Rafaraci v Suitable Systems Pty Ltd
[2002] NSWADT 250
•11/28/2002
CITATION: Rafaraci v Suitable Systems Pty Ltd [2002] NSWADT 250 DIVISION: Retail Leases Division PARTIES: APPLICANT
Vincenzo Rafaraci
RESPONDENT
Suitable Systems Pty LtdFILE NUMBER: 025053 HEARING DATES: 16/08/02, 20/08/02 SUBMISSIONS CLOSED: 08/20/2002 DATE OF DECISION:
11/28/2002BEFORE: Montgomery S - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease - Claim for relief against forfeiture - Claim for relief from payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED: Retail Leases Act 1994 CASES CITED: REPRESENTATION: APPLICANT
In person
RESPONDENT
M Lloyd, agentORDERS: 1. The Applicant is entitled to credits for amounts totalling $4758.26. ; 2. The Respondent is entitled to credit for an amount of $912.18. ; 3. The outgoings for which the Applicant is liable are either GST inclusive or GST exempt. The Applicant has no further GST liability with respect to those items.; 4. The Applicant is liable to pay rent for the period 1 August 2001 to 31 July 2002 at the rate of $40,154.36 per annum GST inclusive. The Applicant is liable to pay rent arrears of $2,379.60 for that period. The Applicant is liable to pay rent for the period from 1 August 2002 at the rate of $41,284.63 per annum, GST inclusive, payable by monthly instalments of $3,440.38.; 5. Orders preventing the Respondent from taking enforcement action in relation to the Notice to Quit are revoked. 5. Orders preventing the Respondent from taking enforcement action in relation to the Notice to Quit are revoked.
1 This is an application brought by Mr Vincenzo Rafaraci (“the Applicant”) in relation to a restaurant located at Ground floor 360 Rocky Point Road Sans Souci, being part of the land contained in Folio Identifier 103/603105 (“the Premises”). The Premises are known as Vee Jays Italian Restaurant. The lessor of the Premises is Suitable Systems Pty Ltd (“the Respondent”).
2 The application was filed in the Tribunal on 13 May 2002. The Applicant sought orders in the following terms:
- “Credit or refund of excess monies paid to landlord.
A claim for relief from payments in relation to below
1 GST payments
2 interest payments
3 land tax payments.
A claim for relief against forfeiture.
A claim for a declaration of the rights, obligations & liabilities of the parties under a lease. Example
1 GST
2 interest payable on unpaid funds
3 land tax and GST on land tax
4 encumbrance of restaurant due to visual blockage"
3 The application provided details of the grounds of application in the following terms:
- "Over the past 18 months I have disputed both with the landlord and the landlord agent in relation to discrepancies with the conduct of the agent in relation to
charging of GST on non GST items,
interest charged on late monies,
double billing of water rates,
encumbrances on the business during our trading without monetary compensation,
non-reimbursement of insurance monies for damage ie water leak,
lockout cost charged when lock out should not have taken place,
interest charged due to relocation of funds not intended for that particular purpose."
4 The Applicant sought an urgent interim order preventing the Respondent locking him out of the Premises until the matters are resolved and or mediated. The application for urgent interim orders was said to have been brought in response to a lockout threat and taking possession of the bond.
5 The application for urgent interim orders came before the Tribunal for hearing on 15 May 2002. On that occasion orders were made preventing enforcement action prior to 31 May 2002. On 31 May 2002 directions were made for filing and service of documents leading to a hearing of the issues in dispute. By letter dated 2 July 2002 the Respondent’s solicitors issued the Applicant with a Notice to Quit. Further directions were held on 14 August 2002 and the matter was finally heard on 16 August 2002 and 20 August 2002. Orders were made preventing the Respondent from taking enforcement action in relation to the Notice to Quit until finalisation of the matter.
6 On 11 August 2002, in a letter to Mr Lloyd and copied to the Tribunal, the Applicant clarified the orders sought as follows:
- “I ask for the following so that we may continue the lease in a civilised manner.
Reimbursement of interest charged payments $1,916.94.
Reimbursement of overpaid Insurance premium. Approx. $300.00
Reimbursement of over paid Water Usage services of approximately $600.00.
Payment of Insurance claim for damages to the restaurant property. $2,400.00
Reimbursement of fire extinguisher service of $440.00.
Total Reimbursements of $5,656.94.
I also ask that any future penalty interest be calculated as per my calculations.”
7 The hearing proceeded on the basis that the Applicant’s letter of 11 August 2002 particularised and quantified the Applicant’s claim.
Background to the Application
8 A Lease was entered between the Applicant and Mr Vincenzo Marturano and the Respondent in relation to the Premises. The Applicant subsequently adopted Mr Marturano’s obligations under that Lease (“the Lease”). The Lease was stated to commence on 8 August 2000 and terminate on 8 August 2005. It appears that the relationship between the parties has been tense for some time. As a consequence the Respondent elected to use the services of an agent in relation to its dealings with the Applicant. This appears to have caused the Applicant some difficulty given the fact that both the Applicant and the Respondent operate from premises within the same building. The Respondent has also sought to recover GST on some expenses incurred in relation to its dealings with the Applicant. The dispute relates to whether the Applicant is in breach of the Lease in that amounts are outstanding with respect to rent and outgoings and whether the amounts which the Respondent asserts are payable by the Applicant are in fact payable.
9 It is common ground that the relationship between the parties is governed by the terms of the Lease. The Lease is also governed by the Retail Leases Act 1994 (“the Act”). Annexure B of the Lease makes specific provision for the application of the Act.
Relevant Provisions of the Lease
10 Clause 5 and Annexure A to the Lease set out the Applicant's obligations in relation to the payment of rent and outgoings. The provisions of Clause 5 of the Lease in so far as they are relevant to these proceedings are:
- “CLAUSE 5 MONEY
What money must the tenant pay?
The tenant must pay to the landlord or as the landlord directs -
5.1.1 the rent stated in item 12 in the schedule;
5.1.2 the share stated in item 13A in the schedule of those outgoings sated in item 13B in the schedule;
5.1.3 the reasonable cost to the landlord of remedying a default by the tenant;
5.1.4 the reasonable cost to the landlord of dealing with any application by the tenant for the landlord's consent under this lease (whether or not it is given);
5.1.5 interest on these moneys at the rate stated in item 14 in the schedule when payment is more than 14 days overdue, calculated from the due date to the date of payment;
5.1.6 registration fee for registration of this lease at the Land Titles Office (payable on delivery to the landlord's solicitor of the executed lease);
5.1.7 stamp duty on this lease (payable on delivery to the landlord's solicitor of the executed lease) if not previously paid by the tenant to the Office of State Revenue;
5.1.8 if the tenant defaults, the landlord's reasonable legal costs relating to the default, and
5.1.9 the landlord's reasonable costs and expenses in connection with the preparation of this lease.
5.1.10 Goods and Services Tax as provided for under the heading Goods and Services Tax in Annexure A.
The first month's instalment of rent is to be paid by the commencement date. Each later month's instalment of rent is to be paid in advance.
A payment under clause 5.1.2 must be paid on the next rent day after a request for payment is made by the landlord.
A request for payment can be made -
5.3.1 after the landlord has paid an outgoing; or
5.32 after the landlord has received an assessment or account for payment of an outgoing.
If item 13B in the schedule refers to land tax -
- if the property is a strata lot, the relevant land tax is land tax on that lot;
- if the property is not a strata lot but is part of a building, the relevant land tax is land tax on the land on which the building is situated, plus any land of the landlord used or available for use by or for the benefit of tenants conducting business in the building or in connection with trading in the building; and
- in either case, the land tax must be calculated as if the land was the only land owned by the landlord and there was no special trust or non-confessional company involved
When and how is the rent to be reviewed?
The rent is to be reviewed on the rent review dates stated in item 15 in the schedule.
If this lease is extended by legislation, the rent review dates include each anniversary of the latest rent review date stated in item 15 in the schedule (or if none is stated each anniversary of the commencement date) which falls during the extension.
The tenant must continue to pay rent at the old rate until the new rate is known. After that, the tenant is to pay the new rent from the next rent day. By that rent day the tenant is also to pay any shortfall between the old and new rate for the period since the rent review date. Alternatively, the landlord is to refund to the tenant any overpayment of rent.
There are three different methods described here for fixing the new rent on a rent review date. The method agreed by the landlord and the tenant is stated at item 15 in the schedule. The tenant is entitled to a reduction if the method produces a rent lower than the rent current just before the review date
Method 2. By reference to Consumer Price Index.
In this case -
-take the yearly rent as of the last review date or if none, the rent at the commencement date ($X),
- divide that rent by the Consumer Price Index Number for Sydney (All Groups) for the quarter ended just before that date (CPI 1),
- multiply the result by the Consumer Price Index Number for Sydney (All Groups) for the quarter ended just before the review date (CPI 2).
The product is the new rent for the year beginning on the review date ($Y), written as a formula -
$X x CPI 2 = $Y
CPI 1
The landlord must calculate the new rent after each review date and give the tenant written notice of the new rent.
If the Australian Bureau of Statistics makes a change in the reference base of the index and there is a published co-relation between the old and new base then the published co-relation is to be applied to convert the CPI 1 figure to the new reference base. If there is none then the landlord and the tenant agree to accept the calculations of the landlord's solicitor who must be retained to determine a fair correlation between the old and the new series of numbers. …”
11 The provisions of Annexure A to the Lease in so far as they are relevant to these proceedings are:
- “Item 12 (cl 5) Rent
- For the lease period:
From the commencement date to the first rent review date:
$34,340.76 a year by monthly instalments of $2,861.73
“Item 13 (cl 5) Outgoings
A. Share of outgoings: 50% of the outgoings listed below
B. Outgoings
- (a) local council rates and charges;
(b) water sewerage and drainage charges; land tax; insurance;
(c) land tax;
(d) insurance
Item 14 Interest rate: Ten (10%) per centum per annum
(cl 5.1.5)
Item 15 Rent review
(cl 5.4)
Rent review date Method of rent review
Each anniversary of the Method 2
Commencement Date
Method 2 is a Consumer Price Index.
Method 2 applies unless another method is stated.
Item 17 Permitted use: Restaurant
(cl 6.1)
Item 17 Amount of required public liability insurance: Ten Million Dollars
(cl 8.1.1) ($10,000,000.00)
Goods and Services Tax
A. The rent and all other moneys payable by and on behalf of the tenant under this lease are exclusive of Goods and Services Tax or like impost (GST).
B. Liability for GST (payable in respect of any taxable supply) is additional. It is payable by the tenant to the landlord at the same time as rent and other moneys are payable.
Additional Lease Provisions
Clause 15
The tenant on or before the commencement date of this lease must pay to the landlords a bond equal to three months' rent (in the form of cash or bank guarantee), such bond to be adjusted on each anniversary or upon renewal in accordance with any changes in rent.
Clause 17
If the tenant causes any damage to the premises he shall be liable to make good such damage to the satisfaction of the landlords, failing which the landlords can deduct the cost from the security bond and sue the tenant for any deficiency.
Clause 18
The landlord acknowledges that the landlord shall be liable and responsible for:
(a) Repairs to all lighting and electrical circuits
(b) Repairs to all plumbing including the wash basin and toilet and their operation but excluding plumbing within the restaurant premises and the grease trap, for which the lessee shall be responsible
(c) Light fittings and maintenance thereof
(d) All locks and locking mechanism
(e) All water leakages and penetrations
(f) Maintenance of all fences and gates
(g) Maintenance of the roof
(h) Maintenance of front awning
Clause 19
The tenant acknowledges that it received a disclosure statement under the Retail Leases Act 19994 at least seven (7) days before it entered into this lease.
Clause 20
It is acknowledged by the parties that any reference to lessor means and includes landlord and vice versa and any reference to lessee means and includes tenant and vice versa.
Clause 22
Pending separate water metering of the demised premises, water usage charges for the building of which the demised premises forms part shall be paid as to 50% by the landlord and as to 50% by the tenant.
Clause 23
The tenant shall during the term of the within lease and during any renewal or holding over maintain and repair the grease trap for the building of which the demised premises forms part, at the expense of the tenant, including regard emptying, cleaning and pump out as required”.
12 The Respondent provided the Applicant with a disclosure statement prior to entry into the Lease. The disclosure statement, dated 18 May 2000, provides an estimate of outgoings to be paid by the Applicant as follows:
- "land tax $1,758.00
local government rates and charges $1,480.00
insurance $4, 652.80
water and sewerage $2,800.00
50% water usage (if not separately metered)
100% air-conditioning maintenance and grease trap Maintenance/disposal charges
formula for apportionment of outgoings if
the lessee is not liable for the total amount 50%"
13 The disclosure relating to agreements or representations provides:
- "GST: The rent charge by the Lessor does not include any amount in respect of any goods and services tax and the Lessee agrees to pay the amount of any such tax as may be levied from time to time upon or in respect of the rent, turnover rent or any other amount payable by the Lessee to the Lessor.
Market rent review for Year 1 of the renewed lease term and thereafter annual CPI adjustments.
Insurance: a) 10,000,000 public risk and b) plate glass including door frames and window frames (if any).
The Lessor's reasonable legal costs and expenses (including costs on mortgagee's consent) to be paid by the Lessee.
Security: Bank Guarantee or Bond Deposit (bank cheque) equal to three (3) months' rent ($8,585.00).”
14 As noted above, the Lease is governed by the Act. Section 68 of the Act provides:
- “68 Disputes and other matters must be submitted to mediation before proceedings can be taken
- (1) A retail tenancy dispute may not be the subject of proceedings before any court unless and until the Registrar has certified in writing that mediation under this Part has failed to resolve the dispute or matter or the court is otherwise satisfied that mediation under this Part is unlikely to resolve the dispute or matter.”
15 While the parties did not provide a certificate that mediation has failed to resolve the dispute, I was satisfied that mediation was unlikely to resolve the dispute or matter. I was therefore prepared to hear the matter.
16 Pursuant to Part 3 of the Act, the Tribunal has powers to make orders in relation to a retail tenancy claim. The Tribunal’s order making powers are set out in section 72 of the Act. The provisions relevant to these proceedings are:
- “72 Powers of Tribunal relating to retail tenancy claims
(1) In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:
(a) an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person,
(b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings,
(c) an order that a party to the proceedings:
- (i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of a lease, or
(ii) surrender possession of specified premises to another person, or
(iii) assign his or her or its rights under a lease to a specified person, or
(iv) do or perform, or refrain from doing or performing, any specified act, matter or thing,
(e) an order, by consent of the parties, requiring the parties to the proceedings to rectify a lease,
(f) an order:
- (i) declaring any provision made by a lease to be void for being inconsistent with this Act or the regulations, or
(ii) declaring that a lessor is not entitled to withhold consent to an assignment of the rights of a lessee, or
(iii) declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not,
(2) The Tribunal may make such ancillary orders as it considers necessary for the purpose of enabling an order under this section to have full effect.
(3) The Tribunal may impose such conditions as it considers appropriate when making an order under this section.”
17 The Applicant appeared and gave evidence on his own behalf. He also provided a written chronology of events, a bundle of correspondence between the parties, and documents relating to the outgoings claimed by the Respondent.
18 In presenting his case, the Applicant relied heavily on the material set out in his letter to Mr Lloyd dated 11 August 2002. His evidence was largely restricted to elaborating on the points made in that letter. An additional issue was raised at the hearing with respect to the late notice of rent increases notified to the Applicant by letter dated 24 July 2002. As a consequence of the increase, the Respondent sought payment of an additional amount of $2,379.60. The Applicant sought clarification of his rights and obligations with respect to the rent increase and arrears claimed.
19 Mr Lloyd appeared on behalf of the Respondent. The Respondent’s case is essentially set out in a letter from Mr Lloyd to the Applicant dated 12 August 2002. That letter was written in response to the Applicant’s letter of 11 August 2002. The Respondent’s case primarily involved clarification of the arguments presented in that letter and presentation of documents which were said to support those arguments.
20 For convenience I propose to adopt the Applicant’s heads of claim as a guide for the structure of these reasons.
Incorrect allocation of rent payments.
The Applicant’s case.
21 The Applicant argued that moneys paid towards rent have been inappropriately allocated to outstanding outgoings, such as water and insurance. His evidence is that this first occurred in February 2001. He said that at the time he spoke with the Respondent’s agent, Ms Catherine Brooks, and explained that he would be making a rent payment of $1,573.50 to cover two weeks rent. These moneys were then allocated to water usage and part payment of building insurance. Consequently, the Applicant went into arrears with the rent and was subject to interest on the arrears.
22 The allocation of the payment towards building insurance was done at a time when the Applicant had not received the building insurance policy and had not had the opportunity to consider the policy and ascertain that the Respondent’s demand for payment complied with his obligations under the Lease. The Applicant asserted that he regularly received demands for payment without justification.
23 In March 2001 moneys that the Applicant paid towards rent were partly allocated to building insurance and only the balance allocated to the rent. This resulted in the Applicant being in rent arrears and subject to interest. The Applicant’s evidence is that he has paid a total of $1,918.14 in interest on arrears. He argued that at the most he should be liable to pay only $249.88 if the Respondent’s method of calculation is adopted. However if his method of calculation is adopted he should only be liable for an amount $18.72.
The Respondent’s case.
24 The Respondent referred to Clause 5 of the Lease as the source of the Applicant’s obligation to pay monthly rent and outgoings. In summary, the Applicant is liable for 50% of local council rates and charges; water, sewerage and drainage charges; land tax; and insurance and 100% of air-conditioning maintenance and grease trap maintenance/disposal charges. The Applicant is also liable for interest on these moneys at the rate of ten per centum per annum when payment is more than 14 days overdue, calculated from the due date to the date of payment.
25 The Respondent asserted that the Applicant is liable to pay the amounts claimed. The Applicant is also liable for interest on the overdue moneys.
Finding.
26 I agree with the Respondent in that the Lease clearly provides for the Applicant’s liability in relation to rent and outgoings. In my view, the liability exists regardless of whether the amount payable is for outgoings or for rent. The Applicant is also liable for interest on overdue moneys in accordance with Clause 5 of the Lease. Having formed that view, it is necessary that I consider whether the correct method of calculating the interest has been adopted. This will be considered later in these reasons.
27 The Applicant has asserted that the Respondent allocated payments towards items that were in dispute or in circumstances where the Applicant had not had a reasonable opportunity to satisfy himself as to his liability rather than towards rent. In this regard I note that the Disclosure Statement given to the Applicant prior to entry into the Lease outlined an estimate of the Applicant’s liability for outgoings. The Applicant was therefore aware that these amounts would be payable. The Applicant had experience with commercial tenancies prior to his entry into the Lease. It is reasonable to expect that he was aware of his obligations. The amounts in dispute are relatively small in comparison with the total amounts payable by the Applicant. In these circumstances it would have been prudent for the Applicant to have paid the amounts sought by the Respondent and to then raise any challenge that he considered warranted. If he had adopted that course of conduct he would not have been subjected to any interest.
28 Similarly, if the Respondent had adopted a more consultative approach the Applicant would have been aware of the Respondent’s allocation of payments towards outgoings rather than rent, and the Respondent would have been aware of the Applicant’s concerns with respect to the charges for which the Respondent was claiming payment. The breakdown in communication between the parties has clearly compounded the issues in dispute between them.
Incorrect Calculation of Penalty interest.
29 Related to the issue of the allocation of moneys paid by the Applicant towards outgoings rather than rent is the issue of whether interest has been properly calculated. It is appropriate to consider these two issues together.
The Applicant’s case.
30 There are two limbs to the Applicant’s argument in relation to this issue. Firstly, he asserts that interest has been calculated on late rent inclusive of the GST portion of the rent, as distinct from the rent alone. The Applicant argued that if interest needed to be calculated it should be on the outstanding amount of rent and then GST should be calculated on the sum of the outstanding amount and the applicable interest.
31 Secondly, the Applicant asserts that where rent has been in arrears, the Respondent has calculated interest on the whole of the amount which was payable rather than the actual amount of the arrears. The Applicant argued that interest is payable at the rate of 10% per annum on the outstanding amount payable from the due date to the date of payment. He argued that interest is not payable on a per day basis or on the yearly amount.
32 As noted above, the initial annual rent excluding GST was $34,340.76. This amount is payable by monthly instalments of $2,861.73. The initial annual rent including GST was $37,774.80. The Applicant presented figures to show that the daily rent is therefore $103.44. If interest is charged at the rate of 10% of the daily rent it would be charged at the rate of $10.37 per day. He asserted that this was the method of calculation adopted by the Respondent.
33 The Applicant argued that the Lease provides for interest to be payable only on outstanding amounts. It follows in his argument that the method of calculation adopted by the Respondent is incorrect. He submitted that the correct approach is that used by banking institutions worldwide when calculating interest payable. This method calculates interest using the monthly amount payable. The initial monthly rent excluding GST is $2861.73. Interest on that amount at 10% per annum is $286.17. For each day the amount would be $0.78 plus GST.
34 The Applicant offered an example to show the consequences of adopting each of the respective approaches to calculating interest payable:
- “[I]f I invest $2861.73 @10% per annum for one year my earnings would be $286.17 for the entire year. If I were to calculate the daily amount I would divide the interest earnings by 365 days equalling 78 cents per day. With [the Respondent’s] calculation I would earn $10.37 per day multiplied by 365 days totalling $3785.05.”
35 The Respondent did not dispute that the method of calculation attributed to it by the Applicant was in fact the method it had adopted. The Respondent merely asserted the belief that its calculations are correct.
Finding.
36 The lease was prepared by or on behalf of the Respondent. In my view, if two possible constructions of the provisions relating to the imposition of interest are available, the provisions should be construed contra proferentum and a construction that favours the Applicant should be preferred. In any event, in the circumstances of this matter I am satisfied that the method of calculation proposed by the Applicant is to be preferred. In my opinion it would be grossly unfair to apply the method of interest calculation adopted by the Respondent. Given that the director of the Respondent responsible for interest calculations is a practicing accountant, the adoption of the method used would appear to be even more punitive than might otherwise be the case.
37 I also agree with the Applicant’s argument that interest is payable on the outstanding rent and if applicable the total of the outstanding rent plus interest. Interest is not payable on the outstanding rent plus GST. However, if a penalty is imposed because GST has not been paid, that penalty would be payable by the Applicant. There is no evidence that this is the case.
38 I accept the Applicant’s evidence that he has paid a total of $1,918.14 in interest. In my view he was liable to pay only $249.88. He is therefore entitled to a credit of the difference between the liability and the amount paid i.e. $1,668.26. I note that the Applicant has not sought damages in relation to the Respondent’s retention of this amount.
Insurance Premium.
The Applicant’s case.
39 The Applicant argued that the Lease provides that he is liable to pay 50% of the building insurance. He asserted that he has been charged and has paid for 50% of the total insurance premium including owner's personal 'Loss of Income' premium. The exact cost of that component is unclear and not stated on the insurance renewal certificate.
40 The Applicant’s evidence is that he has been advised by NRMA insurance that the component of the premium which relates to 'Loss of Income' would be between $200 and $300. He argued that he has been overcharged and requests reimbursement of that amount.
The Respondent’s case.
41 The Respondent referred to Clause 5 of the Lease as the source of the Applicant’s obligation to pay building insurance. In summary, the Applicant is liable for 50% of insurance for the land or the building of which the Premises is part.
42 The Respondent conceded that the policy in issue provided for $72,000 income insurance. It also conceded that the Applicant is not liable for this insurance.
Finding.
43 I accept the Applicant’s evidence that he has contributed to the cost of the insurance policy which contains a 'Loss of Income' component. In my view he was not liable to pay the cost of 'Loss of Income' insurance and is entitled to be credited for the cost of that insurance. I find that the value of that 'Loss of Income' component is $250. The Applicant has contributed to 50% of that insurance over two years and is therefore entitled to a credit of $250.
Water Usage Payments
The Applicant’s case.
44 The Applicant argued that the Lease provides that he is liable to pay 50% of the water usage. He asserted that since the beginning of the Lease, he has been charged 90% of the water usage.
45 His evidence is that two of the quarterly accounts were not available for him to scrutinise. Consequently he is unable to accurately state the amounts which he was liable to pay. Nevertheless he asserted that he has over paid in excess of $600.00 for water usage and sought reimbursement of that amount.
The Respondent’s case.
46 The Respondent referred to Clause 5 of the Lease as the source of the Applicant’s obligation to pay water, sewerage and drainage charges. In summary, the Applicant is liable for 50% of water, sewerage and drainage charges; and 100% of grease trap maintenance/disposal charges. The Applicant’s calculations are incorrect because the initial payment which the Applicant has included in his calculations relates to arrears under a previous tenancy for which the Applicant had accepted liability. Mr Lloyd argued that the Applicant is also liable for the whole of the commercial waste component of the quarterly account. The trade waste figure relates to waste going to drainage, 95% and to the grease trap, 5%. The Applicant has failed to take this into account in his calculations.
47 The Respondent’s evidence is that the total amount payable for water, sewerage and drainage charges for the period 8/8/2000 to 30/9/2002 is $4,373.77. The total amount paid by the Applicant during this period was $2,335.28. The further evidence is that the two most recent accounts remain outstanding. An account payable by 14 June 2002 is for an amount of $1066.80 of which it is alleged that the Applicant is liable for $661.09. An account payable by 20 August 2002 is for an amount of $1119.65 of which it is alleged that the Applicant is liable for $738.34. These amounts claimed by the Respondent are stated to include an additional amount for GST relating to the cost of collecting the payments by the Respondent.
Finding.
48 I accept the Applicant’s evidence with respect to the amounts he has paid in relation to water, sewerage and drainage charges. However, in my view the Applicant has wrongly calculated the amounts for which he is liable. I do not accept that his liability is merely 50% of each individual account. In this regard I prefer the Respondent’s argument that the Applicant is liable for 100% of the trade waste component of those accounts. Notwithstanding that view, I do not accept the Respondent’s calculations either. In my view, GST is not payable on the water and sewer components of the accounts. It is however payable on the trade waste component. GST appears to have been provided for in the amounts set out in the accounts. I will consider the issue of the Applicant’s general liability for GST later in these reasons.
49 The accounts in issue were produced at the hearing and are in evidence. My calculations are based on those accounts and my findings in relation to this issue are set out in the following table. My calculations are made on the basis that all charges included in the accounts are either GST inclusive or GST exempt.
Date Payable Account total Applicant’s liability Amount Paid Over Payment 13/12/2000 $631 $336.95 $475.38 $138.43 15/3/2001 $473.30 $254.13 $332.68 $78.55 14/6/2001 $587.05 $341.03 $441.02 $100.00 13/9/2001 $507.65 $254.33 $358.56 $104.23 14/12/2001 $673.60 $349.08 $358.56 $9.48 19/3/2002 $1046.25 $616.94 $575.44 -$41.50 14/6/2002 $1066.80 $610.72 $0 -$610.72 20/8/2002 $1119.65 $690.64 $0 -$690.64 $3453.82 $2541.64 -$912.18
50 In my opinion, the Applicant is in arrears in relation to water, sewerage and drainage charges in an amount of $912.18. It follows that the Respondent is entitled to a credit for this amount.
Outstanding Insurance Claim.
The Applicant’s case.
51 It is common ground that in March 2001 the ceiling of the Premises collapsed. The damage was caused by a broken pipe in the ceiling, connected to the above premises’ dishwasher. Those premises are occupied by the Respondent. The Applicant’s evidence is that considerable damage was caused to the Premises and consequential damage to the Applicant’s property. This damage included broken tables, chairs, china, cutlery, crockery and plants.
52 The Applicant’s evidence is that he lodged a claim for approximately $2,400.00 directly with the Director of the Respondent, Rhonda, and her colleague Norman a few days after the event. The Respondent advised the Applicant that he should claim for the damage through his own insurance. The Applicant has retained receipts for the cost of repairs but his claim against the Respondent has remained unpaid.
The Respondent’s case.
53 Mr Lloyd’s evidence is that the claim was never brought to his attention. If the Applicant had raised it with him a claim would have been lodged with the insurer.
Finding.
54 On the evidence before me I am satisfied that the alleged damage was caused to the Premises as a consequence of a problem with the Respondent’s dishwasher. In my view, the Respondent is liable for the cost of rectification work and other expenses which were incurred as a consequence of the collapsed ceiling. I am satisfied that the Applicant’s loss as a consequence of that incident is $2400.00. The Applicant is entitled to a credit for that amount.
GST.
The Applicant’s case.
55 As indicated above, the Respondent sought to recover GST from the Applicant in relation to collecting payments for which the Applicant is liable under the Lease. The Applicant argued that he should not be held liable for these amounts. The Respondent also sought to recover GST in relation to Council rates, water rates and land tax. The Applicant submitted that GST is either already included in the amounts charged in relation to those outgoings or GST is not applicable to the outgoing.
56 The Applicant’s evidence is that he sought a private ruling from the Australian tax Office regarding this matter however this was not provided. He stated that it is not possible for him to calculate the amount of GST that has been charged incorrectly.
The Respondent’s case.
57 The Respondent referred to Clause 5.1.10 of the Lease as the source of the Applicant’s obligation to pay GST. The Schedule to the Lease provides that all moneys payable by the Applicant under the Lease are exclusive of GST and that liability for GST payable in respect of any taxable supply is additional.
Finding.
58 I agree with the Respondent to the Applicant is liable for the payment of GST on any amounts for which the Applicant is liable that attract GST. However, I do not accept that the Applicant is liable for the payment of GST in relation to expenses incurred by the Respondent in collecting payments for which the Applicant is liable under the Lease. With the exception of the reasonable cost to the Respondent of remedying a default by the Applicant, the Lease places no liability on the Applicant for expenses incurred by the Respondent in relation to collection of moneys and therefore the Applicant is not liable for GST in relation to those expenses.
59 In the circumstances of this matter I am satisfied that the other outgoings under consideration are either GST inclusive or GST exempt. It follows that the Applicant can have no further GST liability with respect to those items.
60 Land Tax is specifically exempt from GST by the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2002. It follows that the Applicant can have no liability with respect to that item. I note that the director of the Respondent who authorised the charging of these amounts is a practicing accountant. As such she could reasonably be expected to be familiar with the GST exemptions relating to items of this kind.
Fire Extinguisher services.
The Applicant’s case.
61 The Applicant concedes that he is responsible for costs associated with the Inspection and Testing of fire detection systems. His evidence is that he met those responsibilities and paid the applicable costs.
62 The Applicant’s evidence is that when the ceiling of the Premises collapsed in March 2001 there was damage caused to the fire detectors and extinguishers. Repairs and maintenance were required and invoices for $209.00 and $231.00 were issued as a consequence. He argued that he should not be liable for these amounts because they were necessitated by damage caused by the collapsed ceiling. These amounts should have be payable by the Respondent, as it is damage caused from that particular incident. Notwithstanding that the damage was caused by the collapsed ceiling, payment for the invoices was deducted from the Applicant’s monthly rent payment, without his consent, whilst he was debating the payment with the Respondent.
63 The Applicant sought reimbursement of an amount of $440.00 for payments made in relation to fire extinguisher service.
The Respondent’s case.
64 The Respondent referred to the Applicant’s obligation under the Lease to maintain the fire extinguishers and detection system and to pay the costs associated with the Inspection and Testing of fire detection systems. These are items which specifically relate to the Premises. The accountancy practice also within the building does not have these items.
65 The Respondent does not concede that the fire units were damaged by the collapse of the ceiling in March 2001. It argues that the amounts in issue are rightly payable by the Applicant.
Finding.
66 On the evidence before me I am satisfied that the alleged damage to the fire detection systems and extinguishers was caused by the collapsed ceiling of the Premises in March 2001. In my view, the Respondent is liable for the cost of rectification of those units. I am satisfied that the Applicant has paid an amount of $440.00 to have the fire extinguisher service carried out. The Applicant is entitled to a credit for that amount. I note that the Applicant has not sought damages in relation to the Respondent’s retention of this amount.
Bond.
The Applicant’s case.
67 The Applicant’s evidence is that the Security Deposit Bond paid on 8 August 2000 was released to the Respondent for outstanding rent, outgoings and interest. This release of the bond put the Applicant in breach of the Lease. He argued that the Bond should not have been released whilst many matters were in dispute but retained pending resolution of those issues.
68 The Applicant further argued that a security deposit bond should only be released to a third party at the end of a lease to provide for financial losses the landlord may incur during the tenancy.
The Respondent’s case.
69 Mr Lloyd argued that at the time the bond was paid to the Respondent, the Applicant was in arrears. The Respondent attempted to get the Applicant to rectify the situation but that had not been done. The Respondent was entitled to claim the bond in lieu of arrears and did so.
Finding.
70 I do not agree with the Applicant’s argument that the bond cannot be paid until the end of the Lease. In my view the bond is held as security for payment or other obligations. At the time the bond was claimed, the Applicant was in arrears to a significant amount. The Respondent was entitled to claim against the bond and chose to do so.
CPI rent Increases.
71 As indicated above, the Respondent wrote to the Applicant on 24 July 2002 and advised him of rent increases for the period 1 August 2001 to 31 July 2002. The letter was in the following terms:
- “In accordance with the terms and conditions of your lease agreement we advise that your rent increase was due on 1 August 2001. Rent increase calculated is ($36,503.96 per annum plus GST $3,650.40) $40,154.36 per annum. Shortfall in rent for the period 1 August 2001 to 31 July 2002 is $2,379.60.
Your next rent increase is due on 1 August 2002 and will increase to ($37,531.48 plus GST $3,753.15) $41,284.63 per annum, payable by monthly instalments of $3,440.38.
Additionally we advise the following amounts remain outstanding:
Water, Council and Land Tax: $4,613.04
Security Deposit: $8,585.19”
72 The Applicant argued that given the fact that the Respondent accepted the past 12 months rent instalments, to impose a past increase and back payment is a preposterous demand. He suggested that the demand is related to the issues he has raised for consideration by this Tribunal. The Applicant submitted that he was not given reasonable notice of the increase. If the increase was to apply from August 2001 he should have been told. As a consequence of the late notice he should be given more time to pay the amount sought.
73 The Applicant further argued that the Respondent has applied the wrong CPI index in calculating the new rents. He referred to the ATO publication of “CPI Rates – All Groups – Weighted Average of 8 Capital Cities” and argued that this is the applicable rate for use in calculating new rents.
The Respondent’s case.
74 Mr Lloyd referred to the Lease provisions relating to the method to be used for calculating rent increases. These provisions are set out in detail above. Mr Lloyd argued that the Lease provides that the Consumer Price Index Number for Sydney (All Groups) is the applicable index and not that proposed by the Applicant. The Respondent applied the correct index in calculating the new rents.
75 Mr Lloyd conceded that the Applicant was only recently presented with the notice of rent increase. He argued that nevertheless the Applicant is liable for the amount outstanding and to pay rent at the higher rates. Because of the late notice of the increases, the Respondent would not charge interest on the arrears related to the increase.
Finding.
76 In my view it is regrettable that the Applicant was not given earlier notice of the intention to increase the rent. I am unable to comment on the Applicant’s suggestion that the rent increase and claim for arrears is related to the Applicant’s action before the Tribunal. I have no evidence to suggest that that was the case. It may well be that as the Respondent became focused on the issues under consideration, other aspects of the parties’ respective rights and obligations became apparent and that the Respondent merely moved to address an oversight.
77 The lease clearly provides for annual rent variations in accordance with changes in the CPI. The Respondent is entitled to increase the rent to reflect CPI increases and a formula is provided to determine the extent of the increases. In my opinion, the Respondent has applied the correct formula in determining the rent increases.
78 I note that the Applicant expressed concern about the limited time he has been given to pay the arrears. The Respondent has indicated that it does not seek to recover interest in relation to the arrears which flow from the August 2001 rent increase. Further, the Applicant has operated at a rent which was below the amount which the Respondent was entitled to charge for almost a year. The lease provides that the Applicant must continue to pay rent at the old rate until the new rate is known. After that, the Applicant is to pay the new rent from the next rent day. By that rent day the Applicant is also to pay any shortfall between the old and new rate for the period since the rent review date. Having considered those factors and the fact that I have no evidence on which I can base a finding that the Applicant has suffered damage as a consequence of the late notice, it is my view that the Applicant is liable to pay the amount sought by the Respondent. The Applicant is liable for rent at the higher rate and for the arrears sought.
Summary of findings.
79 Incorrect allocation of rent payments. - The Applicant’s liability in relation to rent and outgoings exists regardless of whether the amount payable is for outgoings or for rent. The Applicant is liable for interest on overdue moneys in accordance with Clause 5 of the Lease.
80 Incorrect Calculation of Penalty interest - The Applicant is entitled to a credit for an amount of $1,668.26.
81 Insurance Premium. - The Applicant is entitled to a credit for an amount of $250.
82 Water Usage Payments. - The Respondent is entitled to a credit for an amount of $912.18.
83 Outstanding Insurance Claim. - The Applicant is entitled to a credit for an amount of $2400.00.
84 GST. - With the exception of the reasonable cost to the Respondent of remedying a default by the Applicant, the Applicant is not liable for expenses incurred by the Respondent in relation to collection of moneys and therefore the Applicant is not liable for GST in relation to those expenses. The other outgoings for which the Applicant is liable are either GST inclusive or GST exempt. The Applicant has no further GST liability with respect to those items.
85 Fire Extinguisher services. - The Applicant is entitled to a credit for an amount of $440.00.
86 Bond. - The Respondent was entitled to claim against the bond.
87 CPI rent Increases. - The Applicant is liable for rent at the higher rate and for the arrears sought.
Conclusion.
88 These findings relate only to those issues which were argued before me. I note that the Respondent filed a document which sets out the assertion that as at 13th August 2002 a total of $28,016.23 is outstanding under the Lease. Many of the items to which the Respondent referred in that document were not argued before me and are therefore not considered in these reasons. I remain optimistic that these findings and reasons will provide a basis upon which the other issues can be resolved.
Orders
- 1. The Applicant is entitled to credits for amounts totalling $4758.26.
2. The Respondent is entitled to credit for an amount of $912.18.
3. The outgoings for which the Applicant is liable are either GST inclusive or GST exempt. The Applicant has no further GST liability with respect to those items.
4. The Applicant is liable to pay rent for the period 1 August 2001 to 31 July 2002 at the rate of $40,154.36 per annum GST inclusive. The Applicant is liable to pay rent arrears of $2,379.60 for that period. The Applicant is liable to pay rent for the period from 1 August 2002 at the rate of $41,284.63 per annum, GST inclusive, payable by monthly instalments of $3,440.38.
5. Orders preventing the Respondent from taking enforcement action in relation to the Notice to Quit are revoked.
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