PG Kazis Nominees P/L v Bakers II P/L
[2018] SADC 48
•11 May 2018
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PG KAZIS NOMINEES P/L v BAKERS II P/L & ORS
[2018] SADC 48
Judgment of His Honour Judge Chivell
11 May 2018
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - DURATION - HOLDING OVER AFTER EXPIRATION OF TERM
LANDLORD AND TENANT - RENEWALS AND OPTIONS - EXERCISE OF OPTION - VALIDITY OF EXERCISE
ESTOPPEL - ESTOPPEL BY DEED OR CONVENTION - ESTOPPEL BY CONVENTION - PARTICULAR CASES
Lease by plaintiff to first defendant of commercial premises. Lease contained right to renew after five years, and again after further five years. Lease renewed after first five-year term. Whether renewed for second time. Whether first defendant holding over after expiration of first renewed term. Whether first defendant estopped from denying that validly renewed for second time.
Held: The lease was not renewed for second time and there is no estoppel preventing the first defendant from asserting that. Plaintiff’s claim dismissed.
Retail and Commercial Leases Act 1995 (SA) s 35, s 36, s 39; Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229; Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd & Anor [2012] SASCFC 21; Kim v Abbey Orchard Property Investments Pty Ltd [1981] NSWConvR 55-039; Bressan v Squires [1974] 2 NSWLR 460; McLachlan-Troup v Peters [1983] 1 VR 53; United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904; Quadling v Robinson & Anor (1976) 137 CLR 192; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673; Young v Lamb & Ors [2001] NSWCA 225; Lord Ranelagh v Melton 62 ER 627; Callaghan v Merivale CBD Pty Ltd [2005] NSWSC 985; Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222; Re Copperart Pty Ltd (1995) 16 ACSR 351; Wilbow Corporation Pty Ltd v Mailli [2002] 1 Qd R 574; Hill v Hill [1947] 1 All ER 54; Gerraty v McGavin (1914) 18 CLR 152; Healy v Southern Milk Transport Pty Ltd [1954] VLR 448; Friedman v Barrett; Ex parte Friedman [1962] Qd R 498; 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193; Mercantile Credits Ltd v Shell Co. of Australia Ltd (1976) 136 CLR 326; FAI Insurances Ltd v Winneke (1982) 151 CLR 342; Re Eastdoro Pty Ltd [1989] 2 Qd R 182; Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11,173; Yulin Pty Ltd v Japan Building Projects (Aust) Pty Ltd (1991) NSW ConvR 55-568; Rider v Ford [1923] All ER 562; Baker v Merckel [1960] 1 QB 657; [1960] 1 All ER 668; Garbutt v Naughton (1874) 5 AJR 70; Gerraty v McGavin (1914) 18 CLR 152; Ory v Betamore Pty Ltd unreported SC(SA) 14.3.1991 BC9100498; Redowood v Mongoose Pty Ltd [2005] NSWCA 32; Eudunda Farmers Co-operative Society Limited v Mattiske [1920] SALR 309; Beattie v Fine [1925] VLR 363; Randazzo v Goulding [1968] Qd R 433; King's Motors (Oxford) Ltd v Lax [1969] 3 All ER 665; Trazray Pty Ltd v Russell Foundries Pty Ltd [1988] NSWConvR 55-393; Re Nicholas and Grant's Lease (1923) 44 ALT 169; Beer v Bowden [1981] 1 All ER 1070; King v King (1981) 41 P & CR 311; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd [2018] SASC 8; W & R Pty Ltd v Birdseye [2008] SASC 321; (2008) 259 LSJS 91; Con-Stan Industries of Australia Proprietary Limited v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Yang & Anor v Hapisun Pty Ltd & Anor [2018] SASC 17; Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672; Commercial Leases in Australia W D Duncan, 6th ed, Lawbook Co., 2011, referred to.
PG KAZIS NOMINEES P/L v BAKERS II P/L & ORS
[2018] SADC 48
Mr and Mrs Greven are bakers. They operate a business called ‘Bakery on O’Connell’. It is a successful business. A judicial colleague informs me that it is one of the few remaining places in Adelaide where one can purchase a Kitchener bun.
From 2002 to 2015, the business operated from premises at 44‑46 O’Connell Street, North Adelaide. This is a busy shopping precinct. The premises were unusually large for the precinct, being more than 300 square metres in area.
The bakery was open 24 hours a day, seven days a week. It still operates in that way.
On 3 August 2004, a lease of the premises was entered into between PG Kazis Nominees Pty Ltd, the owner of the premises, and Bakers II Pty Ltd, a company of which Mr and Mrs Greven are now the directors and shareholders. The lease was for a term of five years commencing on 1 March 2003. The rent was $75,000 per annum, plus specified outgoings. The rent was subject to annual review.[1]
[1] Exhibit P1, Tab 4, [4.9].
The lease granted the tenant a right to renew the initial term for a further five years,[2] and for a further five years after that,[3] described not surprisingly as the first and second renewed term respectively.
[2] [4.8].
[3] [4.8.1].
The initial term of the lease expired on 28 February 2008. Pursuant to clause 4.8, the first renewal was effected by a written memorandum dated 2 April 2008, for a further term of five years. The first renewed term expired on 28 February 2013.
The dispute between the parties revolves around whether the lease was renewed a second time. Kazis Nominees says it was. Mr and Mrs Greven say it was not, and that for the period 1 March 2013 to 30 September 2015, the premises were subject to a monthly tenancy, on the basis of a ‘holding over’ from the previous lease.
In May 2015, Mr and Mrs Greven purchased another property, situated at 128 O’Connell Street, North Adelaide. On 31 July 2015, their solicitor wrote to the plaintiff’s solicitors effectively terminating the tenancy and giving notice that Bakers II would vacate the premises on 30 September 2015.
The premises were vacated on that date, and the business was transferred to the new premises.
Kazis Nominees claims rent to 28 February 2018 ($368,817.05) and outgoings ($52,050.68) plus costs and interest. The claim is brought against Bakers II, and against Mr Greven on the basis that he guaranteed payment by Bakers II in a deed executed on 3 August 2004, and against Mrs Greven pursuant to a similar deed executed on 4 May 2007.[4]
[4] Exhibit P1, Tab 6.
The claim is brought on alternate grounds:
(1)the lease was validly renewed;[5] or
(2)Bakers II is bound by the renewal by reason of an election by Mr and Mrs Greven, or is estopped from denying the renewal because Kazis Nominees relied upon the actions and statements of Mr and Mrs Greven and has treated Bakers II as having renewed the lease and has charged rent on the basis of the lease and not on the basis of a holding over.[6]
[5] Second Statement of Claim, [11].
[6] Second Statement of Claim, [19A], [19B].
Was there a valid renewal?
The right to a second renewal of the lease is in clause 4.8.1, which reads:
4.8.1that on the written request of the Lessee made not less than 6 nor more than 9 months before the expiration of the said first renewed term and provided that there shall not at the time of such request be any existing breach or non-observance of any of the covenants and conditions herein contained and on the Lessee’s part to be observed and performed the Lessor will at the expense of the Lessee grant to the Lessee an extension of this Lease of the Demised Premises for the term set forth in Item 7 of the Schedule hereto (the “second renewed term”) but on the same terms and conditions as are herein contained save for the exclusion of this clause giving the Lessee a right of renewal.
The pre-conditions for renewal are therefore:
(1)there must be a written request;
(2)the request must be made not less than six nor more than nine months before the expiration of the first renewal term;
(3)the tenant must not be in breach.
Provided these conditions are met, the lessor is obliged to grant the extension of the lease for a further five years on the same terms and conditions as are contained in the existing lease.
Kazis Nominees says that Bakers II exercised its right to renew when Mr Greven wrote a letter to Mr Peter Kazis on 3 May 2012. The letter was in the following terms:
To Peter Kazis of P G Kazis Nominees, I am writing to inform you of our intentions to extend our lease on the property at 44_46 O’Connell Street North Adelaide for a further 5 years starting March 2013. We would also like to add another 5 by 5 year lease to the existing lease. We see this extension very important to us securing our long-term goal in North Adelaide.
We also would like the same conditions as in the previous lease with the only change being the carport in front of the bakery being the bakeries premises. We also require the lease to be registered this term. As your lawyer was inadequate in providing the required documents for the past 9 years., can we get another person to draw the new lease up? I have a contact named Jeff Stevens from Prospect conveyancing that is very good and thorough and whom I believe will be very fair to both of us.
We have had a very good relationship in the past and I hope it can be a very good relationship going forward. I treat your property as it is my own and will continue to do so.[7]
[7] Exhibit P1, Tab12.
Mr Peter Kazis is described in the plaintiff’s Statement of Claim as the managing director of Kazis Nominees.[8] Neither he nor anyone else responded to Mr Greven’s letter on behalf of Kazis Nominees.
[8] Third Statement of Claim, [11].
In Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd,[9] the Western Australia Court of Appeal was dealing with a dispute over the lease of land on which a petrol station was operated.
[9] [2010] WASCA 229.
Clause 5.10(b) of the lease provided the lessee with a right to renew the lease for a third five-year term. It required the lessee to:
·give notice in writing within a specified period of its intention to renew;
·give a further notice of the exercise of the option not less than three months before the expiry of the then existing term.
The lessee wrote two letters on successive days, both of which were expressed as notice ‘of our intention to exercise our second option’. The question was whether the second letter was in reality a notice of exercise of the option.
Buss JA, with whom Murphy JA agreed, held that:
·the first letter was ‘clearly and unequivocally’ a notice of intention only and was not an exercise of the option. It is noteworthy that the first letter was expressed in similar terms to Mr Greven’s letter of 3 May 2012;[10]
·the second letter was a valid exercise of the option even though it was expressed in the same terms as the first letter.[11]
[10] At [45].
[11] At [49].
In interpreting the second letter, the court took into account[12] the surrounding circumstances, including:
[12] At [47].
·the first letter, its contents, and when it was sent and received;
·when the second letter was sent in relation to the first;
·the relevant differences between the two letters;
·the first letter was sent within the period provided for in the lease;
·the second letter was sent before the cut-off date provided for in the lease;
·the first letter constituted a valid Notice of Intention pursuant to the lease;
·the lease had not been deemed to have been renewed pursuant to another provision in the lease;
·the letters were both signed by a person who was not a lawyer.
Buss JA set out what he regarded as the principles governing the purported exercise of an option to renew:[13]
[13] At [32]-[37].
The test for determining whether a lessee has exercised an option to renew the term of the lease is whether the purported exercise clearly and unequivocally manifests an election to enter into a lease for the renewed term in accordance with the option. This test and its application have been elaborated upon in numerous authorities.
If the lessee sends the lessor a letter purporting to exercise the option to renew, the letter is not to be evaluated in isolation, by reference only to the words used. It must be evaluated in the context of the circumstances of its receipt, including the dealings between the parties.
If the lessee purports to exercise the option to renew by letter, proof of the election to enter into the lease for the renewed term depends on whether a hypothetical reasonable person who received the letter, and was aware of all the circumstances of its receipt including the dealings between the parties, would fairly understand the option to be exercised.
In Ballas (No 2), Williams J said:
Options have been held to have been exercised, where the context is sufficient, although the document, instead of stating unequivocally that 'the optionee hereby exercises the option,' or words to that effect merely states that he desires or intends or is prepared to exercise it.
Where the lessee's letter merely states that it desires or intends to exercise the option to renew, the critical issue is whether, in the context of the circumstances of its receipt including the dealings between the parties, the lessee has clearly and unequivocally expressed its election, then and there, to acquire a new lease upon the terms of the option.
The extensive litigation which has occurred in relation to whether options (including options to renew granted to lessees) have been validly exercised reflects, perhaps, the observation of Jordan CJ in Mackay v Wilson that an option is 'nearly always a ticklish thing'. It is unprofitable, however, to review previous cases. Each case necessarily turns on the application of the settled principles I have identified to its own particular facts and circumstances, including the proper construction of the document or documents in dispute.
(References omitted)
In Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd & Anor [14] Sulan J, with whom David and Peek JJ agreed, held that where an option specifies that it can only be exercised within a specified period, if the option is not exercised within that period, it will lapse, quoting Kim v Abbey Orchard Property Investments Pty Ltd,[15] Bressan v Squires,[16] McLachlan-Troup v Peters[17] and United Scientific Holdings Ltd v Burnley Borough Council.[18]
[14] [2012] SASCFC 21 at [83].
[15] [1981] NSWConvR 55-039.
[16] [1974] 2 NSWLR 460.
[17] [1983] 1 VR 53.
[18] [1978] AC 904 at 929.
In United Scientific Holdings, Lord Diplock said:
A more practical business explanation why stipulation as to the time by which an option to acquire an interest in property should be exercised by the grantee must be punctually observed, is that the grantor, so long as the option remains open, thereby submits to being disabled from disposing of his proprietary interest to anyone other than the grantee, and this without any guarantee that it will be disposed of to the grantee. In accepting such a fetter upon his powers of disposition of his property, the grantor needs to know with certainty the moment when it has come to an end.
Sulan J also quoted[19] Gibbs J (as he then was) in Quadling v Robinson & Anor:[20]
In Laybutt v. Amoco Australia Pty. Ltd. I discussed the nature of an option, but whether (as I think) the option in the present case was a conditional contract of sale, or whether it was merely an irrevocable offer to sell, it is clear that the exercise of the option, to be valid, must have been absolute and unqualified and must have bound the respondents to perform the very terms set out in the option. ...
However, it is not always easy to determine whether the purported exercise of an option should be understood as attempting to vary the terms of the option or as intending to accept its terms without modification, notwithstanding that they may have been misdescribed, or notwithstanding that the grantee of the option may have indicated that he intends to perform the contract in a manner for which the terms of the option do not provide.
(References omitted)
[19] At [96].
[20] (1976) 137 CLR 192 at 200-01.
Ultimately, Sulan J adopted the summary of the applicable principles by Kirby P (as he then was) in Prudential Assurance Co Ltd v Health Minders Pty Ltd[21] and adopted by the New South Wales Court of Appeal in Young v Lamb & Ors:[22]
First, the purported exercise must clearly and unequivocally express the fact that it is intended to exercise the option, Ballas v Theophilos (No 2).
Next, it is unnecessary that the words used conform precisely to the terms of the option, Ballas at 205.
Thirdly, the appropriate question to ask is what anybody who received the letter would fairly have understood to be the meaning of it, in all the circumstances of its receipt, Carter v Hyde adapting Jones v Daniel.
Fourthly, a notice which mis-states the terms of the option may nevertheless amount to an unqualified and unconditional exercise, Quadling v Robinson.
Lastly, every case ultimately depends on its own facts and upon the proper construction of the document in dispute.
(References omitted)
[21] (1987) 9 NSWLR 673 at 677.
[22] [2001] NSWCA 225, [22]-[26].
At [101] of Sekisui Rib Loc, Sulan J concluded that ‘… objectively, a reasonable person in the position of (the grantor) would conclude that (the grantee) intended to exercise the option’. Of course, having regard to the quotation from Kirby P in Prudential Assurance in the preceding paragraph, Sulan J reached that conclusion having regard to the particular facts of the case and upon a proper construction of the particular document giving rise to the option.
As to the particular facts and circumstances of this matter:
·Mr Greven’s letter of 3 May 2012 was outside the time period specified in clause 4.8.1 of the lease since it was written and received more than nine months before 28 February 2013. For the reasons expressed by Lord Diplock in United Scientific Holdings, time is of the essence in an option contract;[23] the time restriction may be waived by the lessor,[24] but there is no evidence of such a waiver in this case; a valid exercise of an option to renew a lease creates a new lease, a new demise of the land;[25] the grantee of the option (Bakers II), if the option had been validly exercised, could have called for the execution of a new lease. If Kazis Nominees failed to grant a new lease, Bakers II could have sued for specific performance of the renewal agreement.[26]
[23] See also Lord Ranelagh v Melton 62 ER 627; Callaghan v Merivale CBD Pty Ltd [2005] NSWSC 985 per Burchett AJ.
[24] Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222; c.f. Re Copperart Pty Ltd (1995) 16 ACSR 351, Wilbow Corporation Pty Ltd v Mailli [2002] 1 Qd R 574 per Douglas J, Hill v Hill [1947] 1 All ER 54.
[25] Gerraty v McGavin (1914) 18 CLR 152 at 163, Healy v Southern Milk Transport Pty Ltd [1954] VLR 448, Friedman v Barrett; Ex parte Friedman [1962] Qd R 498, 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193, Mercantile Credits Ltd v Shell Co. of Australia Ltd (1976) 136 CLR 326, FAI Insurances Ltd v Winneke (1982) 151 CLR 342 at 378, Re Eastdoro Pty Ltd [1989] 2 Qd R 182, Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11,173, Yulin Pty Ltd v Japan Building Projects (Aust) Pty Ltd (1991) NSW ConvR 55-568, Rider v Ford [1923] All ER 562, Baker v Merckel [1960] 1 QB 657; [1960] 1 All ER 668.
[26] Garbutt v Naughton (1874) 5 AJR 70, Gerraty v McGavin (1914) 18 CLR 152 at 163 per Isaacs J, Ory v Betamore Pty Ltd (unreported SC(SA) 14 March 1991 BC9100498).
·The letter is not expressed as a ‘request’ to renew the lease, which is a requirement of clause 4.8.1. The letter expresses an indication of ‘intention’ to extend the lease. For the reasons I have expressed earlier, this may not have been enough to constitute a valid exercise of an option to renew.
·Even if the letter purported to exercise the option, it was not absolute and unqualified.[27] In his letter, Mr Greven indicated a desire to change the existing lease by:
· adding another 5-plus-5-year lease to the existing lease;
· making the carport in front of the bakery ‘being’ the bakery’s premises (which I take to mean that he wanted the area of the carport to be included in the demised premises);
· having a new lease drawn up by someone other than the person who drew up the last one;
· having the lease registered on the title to the property.
These requested alterations were too substantial to be described as constituting an absolute and unqualified request to renew the then current lease on the same terms.[28] The right to renew in clause 4.8.1 of the lease was limited to a renewal ‘on the same terms and conditions as are herein contained’.
·There had been no resolution of the issues of the amount of rent to be paid during any renewed term, or of whether there would be a right to review the rent, with what frequency, and on what basis (whether, for example, a fixed increase as in the first renewed term, or an increase based on the Consumer Price Index, as in the initial term).
The only stipulation in the first renewed lease as to rent was:
The rental will increase by market value on each renewal of the lease and shall increase by CPI annually during all other periods of the lease.[29]
It has been held that a purported renewal of a lease is invalid where there is an absence of agreement as to the quantum of rent for the consequential lease.[30]
[27] Quadling v Robinson (1976) 137 CLR 192, Redowood v Mongoose Pty Ltd [2005] NSWCA 32, Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222.
[28] cf Sekisui Rib Loc at [101].
[29] Exhibit P1, Tab 4 – The Schedule.
[30] Eudunda Farmers Co-operative Society Limited v Mattiske [1920] SALR 309 at 316-17 per Murray CJ, Beattie v Fine [1925] VLR 363, Randazzo v Goulding [1968] Qd R 433, King’s Motors (Oxford) Ltd v Lax [1969] 3 All ER 665, Trazray Pty Ltd v Russell Foundries Pty Ltd [1988] NSWConvR 55‑393, c.f. Re Nicholas and Grant’s Lease (1923) 44 ALT 169, Beer v Bowden [1981] 1 All ER 1070, King v King (1981) 41 P & CR 311, Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600.
Legislative provisions for the determination of rent
In South Australia, s 35 of the Retail and Commercial Leases Act 1995 provides a mechanism for resolving such an issue arising from a ‘retail shop lease’, which this lease is, in the absence of agreement:
· it defines ‘current market rent’ (s 35(1)(a));
· it prescribes what factors should be ignored in the determination of current market rent (s 35(1)(b));
· it provides a mechanism for resolving disputes by the joint appointment of a valuer, or failing agreement, by a person appointed by the President of the Australian Institute of Valuers and Land Economists (SA Division) Inc. (s 35(1)(c)).
A similar mechanism is provided in clause 4.9 of the lease. That clause requires that the determination shall take place ‘not less than one month before the commencement of the relevant Review Period’. The review period is defined in the Schedule to the lease as annually, and the review dates are defined in the same Schedule as 2004, 2005, 2006, 2007 and annually thereafter if renewed.
Section 36 of the Retail and Commercial Leases Act[31] entitles a lessee to request a determination of the current market rent ‘within the period that begins six months before and ends two months before the last day on which the option may be exercised under the lease …’[32] The rent is then to be determined pursuant to s 35, as outlined above.[33] Such a request must be in writing.[34]
[31] Which overrides the terms of the lease – s 5.
[32] s 36(1)(a).
[33] s 36(1)(c).
[34] s 36(1)(b).
The lessee made no such request in writing. The rent was not determined until April 2014, when a valuer appointed by the President of the Australian Institute of Valuers made a determination. The timing of that determination did not meet the criteria in either clause 4.9 of the lease (because it was not within one month of the renewal date) or s 36 of the Act (because it was not requested in the period between six months and two months prior to the last date for exercise of the option to renew, which was six months before 1 March 2013).
For those reasons, a vital term of any renewed lease remained unresolved.
I find that:
·there was no written request to renew the lease pursuant to clause 4.8.1 thereof;
·if Mr Greven’s letter did constitute a request, it was not made within the time period specified in clause 4.8.1 of the lease, and there is no evidence of waiver of the time period;
·if Mr Greven’s letter did constitute a request, it was not absolute and unconditional;
·neither party sought a new lease ‘on the same terms and conditions’ as were contained in the previous lease;
·there was no agreement as to the terms and conditions of any new lease.
If the lease was not renewed a second time, Bakers II became a tenant ‘holding over’. Clause 4.7 of the lease is as follows:
Holding Over
that in the event of the Lessee holding over after the expiration or sooner determination of this Lease with the consent of the Lessor the Lessee shall become a monthly tenant only of the Lessor which tenancy may be terminated by one month’s prior notice in writing expiring at any time at a monthly rental equivalent to a monthly proportion of the total annual rent payable hereunder at the expiration or sooner determination of this Lease (plus 10%) and otherwise on the same terms and conditions (mutatis mutandis) as those herein contained insofar as the same are applicable to a monthly tenant;[35]
[35] Exhibit P1, Tab 4.
It is true that payment of the extra 10% of rent referred to in that clause was not requested, and was not paid, and there is no evidence that the lessor consented to the holding over. The lessor could have resolved these issues by demanding the 10% premium, or determining the tenancy. Instead, it did nothing about these issues. It chose to continue negotiating with Bakers II, as the next section of these reasons will demonstrate.
I therefore find that there was no valid exercise of the right, or option, to renew the lease by Bakers II which would constitute a demise of the subject premises for a further term of five years from 1 March 2013.
Estoppel
The alternative contentions of Kazis Nominees are:
·Bakers II had elected to be bound by the renewal of the lease;[36] or
·Bakers II is estopped from denying the renewal.[37]
[36] Second Statement of Claim, [19A].
[37] Ibid.
The first contention may be dealt with quickly: there was no renewal, valid or otherwise, that could be the subject of an election. Even if there had been a purported renewal, there was no election. This contention was not referred to by Mr Riggall, counsel for Kazis Nominees, in his final address.
As to the second contention, the conduct said to give rise to estoppel is identified in paragraphs 12 to 18 of the Second Statement of Claim as follows:
·Kazis Nominees commenced discussions with Bakers II as to the rent payable for the first year of the second renewed term of the lease.[38]
[38] Second Statement of Claim [12].
Mr Photios (Photi) Kazis, the son of Mr Peter Kazis and now a director of Kazis Nominees, said in evidence that discussions about the rent followed Mr Greven’s letter of 3 May 2012.[39] The discussions included the provision by him to Mr Greven of a copy of a rent valuation by Knight Frank, which Mr Greven described as ‘absurd’. I will discuss the correspondence about this valuation later in these reasons.
[39] T 78.
Discussions about the rent continued until mid-2014, when the valuation report of Ms Susan Visser[40] was received. Mr Greven’s frustration that there was no resolution of the issues between the parties is readily apparent from reading the correspondence. It is replete with comments by him like ‘I … just want this thing sorted’.[41]
[40] Exhibit P1, Tab 31.
[41] Email Mr Greven to Mr Photi Kazis 31/1/14, Exhibit P1, Tab 28.
·Kazis Nominees allowed Bakers II to remain in occupation of the property when the first renewed term expired.[42]
[42] Second Statement of Claim [12].
This assertion is true, but it begs the question of ‘on what basis?’ There was never any discussion as to whether Bakers II was a tenant ‘holding over’ pursuant to clause 4.7 of the lease or not. Kazis Nominees took no steps to clarify the position. It did not even reply to Mr Greven’s letter of 3 May 2012. The expiration date of the first renewed lease on 28 February 2013 passed without comment. The clear inference is that Kazis Nominees was content to allow the situation to drift until the issues of rent and the term of the lease were finalised.
·Bakers II did not at any time notify Kazis Nominees that it intended to remain in occupation on a monthly lease.[43]
[43] Second Statement of Claim [13].
Again this is true, but this was a situation created by Kazis Nominees. The correspondence clearly demonstrates that it was Mr Greven who was continually pushing for a clarification of the position, and it was Kazis Nominees, and Mr Peter Kazis in particular, who was uncommunicative and, indeed, intransigent, to the obvious frustration of his son, Mr Photi Kazis, as well as to Mr Greven.
·Bakers II did not offer to pay rent calculated in accordance with clause 4.7 of the lease. [44]
[44] Second Statement of Claim [13].
Again this is true, but the solution was in the hands of Kazis Nominees. Clause 4.7 provided that in the event of the tenant holding over after the expiration or sooner determination of the lease, with the consent of the lessor, the lessee became a monthly tenant on the same terms and conditions ‘(mutatis mutandis)’. The rent in that event was to be a ‘monthly proportion of the total annual rent … (plus 10%) …’
At no stage was there any request that the 10% premium be paid. It was for the lessor to claim the premium. Instead, as earlier observed, Kazis Nominees was clearly content to allow the situation to drift until the discussions were resolved. It did not even claim an adjustment of rent to which it was entitled after the valuation by Ms Visser in 2014. Mr Greven paid this of his own motion.
This does not constitute behaviour on the part of Bakers II which could give rise to a claim for estoppel.
·Kazis Nominees arranged for a valuer of its choice to determine the rent for the first year of the second renewed term of the lease.[45]
[45] Second Statement of Claim [14].
It is true that Kazis Nominees arranged for the Knight Frank valuation.[46] This was not done with prior consultation with Bakers II. The letter of instructions (which is not in evidence) was apparently dated 22 March 2013.[47] The report is dated 29 May 2013. As mentioned earlier, it was disclosed to Mr Greven by email dated 13 June 2013[48] and was described by him in a return email to Kazis Nominees as ‘absurd’.
[46] Exhibit P1, Tab 13.
[47] Exhibit P1, Tab 13, p 78.
[48] Exhibit P1, Tab 14.
·Bakers II objected to the rent sought by Kazis Nominees on the ground that it had not been determined in accordance with clause 4.9 of the lease.[49]
[49] Second Statement of Claim [15].
An email of Mr Greven dated 13 June 2013[50] which objected to Mr Peter Kazis’ proposal for payment of rent makes no reference to clause 4.9 of the lease. It purported to be a determination of Current Market Rent. Clause 4.9 makes detailed provision for the determination of ‘Current Market Rent’. When the lease was renewed in 2008, this became redundant because it was agreed that the rent would increase by 6% each year after that.
[50] Exhibit P1, Tab 14.
Mr Greven’s objections to the Knight Frank review were simply that the suggested increase was ‘absurd’.
·A valuer was appointed by the President of the Australian Institute of Valuers and Land Economists in accordance with clause 4.9 of the lease to determine the current market rental for the property.[51]
[51] Second Statement of Claim [16].
In its Second Defence, Bakers II argues that the appointment of the valuer (Ms Visser) ‘was not and could not have been pursuant to clause 4.9 of the lease.’[52] I agree, for the reasons expressed above.
[52] Second Defence, [13].
The parties had been arguing about the rent since soon after Mr Greven’s letter of 3 May 2012. Mr Photi Kazis said in evidence that Kazis Nominees did not reply to Mr Greven because they turned their attention to the rent.[53] That in itself is consistent with Mr Greven’s version of events, in that Kazis Nominees also wanted the rent sorted out before they were prepared to negotiate the other issues raised by Mr Greven in the letter.
[53] T 79.
Kazis Nominees then presented Mr Greven with the Knight Frank valuation in June 2013. Mr Greven responded with another valuation in September 2013.
Eventually, on 18 September 2013, Mr Greven sent a written application to the President of the South Australian Division of the Australian Property Institute.
Mr Photi Kazis said that his father discussed this with his solicitor, Mr Jaak Oks, and Mr Oks sent their own application on 20 November 2013.
By 24 March 2014, Ms Visser, the valuer appointed by the President of the Australian Property Institute, was still waiting for Kazis Nominees’ solicitor to provide her with the details of the lettable area.[54] The parties were still discussing whether Bakers II would rent the upstairs area as well.[55]
[54] Email Mr Greven to Mr Photi Kazis 24/3/14 - Exhibit P1, Tab 28.
[55] Email Mr Photi Kazis to Mr Greven 23/3/14 - ibid.
Finally, in a letter dated 31 March 2014,[56] Ms Visser advised the parties that unless the question of lettable area was resolved within 10 days, she would withdraw from the determination.
[56] Exhibit P1, Tab 29.
Eventually, the valuation was completed and forwarded to the parties, probably in May 2014. The report is not dated, but a request for payment before the report was provided was made by Ms Visser on 17 April 2014, and the report was provided shortly after the account was paid.[57]
[57] T 203.
There is nothing to indicate that the valuation by Ms Visser took place pursuant to clause 4.7 of the lease. For reasons I have expressed earlier, the appointment was inconsistent with clause 4.9.
Even if the valuation was pursuant to clause 4.9 of the lease, the appointment of the valuer says nothing as to whether the parties regarded the tenancy as having been renewed, or whether it had converted to a monthly tenancy pursuant to clause 4.7, since clause 4.9 applied ‘mutatis mutandis’ to a holding over pursuant to clause 4.7 in any event.
·The valuer so appointed made a determination of the current market rental in a report dated 2 May 2014.[58]
[58] Second Statement of Claim [17].
This is correct, although the date of the report is not clear. The current market rental was valued at $128,650 plus GST as at 1 March 2013.[59] Ms Visser noted:
[59] Exhibit P1, Tab 31.
The rental is to be reviewed to Current Market Rent [pursuant to] Clause 4.9 of the relevant Memorandum of Lease. Whilst it is understood that the Lessee is currently ‘holding over’, it is assumed for the purpose of this determination that an Extension of Lease will be executed on the same terms and conditions as contained in the original registered lease which operated from 1 March 2003 to 28 February 2008.
In accordance with Item 2 of the Schedule within the relevant lease, the rental will increase by market value on each renewal of the lease.[60]
[60] Ibid.
As I have already mentioned, both Mr Greven and Kazis Nominees’ solicitor, Mr Oks, wrote to the President of the Australian Property Institute enclosing an application for the appointment of the valuer. Mr Oks’ letter is dated 20 November 2013.[61] With it, he enclosed the Knight Frank valuation from April 2013. That valuation contains the following passage:
[61] Exhibit P1, Tab 21.
We have not been provided with a copy of the Extension to Lease upon request and we understand that the lease was incorrectly executed and thus our instructor has advised that the tenant is holding over. The property owner has advised us that there were no amendments to the incorrectly executed Extension of Lease. For the purpose of this assessment, we have assumed a new lease would be executed on similar terms and conditions as contained in the original Registered Lease.
That was clearly the source of Ms Visser’s understanding that the tenant was ‘holding over’, as I mentioned earlier.
Nothing was done on behalf of Kazis Nominees to correct this understanding that Bakers II was a tenant ‘holding over’. Mr Photi Kazis said that the instructions to Knight Frank would have come from Mr Nick Ploubidis, his nephew. Mr Ploubidis arranged the Knight Frank valuation. [62]
[62] T 94.
Mr Photi Kazis said that Mr Ploubidis was a residential real estate agent, and that he would not understand the meaning of the term ‘holding over’.
Mr Ploubidis did not give evidence. I note that the Knight Frank report is addressed to Mr Ploubidis in his capacity as ‘Principal – Corporate Auctioneer’.[63] My limited knowledge of such matters does not enable me to say whether a ‘Principal – Corporate Auctioneer’ would understand what ‘holding over’ meant or not. It would be surprising if a person with even limited experience of the real estate industry did not know what ‘a tenant holding over’ meant.
[63] Exhibit P1, Tab 21, p. 187.
If Mr Photi Kazis’ evidence about that is true, it is surprising that:
(a) Mr Ploubidis was not called to give evidence;
(b) Mr Ploubidis was left to instruct Knight Frank when he was ignorant of commercial leasing terminology;
(c) neither Mr Peter nor Mr Photi Kazis took any steps to correct the reference to holding over in the Knight Frank report;
(d) Mr Oks would send the Knight Frank report to the Australian Property Institute when it contained (on the plaintiff’s case) such an egregious error.
·Bakers II paid rent in accordance with the valuation so obtained from 28 May 2014 to 30 September 2015.[64]
This assertion is essentially true. Following the valuation by Ms Visser, Mr Greven heard nothing from Kazis Nominees, even though the valuation resulted in a higher rental than had been paid since 1 March 2013. Mr Greven said he became increasingly concerned that he would be met with a large claim for unpaid rent if this was allowed to continue.[65] So he performed his own calculations as to the amount owing, and undertook to pay that amount by 30 June 2014.
The calculations were forwarded with an email to Mr Photi Kazis dated 28 May 2014.[66] The email reads:
Hi, Photi, I have attached a explanation of the shortfall in rent at O’connell Street, I shall pay the money in the next few weeks, Can I ask that all future invoices to be either emailed, sent or delivered to me before the end of each month so as to keep this legal for my accountant. And also a invoice for the shortfall please. As you Know I have not received a invoice for over 6 years. I don’t Know how your dads accountant can let him not do it. I find this a very small ask hopefully not a big task.
The attached memorandum bears the same date.[67] The total ‘shortfall’ calculated by Mr Greven was $16,535 plus $6,740, or $23,275. Incidentally, in several of his calculations, Mr Greven appears to have applied 10% GST twice, but nothing arises from that.
On 31 July 2014, Mr Oks replied on behalf of Kazis Nominees, suggesting that Mr Greven’s calculation of the shortfall was low by $17.[68] The discrepancy was not explained.
For the reasons I have already expressed, these payments by Bakers II take the issue of whether there was a renewal of the tenancy no further. The payments do demonstrate that Mr Greven was conscious of his company’s obligation to pay rent in a timely fashion and was anxious to keep his outgoings regular and properly documented. Kazis Nominees, on the other hand, seems to have had a rather shambolic and poorly recorded approach to its business, even though quite large amounts of money were involved.
[64] Second Statement of Claim [18].
[65] T 204.
[66] Exhibit P1, Tab 32.
[67] Exhibit P1, Tab 33.
[68] Exhibit P1, Tab 38.
Did the conduct of the parties give rise to an estoppel?
The estoppel pleaded in the Second Statement of Claim could be described as generic. There are many forms of estoppel, and most are comprised of different elements.
In his final address, Mr Riggall identified the estoppel relied on as estoppel by convention. Blue J recently outlined the elements of estoppel by convention, or, as he described it, conventional estoppel, in Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd as follows:[69]
1.The parties proceed on the basis of an assumption of fact and/or law capable of forming the foundation of the remaining elements.
2.Each party, from the perspective of the other, accepts the assumption as true for the purpose of the transaction in question.
3.Such acceptance is intended to govern the legal position between the parties.
4.The proponent takes or omits to take action and is entitled to so act in reliance upon the assumption.
5.The other party knows that the proponent is so acting.
6.The proponent would suffer detriment if the other party were permitted to depart from the assumption .
7.It would be unconscionable for the other party to depart from the assumption.
[69] [2018] SASC 8 at [356].
Mr Riggall, in his supplementary written submissions, suggested that Outback Energy ‘does not deal with the circumstances of the present case’.[70] I disagree. Blue J certainly dealt with the issue of conventional estoppel in the section of his judgment which begins with a heading in those terms and continues from [355] to [369].
[70] Plaintiff’s Supplementary Outline, [3].
Mr Riggall preferred to rely on the judgment of the Full Supreme Court in W & R Pty Ltd v Birdseye.[71] That was a case involving a contract for sale and purchase of real estate. The vendor terminated the contract because the purchaser failed to settle, but later treated the contract as if it was still ‘on foot’ by nominating a further settlement date and even issuing a notice to complete. The evidence established that both parties acted on the assumption that they were in a continuing contractual relationship. This raised the issue of whether the assumption was one of law or fact.
[71] [2008] SASC 321; (2008) 259 LSJS 91.
Doyle CJ referred to the judgment of the High Court in Con-Stan Industries of Australia Proprietary Limited v Norwich Winterthur Insurance (Australia) Limited,[72] which gave rise to an extensive judicial and academic debate about whether the estoppel extends to assumptions of law, or whether it is confined to assumptions of fact. His Honour noted that the issue was further considered by the High Court in Waltons Stores (Interstate) Ltd v Maher.[73]
[72] (1985-1986) 160 CLR 226 at 244-5.
[73] (1988) 164 CLR 387 at 415.
Doyle CJ said:[74]
[74] At [50].
In Waltons Stores (Interstate) Limited v Maher, speaking of this category of estoppel Brennan J said:
The assumed state of affairs to which a party may be bound to adhere may be more than a state of mere facts; it may include the legal complexion of a fact as well as the fact itself, ie, a matter of mixed fact and law.
This passage from the reasons of Brennan J encapsulates the distinction that I have attempted to draw, and the basis upon which I understand the principle to rest. On that same page, a little earlier in his reasons, Brennan J had said:
If the estoppel relates to the existence of a contract between the parties, the legal relationship between the parties is ascertained by reference to the terms of the contract which has been assumed to exist. If, in the assumed state of affairs, the contract confers a cause of action on the party raising the estoppel, the cause of action may be enforced. The source of legal obligation in that event is the assumed contract; the estoppel is not a source of legal obligation except in the sense that the estoppel compels the party bound to adhere to the assumption that the contract exists. …
That passage also illustrates the point that I seek to make.
(Reference omitted)
Doyle CJ concluded:[75]
I emphasise that my reasoning proceeds on the basis that, properly understood, their Honours did not intend to exclude a situation such as the present in which the existence of contractual relationship can fairly be described as “an assumed state of fact” even though that assumed state of fact has, in the words of Brennan J, a “legal complexion”.
[75] At [52].
Duggan J’s judgment in W & R was to similar effect.[76] His Honour outlined the requirements for estoppel by convention as follows:[77]
[76] At [126].
[77] At [112]-[116].
In the present case the assumption relied upon involves a question of law and fact. There is now a body of authority to support the view that an assumption in this category can be relied upon for the purposes of an estoppel by convention.
The requirements necessary to attract the operation of this category of estoppel are discussed in the judgment of Owen J in Bell and Brereton J in Waterman v Gerling Australia Insurance Co Pty Ltd.
In Bell Owen J referred to the requirement that:
There must be at least a demonstrable acceptance of a particular state of things as the foundation for the dealings of the parties. There has to be a course of dealing between the parties, that is to say, acts or conduct that impinge upon their mutual affairs.
Further, the person to be estopped must have contributed in some way to the creation or continuation of the assumption so as to make it unconscionable for that party to depart from the understood basis of dealing between the parties.
Finally, the plaintiff must prove detriment in the event of a departure from the assumption.
(References omitted)
The Second Statement of Claim does not specifically plead the facts which Kazis Nominees relies upon as satisfying those elements. It simply refers to paragraphs 12 to 18 of the pleading.
Mr Swan, counsel for the defendants, took no point about this, preferring to argue that the elements had not been established by the evidence.
Mr Riggall submitted that the assumption which was accepted and acted upon by both parties was that the lease had been validly renewed and was ‘on foot’ from 1 March 2013 to 30 September 2015. His submission was that Mr Greven accepted that assumption at the time, and that his later rejection of it, embodied in the solicitor’s letter of 31 July 2015 purporting to terminate the lease, was a device to enable him to take the opportunity to move into their own premises. I accept that the assumption referred to is one of mixed fact and law.
Did Kazis Nominees proceed on the basis that the lease had been renewed?
In his written outline of submissions, Mr Riggall asserted that the plaintiff ‘acknowledged in writing that the lease had been renewed’. He referred to the statement in the handwritten application by Kazis Nominees to the President of the Australian Property Institute which was submitted with a letter from Kazis Nominees’ solicitor, Mr Oks, dated 20 November 2013.[78] The application reads:
The lessee renewed the final 5 year term of the lease such that the final 5 year term of the lease commenced on the 1st March 2013 and expires on the 28th February 2018.
Mr Photi Kazis said in evidence that this was not his handwriting.[79]
[78] Exhibit P1, Tab 21.
[79] T 39.
This was not communicated to Mr Greven or Bakers II. There is no evidence in any of the correspondence that Kazis Nominees, through either Mr Peter or Mr Photi Kazis, communicated to Bakers II or Mr Greven that they were proceeding on the basis that the lease had been renewed. There is no evidence that the issue was ever mentioned.
Mr Photi Kazis made it clear in his evidence that he believed that the lease was renewed. I do not disbelieve him. He seemed an honest witness. It is not clear on the evidence that he was a director at the time. Mr Peter Kazis did not give evidence as he is elderly and frail. I accept that the assumption or belief held by Mr Photi Kazis can be attributed to Kazis Nominees on the basis that Mr Photi Kazis was a director of the company at the relevant time. Mr Swan did not argue to the contrary.
Did Bakers II and Mr Greven proceed on the assumption that the lease had been renewed?
Mr Greven made it clear throughout his evidence that he did not believe, let alone assume, that the lease had been renewed.[80] Mr Greven also seemed an honest witness. I accept his evidence about that.
[80] T 202-3, 207, 209, 230, 232, 234, 237, 251, 257-8, 261, 264, 272.
Mr Riggall pointed to a number of pieces of correspondence which he submitted were inconsistent with Mr Greven’s assertions. Mr Riggall suggested that Mr Greven had rationalised his position since these events occurred in light of his subsequent action in purchasing the new premises.
Letter from Mr Greven to Mr Peter Kazis dated 3 May 2012[81]
[81] Exhibit P1, Tab 12.
I have already discussed this letter in the context of whether the lease was validly renewed. Mr Riggall also pointed to its contents in the context of estoppel, suggesting that Mr Greven accepted at the time that the second renewal would be activated by the letter.
I have already held that the letter evinced no more than a statement of intention to renew if certain further terms could be agreed.
The language adopted by Mr Greven in the letter does not evince an intention to renew the current lease pursuant to clause 4.8 thereof.
Letter ‘To Whom it May Concern’[82]
[82] Exhibit P1, Tab 20.
This was an undated letter from Mr Greven. It accompanied an application to the President of the South Australian Division of the Australian Property Institute to appoint a valuer to determine the current market rent for the property. The application was signed by Mr Greven and dated 18 September 2013.
Mr Riggall seized on the words:
… unfortunately Mr. Kazis and I have not been able to come to a agreement on our final 5 years of the lease.
It is true that in cross-examination,[83] Mr Greven denied using the words ‘final 5 years of the lease’. He was genuinely surprised when Mr Riggall pointed out the words in this letter.
[83] T 251-2.
However, I do not accept that the plain meaning of those words is ‘I accept that we have renewed the lease for the final five years of the lease’.
Mr Greven then went on to write:
Mr Kazis and I have a very good relationship in reguard to tenant and landlord relationship but just disagree on what the rent should be. We both would like to write up a new lease for the next 5 plus 5 years because of how un professional the current lease is and assurances of the next 10 years for both of us …
(My emphasis)
As he did on several other occasions, Mr Greven is there making it clear that he did not wish to be bound by the old lease and wanted a new one drawn up.
Mr Riggall submitted that submitting Bakers II to the judgment of the valuer, which would be ‘final and totally independent’, is another piece of evidence that he still regarded the lease has having been renewed. Again I must disagree. The submission to the judgment of the valuer is equally consistent, legally speaking, with the lease having continued on a monthly basis on the same terms and conditions pursuant to clause 4.7 of the previous lease.
Further, and this applies to much of the correspondence before me, the letter should not be interpreted as strictly as if it had been ‘signed or sent by a lawyer’, in the words of Buss J in Whitegum.[84]
Email from Mr Greven to Mr Photi Kazis dated 27 August 2014[85]
[84] Supra, at [47].
[85] Exhibit P1, Tab 42.
In this email, Mr Greven outlined a number of options for renovating the first floor of the premises (which had been previously leased to a different tenant) so that Bakers II could also lease that area. After outlining the options, Mr Greven wrote:
All this must [have] a 3 plus 5 plus 5 year lease. And downstairs must be extended for another 5 plus 5 when the lease is up.
Mr Riggall submitted that the clear inference from this statement is that Mr Greven accepted that the second renewal of the lease had occurred. I accept that at first glance that is a reasonable submission. The statement should be read in context, however. Later in the email, Mr Greven wrote:
If having a great long term tenant is what you are after I believe we can have a excellent long relationship.
When Mr Greven’s statement that downstairs must be extended for another five plus five years when the lease is up, is read in context, the statement could equally be interpreted as meaning ‘I want a lease for the current five years plus two further five-year extensions now’ rather than ‘I acknowledge that the lease was renewed on 1 March 2013, I am happy to see out this term and we will negotiate further terms when it expires’. The latter interpretation is not consistent with Mr Greven’s assertion that he wanted to be a long-term tenant.
I do not perceive that Mr Photi Kazis held a different view. He was asked in examination-in-chief about Mr Greven’s proposal, and described the verbal discussions he had with Mr Greven about that. He said that they had not specifically discussed the ‘further five plus five’ at that stage because the market was unpredictable. He said his father was ‘hesitant’ about committing to a total of 15 years. He said that another proposal to replace the ‘remainder of the five year term’ with a lease for 10 years was discussed. When asked what Mr Greven’s attitude to that was, he said:
He was happy with the replacement of the current five-year term with the 10-year term.[86]
[86] T 48.
Mr Photi Kazis’ use of the word ‘replacement’ is a clear indication that they were both discussing a new lease. Mr Photi Kazis may have assumed that the old lease had been renewed, but the email under consideration does not lead to the inference that Mr Greven also accepted it.
For those reasons, and applying the elements outlined by Blue J in Outback Energy, I find that Kazis Nominees has not proved that both parties to this dispute proceeded on the basis of an assumption that the lease was validly renewed. I accept that Kazis Nominees proceeded on that assumption, but I do not accept that Mr Greven, and Bakers II, did.
It follows that both parties did not accept that the assumption was true, or that such an acceptance was intended to govern the legal position between them.
Further, I do not accept that Kazis Nominees acted in reliance on the assumption. There is no evidence, for example, that they declined to charge the 10% holding over rent surcharge on that assumption. It is more likely on the evidence that they were more intent on negotiating for a higher rent.
Even if that was the reason why Kazis Nominees decided not to charge the 10%, there is no evidence that Mr or Mrs Greven knew that Kazis Nominees was so acting.
As to whether Kazis Nominees would suffer detriment if Bakers II were permitted to depart from the assumption, since I have found that Bakers II did not proceed on the assumption, there is no departure to be permitted.
As to unconscionability, the situation was that Kazis Nominees was an experienced, substantial, commercial landlord with ready access to legal advice. Mr Photi Kazis acknowledged that they had about 16 properties in their portfolio at the time.[87]
[87] T 118.
On the evidence, Mr Peter Kazis was holding out for a very substantial increase in rent. It was Mr Greven who was anxious about his lack of security, and he communicated his anxiety to Mr Photi and Mr Peter Kazis on numerous occasions.
Rather than seeking to regularise the situation, Kazis Nominees was content to let the matter drift. Even after Ms Visser’s valuation, they took advice on whether to appeal, because Mr Peter Kazis was ‘disappointed’ with the valuation.
Mr Photi Kazis was in a difficult situation. His father was elderly and was obviously difficult to deal with. Mr Photi Kazis described one development when his father agreed to a 10-year term as a ‘breakthrough’.[88] He was well aware of Mr Greven’s anxiety, and was just as anxious to have the matter resolved. Mr Greven was justified in his fear that Mr Peter Kazis’ intransigence was putting his business at risk. This was not a situation created, or even contributed to, by Bakers II. It was entirely of Mr Peter Kazis’ making.
[88] T 54.
If, as I concluded earlier, the lease was not validly renewed and the tenancy had reverted to a monthly tenancy, there is nothing in the circumstances of this case which could justify the conclusion that it would be unconscionable to allow Bakers II to give the appropriate notice and exercise its right to terminate the lease.
For the above reasons, I conclude that none of the elements of estoppel by convention have been established by Kazis Nominees.
Damages
In case I am wrong about the plaintiff’s case, I should say something about the damages to which Kazis Nominees would have been entitled had it been successful.
The plaintiff claims $368,817.05 in lost rent plus $52,050.68 outgoings, or a total of $420,867.73.
The principles upon which damages should be assessed are well settled. In his book Commercial Leases in Australia,[89] W D Duncan writes:
Griffith CJ stated that the measure of damages should be the full amount of the rent for the whole term less that sum which a court may think the lessor is likely to derive during what would have been the residue of the term.[90]
[89] 6th ed, Lawbook Co., 2011 at [13.40].
[90] Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672 at 684. See also the cases cited at footnotes 69 and 70 at p 382 of Mr Duncan’s book.
This case is somewhat unusual in that the full term of the lease has now run its course, having expired on 28 February 2018, so there is now no need to assess the prospect of re-letting.
Mr Swan argued that Kazis Nominees had failed to mitigate its loss. Mr Greven purported to terminate the lease with effect from 30 September 2015. There is no dispute that the rent was paid to that date.
In a letter to Ms Polson dated 24 August 2015,[91] Mr Oks asserted that the lease had been renewed and, further, that Bakers II was estopped from denying that fact. Ms Polson replied by letter dated 31 August 2015[92] rejecting Mr Oks’ assertions. Mr Oks responded by letter of the same date.[93] In that letter, Kazis Nominees appears to accept the termination and assert its right to damages. Arrangements were suggested for vacant possession and remediation, although mitigation of damage was expressed in terms of finding a tenant to ‘take over your client’s lease’. By letter dated 30 September 2015,[94] Mr Oks advised Ms Polson that Kazis Nominees had engaged an agent to re-lease the property. A copy of the Commercial Property Leasing Agency Agreement entered into by Kazis Nominees is in evidence.[95] It is dated 21 September 2015.
[91] Exhibit P1, Tab 49.
[92] Exhibit P1, Tab 50.
[93] Exhibit P1, Tab 51.
[94] Exhibit P1, Tab 52.
[95] Exhibit P1, Tab 53.
Since the notice period did not expire until 30 September 2015, it cannot be suggested that Kazis Nominees was guilty of any delay in appointing an agent to assist it to find another tenant.
In Commercial Leases in Australia, Mr Duncan writes:[96]
As a lease must be construed like any contract, the principle that a lessor must act to mitigate loss applies. Thus, where a lessee abandons the leased premises, the lessor will be under a duty to take reasonable steps to mitigate the loss by actively seeking another lessee. The duty to mitigate loss is constituted by the taking of reasonable steps to reduce the loss payable by the lessee in damages. The standard is not high. The lessor would not be under any obligation to do anything other than what might be expected to be done in the ordinary course of business, as it is the lessee who has brought about the loss.
The onus is clearly upon the lessee to establish that the lessor has failed in its duty to mitigate its loss.
…
In Glentham Pty Ltd v Luxor Holdings Pty Ltd, the lessee failed to show that the lessor had not acted to mitigate loss after a forfeiture of the lease. The lessee unsuccessfully attacked the lack of advertising to re-let the premises, the asking of what the lessee considered to be too high a rental for the re-letting, the refusal of offers to re-let part of the premises and the failure of the lessor to remove certain special facilities (a spa and sauna) which, it was alleged, very few lessees on a re-let would want. These types of issues would be typically raised on a claim that a lessor had failed to mitigate, the onus being upon the defendant lessee.
If the lessor fails to mitigate its loss in that it did not re-let the premises when it could have reasonably done so, the lessor’s damages for loss of future rent, outgoings and other amounts will be reduced by the amount it would have received if it had re-let.
(References omitted)
[96] Supra, [13.40] at pages 385-6.
Mr Swan submitted that the plaintiff had failed to mitigate its loss. He made the following points:
·Kazis Nominees did not effectively put the property in the hands of the agent until December 2015 (this is factually incorrect, as I have already outlined);
·the landlord was asking too much in rent (this is based on the instructions in the agency agreement that Kazis Nominees was seeking $165,000 plus outgoings per annum). The agent, Mr Pozza, who is very experienced, was not asked in cross-examination if that figure was too much. Further, just because that figure is in the agency agreement does not mean that Kazis Nominees would not negotiate below it;
·the plaintiff has not produced evidence of all the agents’ dealings with various tenants;
·the insistence of Kazis Nominees that any lease of the premises include a ‘redevelopment clause’ of the type suggested in Mr Oks’ letter of 17 October 2016[97] to another commercial leasing agent.
It is true that Mr Pozza did describe such a clause as a ‘deal breaker’.[98] He made the same comment about a ‘demolition clause’. There was a demolition clause in the original lease.[99] Demolition clauses are permitted by s 39 of the Retail and Commercial Leases Act. Provided the clause in the lease complies with the requirements of that section, such clauses are lawful.[100] There is no evidence as to the prevalence of redevelopment clauses of the type proposed by Kazis Nominees. There is no evidence that any of the people who may have expressed interest in the property after 17 October 2016 walked away as a result of the inclusion of a redevelopment clause in any proposed lease. The evidence is that none of those people even got close to the stage of discussing particular clauses in the lease. I therefore conclude that the instruction given in the letter of 17 October 2016 has had no relevant effect on the ability of Kazis Nominees to re-let the premises.
[97] Exhibit D4.
[98] T 219.
[99] Clause 4.17.
[100] Yang & Anor v Hapisun Pty Ltd & Anor [2018] SASC 17 per Parker J.
In all those circumstances, I find that Kazis Nominees took reasonable steps to seek another tenant, and has done what might be expected to be done in the ordinary course of business. The defendants have failed to establish that Kazis Nominees had failed to mitigate its loss.
Conclusion
For the above reasons, I find that:
(1)the lease between Kazis Nominees and Bakers II was not renewed for a second time to commence on 1 March 2013;
(2)there is no estoppel which would prevent Bakers II from asserting the conclusion in (1);
(3)the plaintiff’s claim is dismissed.
I will hear counsel as to any consequential orders.
2
19
1