to mostly ask irrelevant questions. Several times the Tribunal warned him that if he continued to use the time to ask irrelevant questions the Tribunal would have to terminate the cross examination, and this was eventually done.
When the hearing resumed on 28 January Mr Banic's cross examination times were limited by the Tribunal. Cross examination of Mr Sudarmo lasted about 73 minutes and his cross examination of Mr Ryan took about 58 minutes. In both cases thee was still an abundance of irrelevant questions asked.
WHY DID THE APPLICANTS END THE LEASE?
The evidence of Mr Yan I para 16 of his affidavit I s "the lessor re-entered the premises due to the lessees (sic) continuing default in payment of rent and outgoings". He refers to annexure A61 to Mr Banic's affidavit of 9 September 2013 in file 135069.
On 1 May 2013 the Agents wrote a letter to the Company by email advising that the applicants had completed "all their obligations with regards to repairing the property in accordance with the lease". It said "Rent and outgoings will be charged as of today's date and we expect the invoice to be paid in full to Cashman & Wakefield's office within14 days of this letter. All ensuing invoices are to be paid in advanced (sic) on the first of each month" and "The lessor will be entitled to forfeit the lease in the event of the lessee failing to comply with this letter in accordance with clause 10 of the lease." The invoice of 1 May claimed rental and outgoings for the month of May.
It appears the Applicants changed the locks and took possession of the property on about 17 May. In their letter of 21 May to the Company advised the Company that "The Lessor has re-entered and taken possession of the [...] premises pursuant to clause 12.2.2 of the lease, non payment of rent".
Accordingly the Tribunal finds that the Ground the Applicants relied upon for ending the lease was non payment of rent.
FAILURE OF THE TENANT TO INSURE - BREACH OF CLAUSE 8.1.1 OF ANNEXURE B TO THE LEASE.
The effect of clause 8.1.1 and item 18 of the schedule is that the Company was obliged to keep current an insurance policy with public risk cover of not less than $20,000,000.00.
The only evidence of insurance offered by the Company in defending this allegation is in para 22 and Annexure ZB5 of Mr Banic's affidavit of 11 November 2013. That establishes that for the period 11 December 2012 to 11 December 2013 there was public risk insurance for $20,000,000.00, but the insured was not the Company; it was another company Kinoba Pty Ltd. There was no evidence of insurance by the Company. It did not comply with that requirement of the lease.
FAILURE OF THE COMPANY TO PROVIDE A BANK GUARANTEE OR SECURITY DEPOSIT
The combined effect of clauses 16 & 17 of annexure B to the lease and items 19 & 20 of Annexure A to the lease is that the Company was required to provide before commencement of the lease security equivalent to 3 months' rent by way of security deposit or bank guarantee.
No such security was provided by the Company. The Company alleges that there was an oral agreement between the Company and the previous landlord Mr Despot that no such security would be paid because Mr Despot already owed a debt of $50,000.00 to the Company, and it was orally agreed between the Mr Banic on behalf of the Company and Mr Despot that the $50,000.00 would be the security deposit.
Any such agreement was not in writing and there is no evidence of it in writing. Mr Despot was not called to give evidence by either party. Mr Despot's solicitor, Pamela Enright, who acted to Mr Despot in relation to the lease to the Company, also acted for Mr Despot on the sale of the premises to the Applicants. The contract is dated 16 August 2012, presumably drawn by her, provided that no allowance was to be made to the purchasers on settlement for any bond paid by the Company. The inference is that there was no bond or security paid.
What the respondents assert is that the Company was owed $50,000.00 by Mr Despot that was to be treated as security deposit, but notwithstanding that, the Company and the guarantor signed the lease requiring the Company to provide a security deposit or bank guarantee of 3 months rental, without incorporating any disclosure of the $50,000.00 debt or the fact that it was to be treated as the security deposit. In addition the lessor's disclosure statement provided to the Company and the guarantor at the time the lease was entered into provides in para 28.1 that a bank guarantee for $28,050.00 must be provided when the lease signed by the Company and guarantor is returned for registration.
Also neither the Company, its Managing Director Mr Banic, nor the Guarantor/ Director Mrs Banic, having become aware that Mr Despot had contracted to sell the property to the applicants in about August 2013 acted to protect their interests by informing the purchasers of that arrangement or sought legal advice.
The proposition that there was such an agreement is of itself highly improbable and even more improbable given the relevant documents. The evidence does not establish on the balance of probabilities that there was any such oral agreement.
However, if there was such an agreement, there was no evidence of circumstances that might persuade the Tribunal that the written lease should be varied because of an oral agreement made before the lease was entered into.
The Tribunal is comfortably satisfied that the Company breached the requirement of the lease for security of 3 months rental to be provided by a security payment or bank guarantee at the time the lease was entered into.
RENTAL AND OUTGOINGS
The Lease provides that the tenants would pay rental with annual increases to current market rent.
The rental is payable in advance on the first day of each month. Accordingly, monthly rental payments were due during the period 28 February 2013 to 21 May 2013 on the first day of each of the months from March to May (inclusive). (The Applicants are not claiming any rental for the period prior to them owning the property.)
The Lease provides for the tenant to pay rental and 100% of the outgoings on the property. The outgoings are described as:
(a) Local Council Rates and charges; and
(b) Water, sewerage and drainage charges.
The Respondents in their Reply admit (subject to their defences) that the amounts of the rental and outgoings payable for each of those months (including GST on the rental) is $10,264.11, so that the total amount for that period is $30,792.33.
It is noted that the Agent also rendered an invoice for the June rent and outgoings, but those amounts would not have fallen due and payable by the tenant until 1 June 2013. The Landlord had taken possession and terminated the lease prior to 1 June.
THE COMPANY'S DEFENCE TO THE RENTAL AND OUTGOINGS CLAIM
The tenant alleges in the Reply that in January and February 2013 the premises were "inundated with rain water and plumbing to such an extent that the Respondent had to cease trading". It alleges: "The Applicants failed to repair or properly repair the damage despite an agreement to do so made 31 March 2013".
ALLEGED AGREEMENT TO REPAIR
On 6 March 2013 Mr Phillip Yan, the Property Manager Australia, of Cushman & Wakefield, wrote to the Company by e-mail. The letter advised of the completion of the sale. It did not identify the purchasers, but the purchasers had already been introduced to Mr Banic by Mr Despot. The letter of 6 March 2013 from the Agents said: "The new owner has appointed us to manage the building on his behalf." It asked:
"Could you please let me know if you're ever on site during the day between Monday-Friday? I'd like to introduce myself to you in person and have a quick inspection of the property."
On 14 March 2013 Mr Banic, on request by the Applicants for a list of landlord works, sent such a list by e-mail to Mr Philliup Yan. Mr Yan then requested that Mr Banic telephone to discuss the list. Mr Banic responded by telephone on 18 March and asked Mr Yan, "When will these repair items be fixed by the landlord as a matter of urgency?" Mr Yan requested to meet with Mr Banic to discuss the list and decide which items were the landlord's responsibility and which items were the responsibility of the Company. As a result, Mr Banic met with Mr Yan at the premises on the morning of 20 March 2013. Mr Banic's son, Marco Banic, also attended. Mr Banic's evidence is they went through the list of items and marked those that were agreed to be the responsibility of the landlord with an "L", and those that were agreed to be the responsibility of the tenant with a "T". He says that there were some "grey areas" where they were both unsure and these were itemised as "to be further investigated".
Mr Banic's evidence is that Mr Yan undertook to discuss the remaining "grey areas" with the Applicants to obtain their instructions. He said he would do that the following day and would then contact Mr Banic to organise a suitable time for access to the premises for the landlord repair works.
On 21 March 2013 Mr Yan sent an e-mail to Mr Banic asking him to telephone Mr Yan on Friday 22 March. When Mr Banic rang, Mr Yan asked that he be able to call Mr Banic on his landline so that Mr Yan's manager, Mr Ryan, could listen to what was said. This happened and Mr Ryan became part of the conversation. He said: "The lessors and I have gone through it and most of the works here on this list, Zed, are the tenant's responsibility."
Mr Ryan said to Mr Banic: "Zed, as I see it you have 2 options here ... one, walk away and relinquish the lease, or, two, the landlords make good on the works they believe to be their obligations under the lease and Dublin Group resumes operations and starts paying rent". Mr Banic was very unhappy with this suggestion and put his case to Mr Ryan. Eventually Mr Ryan said that he would forward a copy of the list noting which items were considered the landlord's responsibility and which items were considered the tenant's responsibility.
However, the list was not provided. Late on Friday, 22 March, Mr Banic sent an e-mail to Phillip Yan noting that the list had not been received. The e-mail also stated:
"I need your support as Property Manager so that affect my trading each day and the owners' support more so as well, my business hangs on a thread after months of good trading building up, especially for the bar. I will tell you right now there are people whom do not want me there. But I will overcome."
The next communication received by the Company from the landlords was a letter of 26 March from their solicitors, Thorntons Lawyers. It acknowledged receipt of the list of works and said:
"We are further instructed that our clients are only prepared to consider any rectification of such items as are of a structural nature and then only as inspected by our clients, the agent and its builder at a time to be mutually agreed by all parties.
"Our clients are not prepared to attend other matters which are and would have been your obligation having regard to the fact that the premises were occupied under the lease dated 12 April 2012. Clearly if there had been any issue in relation to damage to property or other issues with the then lessor, this should have been taken up with the previous owner and is not our clients [sic] responsibility.
"Regardless of the outstanding work out client now requires payment of rental in accordance with the terms of the lease, particularly as we are instructed that none of the outstanding works prevents your occupation of the premises and conducting of your business from such premises.
"Our clients deny any liability for any reimbursement of work carried out by you to the premises.
"We are further instructed that you should now contact the Managing Agent and arrange for payment of the rental outstanding and advise the Agent as to a convenient time for inspection of the premises in relation to the structural repairs and any other issues."
On 28 March 2013 the Company sent the solicitors for the Applicants a letter signed by Mr Banic in which he said:
"I notified the former landlord on numerous occasions of the damages were [sic] first seen by me. He refused to do anything about it. Did he inform your clients and why not?
"I am told by the Retail Tenancy people that I do not have to pay rent if damage to the shop is preventing me from running my business (s.36). Council has inspected the shop and have told me that if I open for business they will close me down and hit me with a big fine. So, I can't use the shop at all!
"The damage is getting worse by the day especially when it rains and I have heard nothing about anybody inspecting it. This is urgent!
"I am suffering large losses and I hold your clients responsible."
On 2 April 2013 the solicitors for the Applicants sent an e-mail to the Company requesting the Company contact the Agent and arrange "a mutually convenient time for all parties to inspect the premises."
On 3 April 2013 Mr Banic telephoned Mr Yan. Mr Yan said he would confirm what the Applicants' instructions were in terms of the Agent being involved in arranging the inspection. He later replied that day by e-mail: "The landlord has requested to inspect the condition of premises for the first time since settlement. They also requested to access the premises at 10am on 8 April 2013 for a meeting on site." It requested the Company to provide access to the premises at 10am on 8 April.
When the Company replied by letter signed by Mr Banic on 3 April 2013, it did not agree to access and the further inspection. Its letter said that there had already been an inspection by the Applicants' Agents on 20 March and there was no point in having a second inspection by the landlord.
However, by e-mail sent at 7.08pm on 3 April 2013, Mr Banic agreed on behalf of the Company to the inspection at 10am on 8 April as requested. Surprisingly, the Agents on receipt of that e-mail then wrote another e-mail to the Company which, despite Mr Banic's message that he had no objection to further access at 10am on Monday 8 April, said:
"However, we will be more than happy to meet with you, your builder, the current owners, the owner's builder and Cushman & Wakefield next Monday 10am to go through your list of works items by item so that both parties can work towards resolving this matter as soon as possible.
Please let me know if you are happy for us to organise this meeting at 10am Monday, 8 April 2013."
The meeting subsequently took place on 8 April.
The Company alleges that on 20 March 2013 Mr Banic on behalf of the Company and Mr Phillip Yan on behalf of the applicants agreed by an agreement that is partly oral and partly written that the applicants as landlords were responsible to repair and would repair numerous items.
There is an issue as to whether Mr Yan had authority to enter such an agreement on behalf of the Applicants. The evidence relied upon by the Respondents in that regard is a letter from the agency firm and inadequate.
The evidence of Mr Banic is that he prepared a list of works to be done, on 20 March he and Mr Yan, the agent for the applicants, inspected the premises and Mr Banic alleges he recorded next to each item on his list whether it was agreed by him and Mr Yan to be the landlord's responsibility or the tenant's. Mr Banic recorded some details of some items. Mr Yan did not write on the document or sign it. There was no writing by or on behalf of the applicants.
The lease defines the repair obligations of the parties and except in exceptional circumstances the terms of a written agreement can only be varied by a written agreement ; not one where one of the parties has agreed only orally.
My Yan disputes Mr Banic's evidence and says he did not agree that any item was the responsibility of the Applicants. The evidence of any oral agreement is not direct evidence of any statement(s) by Mr Yan. It is merely submissions by Mr Banic. On the evidence, such as it is, it is not established on the balance of probabilities that Mr Yan agreed. It has not been established that there was any such agreement on 20 March 2013.
If the document had been in writing there would still be a question of whether any agreement for the applicants to repair items that they were not already liable to repair under the lease could be enforced if it was not by deed, because it appears there was no consideration passing from the Company to the applicants for them agreeing to repair such additional items.
WHAT WORKS WAS THE LANDLORD REQUIRED TO PERFORM?
The Reply indicates that the Company and the guarantor rely upon the provisions of Clause 8.2.1 and s 36(1)(a) of the Retail Leases Act, 1994 ("the Act").
Section 36 of the Act provides:
(1) A retail shop lease is taken to provide for the following if the shop or the building of which the shop forms part is damaged:
(a) The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage.
(b) If the shop is still useable under the lease but its useability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage.
(c) If the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee may terminate the lease by giving not less than 7 days' notice in writing to the other and no compensation is payable in respect of that termination.
(d) If the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor in writing to do so, the lessee may terminate the lease by giving not less than 7 days' notice in writing of termination to the lessor.
(e) Paragraphs (a)-(d) do not affect any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which those paragraphs apply.
(2) A retail shop lease must not contain any provision the effect of which is to limit any liability of a party to the lease to pay compensation to another party to the lease in respect of damage to the shop or the building of which the shop forms part.
(3) Nothing in this section prevents the parties to a lease from terminating the lease by agreement if the shop or the building of which it forms part is damaged or destroyed.
Clause 7.1 (in annexure B) of the Lease provides:
"The Lessor must:
7.1.1 maintain in a good state of condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs and the floors of the property and must fix the structural defects;
7.1.2 maintain the property in a structurally sound condition;
7.1.3 maintain essential services."
Clause 7.4 (in annexure B) of the Lease provides:
"If an authority requires work to be done to the property and it is structural work or work needed to make the property safe to use, then the Lessor must do the work unless it is required only because of the way the Lessee uses the property. But if it is any other work or is required only because of the way the Lessee uses the property then the Lessee must do the work."
Clause 8.2 (in annexure B) of the Lease provides:
"If the property or the building of which it is part is damaged (a term which includes destroyed) -
8.2.1 the lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings and other charges, that is attributable to any period during which the property cannot be used under this lease or is inaccessible due to that damage;
8.2.2 if the property is still useable under this lease but it's useability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable 10 any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage;
8.2.3 if the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee can terminate this lease by giving not less than 7 days notice in writing of termination to the other and no compensation is payable in respect of that termination;
8.2.4 if the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor to do so the lessee can terminate this lease by giving not less than 7 days notice in writing of termination to the lessor; and
8.2.5 nothing in clause 8..2 affects any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which the clause applies."
There are 3 aspects that need to be considered relation to alleged water problems:
(1) What were the problems and how were they caused?
(2) Were the premises unfit for use as a licensed restaurant for any period between 28 February 2013 and the termination of the lease?
(3) What rent was the Company liable to pay prior to the termination of the lease?
THE RELEVANT WATER PROBLEMS
"Building Issues"
On about 2 October 2012 there was an inspection of the premises by an Officer of the Council who informed Mr Banic that the building had "serious outstanding compliance issues" yet to be determined, which were the responsibility of the landlord. He said that Council would continue its ongoing investigations and would forward the findings to the owner.
The evidence did not disclose whether these problems related to the issues which related to water that were raised by the Company in these proceedings.
Damage to the Awning at the Front of the Restaurant
In June 2012 a "For Sale" sign erected by Mr Despot on the awning over the footpath at the front of the shop was dismantled causing damage to the awning by way of denting the corrugated iron surface. The sign was left on the awning.
Consequent upon that, when it rained water pooled in the dented area and then leaked inside the awning, through the awning and then onto the footpath below. It also penetrated the inside of the illuminated bar sign for the restaurant and from there onto the footpath below and adjacent to the entry to the restaurant. It caused rusting of part of the metal parts of the sign.
The Company, through Mr Banic, made oral requests to the landlord Mr Despot, to remove the sign from the awning and repair the damage. Mr Despot did not do so.
There are photographs of the "for sale" sign and the damaged awning taken at about 6.19pm on 19 February 2013. They show the sign still on the awning and also the dented section of the corrugated iron roof.
On 23 February 2013 a photograph was taken of the underside of the awning showing that the water was penetrating through the illuminated bar sign for the restaurant and leaking out, dripping to the footpath below, including in the vicinity of the entrance to the restaurant. The underside panelling of the awning was also bowed from water penetration. Rust was forming also on the metal framing of the front of the shop and the steel sliding doors from the water coming through the awning.
The Applicants were liable under clause 7.1.1 of Annexure B to the lease to repair the roof of the awning to make it waterproof. The applicants did that as part of the repairs they carried out and completed on 1 May.
Rain Water Entering the Terrace Bar on the Top Floor
Photographs taken by Mr Banic on 19 February 2013 at about 6.28pm show that the bar floor was dry. There had been dry weather. The subsequent photograph shown at 7.51pm after rain showed water pooling on the floor of the Terrace Bar adjacent to the bar. There had been a heavy downpour of rain. Mr Banic had previously spoken to Mr Despot about this problem and also to one or more of the Applicants prior to the settlement of their purchase of the premises. The evidence of Mr Banic is that when the pooled area of water was removed, it came back within 15 minutes.
In the week prior to Saturday 23 February 2013, there was rain and water during such rain entered into the Terrace Bar floor, and pooled in the area where people would stand to order drinks at the bar. If the rain was very heavy then a large section of the bar floor would flood. Mr Banic observed the entry of the water was attributed to heavy rain resulting in water coming from the balcony, under the door to the Balcony and onto the Terrace Bar floor. There is a photograph of water entering the Terrace Bar from under the door to the balcony. The waste drain on the balcony floor was cleaned and no evidence of a blockage was found.
In heavy rain the rain water would hit the doors and drip down to the floor and then travel under the door and onto the floor of the bar. The level of the floor waste on the balcony was above the concrete floor surface and so under heavy deluge a considerable amount of water accumulated on the floor of the balcony, and then penetrated under the door into the Terrace Bar area.
There is also a photograph of an extensive area of the Terrace Bar floor flooded under a table and three chairs. Mr Banic's evidence is that when the restaurant was trading this problems was addressed by mopping up the water, but that process had to be repeated every 15 minutes or so during rain. There is a photograph taken at about 1.13 am on 24 February 2013 showing a large section of the Terrace Bar floor covered in water.
The landlord alleged that the floor drain on the balcony was blocked and had to be cleared. The Company denies that on the basis that the drain had been cleared, but was inadequate in heavy rain and the floor waste was above the level of the floor of the balcony, thereby causing rainwater to accumulate.
Mr Duggan denied Mr Banic's evidence that the floor waste was higher than the floor and blamed the accumulation of rain water on the balcony on alleged blockage of the floor waste, which he said was rectified by clearing it. But Mr Ryan, the property manager for the Applicants' agents, conceded in cross examination that the floor waste was higher than the floor. There is a photograph of the floor waste and the floor surface around it taken after the Applicants' work on the premises. That photograph clearly shows that at some stage the floor adjacent to the floor waste has been ground or gouged to lower it. It also shows that the floor waste is not above the floor level. The Tribunal finds on the balance of probabilities that the lowering of the floor area was part of the applicants' works and the level of the floor waste was rectified at that time.
On all the evidence, including photographs taken by Mr Banic, the Tribunal finds on the balance of probabilities that the floor waste on the balcony was set too high and as a result in heavy rain or storms water accumulated on the balcony and entered the first floor under the door from the balcony to the bar.
The Applicants were liable under clause 7.1.1 of Annexure B to the lease to fix the external door to the balcony and the balcony floor waste to prevent ingress of rain water into the terrace bar. It appears the applicants did that as part of the repairs they carried out and completed on 1 May.
The Glass Brick External Wall Between the Second Floor and the Outside Balcony.
Rain water and water from the roof of the top floor ran down the glass brick wall and penetrated into the building. The Applicants diagnosed the problem to be that the surrounds to the glass brick wall were not sealed. But photographs in evidence support the evidence for the Company that there was also water entering through the glass brick wall itself. The water, when it entered the building, ran down parts of the glass wall, the sill below the glass brick wall, the wall below that and onto stairs leading down to the sections of the building below, including the ground floor kitchen and dining area.
After inspection on 8 April the Applicants conceded on 9 April that the surround for the glass brick wall needed to be sealed.
The Applicants were liable under clause 7.1.1 of Annexure B to the lease to seal the external glass brick wall and its surround to prevent entry of water into the building. It appears the applicants did that as part of the repairs they carried out and completed on 1 May.
Floor of Storeroom on First floor
There was a leak of water onto the floor of the storeroom on the 1st floor. The water accumulated on the floor. The Company alleged that the leak was from a water pipe "behind the services riser in the storeroom". Before and after photographs were supplied that showed the leak in a water pipe on 4 April 2013 in the blue riser cabinet to the first floor storeroom and on 4 May 2013 after the Applicants' work, showed there was no longer such a leak.
However, the Applicants denied any leak from a water pipe and alleged that the leaks in the storeroom were from a tap which required replacement of its washer and a leak from the ice machine, which they alleged were the tenant's responsibility, but the applicants said they had repaired.
On the balance of probabilities the water pipe leak was repaired whilst the Applicants had people attending to repairs. Although the Applicants did not volunteer evidence that this had happened, they did not in later affidavits dispute Mr Banic's evidence that repair of this leak occurred while the Applicants were having the other repairs done, and he alleged, was arranged by the Applicants. This was in the context of the Applicants having very strenuously and repeatedly disputed and resisted the overwhelming majority of the requests by the Company for repairs by the Applicants. It was in a context where the attitude the Applicants had demonstrated was that they would not fix anything that wasn't clearly the responsibility of the landlord.
Mr Banic's evidence in his affidavit of 9 September 2013 is that: "The washer in the tap was not the cause of the leak downstairs as stated. This single and only tap in the storeroom has a sink under it. How could it leak to the floor? The sink was not full of water on inspection!" Although the Applicants relied on subsequent affidavits they did not dispute that evidence that the tap had a sink under it and did not leak to the floor.
In relation to the ice machine, photographs taken by Mr Banic on 4 May 2013 showed that the leak from the ice machine was continuing and had not been repaired. From the photographs it appears to be a small leak. The prior pooling of water in the area was only a fraction of what it had been previously. His evidence was:
"There is no tap to this machine. There is a hard piped line going to it. No tap or washer there. The leak is evidence in out pictures that it was a leaking pipe behind the services riser in the storeroom which makes it a structural fault and the lessor's repairs to do."
On all the evidence the Tribunal is satisfied that the leak in the first floor storeroom was from a water pipe. The Applicants were liable under clause 7.1.3 of Annexure B to the lease to maintain essential services, including the water service. This repair was maintenance of the water service. It appears the applicants did that as part of the repairs they carried out and completed on 1 May.
Kitchen Ceiling
On occasions of heavy rain, water was leaking into the ground floor, particularly into the kitchen ceiling.
The leaks from the floor above ran down the sides of the exhaust hood and into the gyprock ceiling. The ceiling was absorbing water and beginning to bulge. The water caused swelling in the timber ceiling trim. There are numerous photographs of this damage.
The leaks into the kitchen ceiling also resulted in water falling onto the kitchen floor in the food preparation area and also running down the exterior of a brick pizza oven.
Leaks into the kitchen ceiling were evident before 26 January 2013. Mr Despot had previously been asked by Mr Banic to repair the leaks, but refused. The kitchen was closed in early February because of this damage pending repairs. It appears that Mr Banic requested or organised for City Council Officers to inspect the state of the kitchen on 26 January 2013, most likely in the hope of pressuring Mr Despot into repairing the cause of the leaks.
On 28 February 2013 when Mr Banic arrived at work he discovered that a section of the water damaged gyprock ceiling of the kitchen had fallen to the floor. There was also water damage to the remaining sections of the kitchen ceiling.
The Applicants repaired the kitchen ceiling as part of their repairs. The evidence of Mr Duggan in his affidavit of 11 November 2013 is that damage to the kitchen ceiling was repaired by him and some, at least, he says was "associated with a union in the stormwater pipe which has come loose". He also refers to damage to the kitchen ceiling that he repaired which he attributes to water leaking from the first floor storeroom "caused by a faulty washer". The Tribunal, however, has found that the problem leak in the first floor storeroom was from a leaking water pipe.
The Tribunal finds that the Ceiling damage was caused by water from the one or more of the loose union in the stormwater pipe, the water pipe leak in the first floor storeroom, rainwater entering the Terrace bar from the balcony, and water entering through the glass brick wall and its surrounds. Mr Despot, and subsequently the Applicants, had the obligation to repair any such problems.
The Applicants were liable under clause 7.1.1 of Annexure B to the lease to maintain the ceilings. The Applicants did this repair as part of the repairs they carried out and completed on 1 May.
Ground Floor Dining Area
There were also water leaks from the first floor into the ceiling of the ground floor dining area. The water penetration in the dining area included penetration into the light fitting. The plywood ceiling of the dining area is covered in cow hides stapled to it and the ceiling had developed some bulges from water from above and some discolouration of sections of the hides.
Mr Banic's evidence is that the smell of dampness was a problem, especially the smell of the damp cow hides. He says that the leaks were present in the front, middle and rear areas of the ceiling in the dining area, and could be noticed by bulging of cow hides. Subsequently there was some visible mould growth on the cow hides in some areas and some hides that had been affected by the water had stretched.
Mr Banic's opinion was that the source of the water leaking into the ceilings of the kitchen and the dining area on the ground floor was the water pipe leak in the storeroom on the first floor. Mr Duggan attributed it to the floor waste on the terrace balcony being blocked. On all the evidence the tribunal is satisfied that the source of the water damaging the ceiling of the dining area was from one or more of the Glass brick wall, the terrace balcony door, the water pipe leak in the first floor storeroom and the loose stormwater pipe union.
The Applicants were liable under clause 7.1.1 of Annexure B to the lease to maintain the ceilings. It appears that no repairs were done to the ceiling of the dining area other than allowing it to dry out.
WERE THE PREMISES UNFIT FOR USE AS A LICENSED RESTAURANT FOR ANY PART OF THE PERIOD FROM 28 FEBRUARY TILL THE LEASE WAS TERMINATED?
Under section 36 the test is whether the shop could be used under the lease. The lease provides that the shop is to be used as a licensed restaurant.
Clearly the water problems in the premises discussed above rendered the premises unfit for that use until they were all repaired. On the balance of probabilities that occurred by 1 May 2013. Accordingly the water problems did not render the premises unfit for use after 30 April 2013.
The Company did not rely on any other ground in its reply. Pursuant to section 36 of the Retail Leases Act 1994 no rental is payable for the period 28 February 2013 to 30 April 2013.
THE COMPANY'S OUTSTANDING LIABILITY FOR RENT AND OUTGOINGS UNDER THE LEASE.
The Tribunal finds the Company's liability to pay rental and outgoings under the lease is for the period 1 May 2013 until the Applicants terminated the lease by re-entry and changing the locks on about 17 May 2013. The rental and outgoings for the month is agreed according to the Application and Reply at $10,264.11.
The Company's liability to the Applicants for rental and outgoings payable under the lease is for 17 days, which is $5,628.71.
THE DECLARATON SOUGHT BY THE APPLICANTS: DID THE APPLICANTS VALIDLY TERMINATE THE LEASE? IF SO, ON WHAT GROUNDS?
The forfeiture and termination of the lease was valid. Under Clause 12 of annexure B to the lease the lessor can lawfully enter and take possession of the premises if (under 12.2.2) "rent or any other money due under the lease is 14 days overdue for payment". The rent for May was payable on 1 May and was more than 14 days overdue when the Applicants took possession, changed the locks and terminated the lease.
The Applicants seek a declaration that the re-entry and termination of the lease was for non payment of rent, failure to provide a bank guarantee or security deposit, and failure to insure. But that is contrary to the evidence.
On 27 April at 6.20am in the morning, Mr Banic and his son called at the premises and observed through the front windows that building works had been underway and were not complete. There appeared to be no protective sheeting for furniture, floor coverings, stock, equipment etc. They found that the front sliding doors were closed but unlocked. When Mr Banic raised such issues by e-mail with Mr Yan, Mr Yan replied on 1 May 2013 and said in that reply:
"The lessor have [sic] now completed all the lessor's works in accordance with the lease."
And :
"We require that the May 2013 invoice be paid to Cushman & Wakefield's bank account by cob Tuesday, 14th May 2013.
"The lessor will be entitled to forfeit the lease in the event of the lessee failing to comply with the attached letter in accordance with clause 12 of the lease."
The letter did not refer to the failure of the Company to provide a bank guarantee or a security deposit under clauses 16 & 17 of the lease. Nor did it refer to the Company's failure to keep insurance under clause 8.
Similarly the agents wrote to the Company on 21 May notifying that it had re-entered. That letter stated:
"The lessee has re-entered and taken possession of the above premises pursuant to clause 12.2.2 of the above lease, non payment of rent. The lessor will now move to release the premises."
There was no reliance on the failure to provide a bank guarantee or security deposit or the failure to insure. The Applicants did not rely upon such grounds in terminating the lease.
It is common ground that on 15 May the agents wrote to the Company and required it to pay unpaid rent, provide evidence of insurance, and provide a bank guarantee or security deposit. But that letter was only 2 days before the Applicants changed the locks and terminated the lease. Section 129 of the Conveyancing Act 1919 requires that at least 14 days before a lessor can re-enter or forfeit a lease for such breaches as failure to insure or failure to provide a bank guarantee or security deposit, the lessor must serve the lessee with a notice specifying the breach and requiring the lessee to remedy the breach. There is no evidence that any such 14 day notice was given in respect of either of such breaches prior to the termination on about 17 May.
The Tribunal accordingly will not declare that those breaches were relied upon by the Applicants in terminating the lease.
THE APPLICATION FOR DAMAGES UNTIL RELETTING
The Applicants seek an order "pursuant to section 72(1)(a) of the Retail Lease Act that the Respondents pay the Applicants damages to be determined up to the date that the premises are relet". The claim is for the loss of income from rental because of the loss of the lease.
Section 72(1)(a) gives the Tribunal power to make "an order that a party to the proceedings pay money to a person specified in the order....". On the face of it the section does not give power to make an unquantified order of the type sought or an order for payment of an amount to be determined by some other forum or person.
Although this claim is made in the application, the Applicants have not offered evidence in support of the claim as to the following matters in the period of more than 8 months between the re-entry and the last hearing day:
Whether the property has since been let ;
If so, details of the lase and rentals received or receivable;
Listing the premises for lease with agents;
Advertising the premises in publications or websites;
Interviews and other promotions to prospective tenants;
Other actions taken to relet;
Negotiations with prospective tenants :
Rental sought and expert rental assessment;
What rental, if any has been received and
Proposals for alternative uses and prospective rentals.
Mr Fransen is a building expert and his report of 1 August 2013 provides photographic evidence of the condition of the premises as at 1 August 2013. Mr Duggan's affidavit of 8 November 2013 includes evidence of a Fire Safety Order made by Sydney City Council on 25 September 2013 requiring extensive fire safety work to be carried out to the premises. The Order issued following a Notice of Intention to Give an Order, which issued to the Applicants on 3 June 2013, only 17 days after the termination of the subject lease.
The works required by the order are divided into 3 stages. Stage 1 works had to be completed by 24 December 2013, Stage 2 works had to be completed by 13 April 2014 and Stage 3 works had to be completed by 25 September 2014. In the reasons for the Order the Council states:
"The building is considered to be in an unsafe fire safety condition, lacking among other things proper provision for the warning of occupants, controlling and extinguishment of fire, and adequate provision for escape in the event of a fire emergency."
The details of the inadequacies to be rectified are so extensive and so serious as to raise an issue as to whether the premises before such works were fit for use as a licensed restaurant. This was not a defence raised by the respondents, but it is relevant to the issue of the Applicants' claim for damages.
Mr Duggan's evidence in his affidavit of 8 November 2013, is that, the Order is based upon an inspection of the premises in October 2012, consultants engaged by the Applicants have negotiated with the council since the Order, many of the matters raised in the order have been completed, and some were addressed before the order issued.
The Tribunal finds that the evidence relevant to the damages claim, such as it is, is not capable of justifying any order for payment of damages and does not of itself suggest there is some bona fide basis for such a claim.
Given the order sought regarding the damages claim, the lack of relevant evidence in support of a damages claim, and the way the Applicants' case was conducted, it is clear that the Applicants did not seek to prosecute such a claim in this hearing. Accordingly the damages claim should be dismissed for want of prosecution.
THE LIABILITY OF THE GUARANTOR
The guarantor did not dispute her liability under the guarantee in respect of any order for payment against the Company.
COSTS
The proceeding were originally listed for hearing on 30 September, and 1 & 2 October 2013, with 2 other proceedings. They were adjourned part heard on 1 October 2013 and then completed on 25 November 2013 and 29 January 2014.
The solicitors for the Applicants in a letter of 10 February 2014 to the Registrar indicated that the Applicants are seeking a costs order.
There should be orders for any submissions and evidence to be provided if either party is seeking costs.
ORDERS
The orders of the Tribunal are:
(1) The Tribunal declares that the Applicants on about 17 May 2013 validly re-entered their retail shop premises at 215 Oxford Street, Darlinghurst and terminated the retail lease registered number AH345042F of those premises to the First Respondent.
(2) The Respondents must pay to the Applicants unpaid rental and outgoings under the lease of $5,921.76.
(3) The Applicants' claim for damages is dismissed for want of prosecution.
(4) The Applicants must by 16 June lodge and serve any submissions and evidence in support of any costs order it proposes and the Respondents must by 30 June lodge and serve any submissions and evidence in response or in support of any costs order they seek.
(signed)
Graham Mullane
Senior Member
Civil and Administrative Tribunal of New South Wales
29 May 2014
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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
Decision last updated: 21 August 2014
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