Raine v Marshall

[2001] NSWADT 143

CITATION:	Raine -v- Marshall [2001] NSWADT 143
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Maxwell Raine RESPONDENT Timothy Marshall
FILE NUMBER:	015013
HEARING DATES:	09/07/01
SUBMISSIONS CLOSED:	07/09/2001
DATE OF DECISION:	08/29/2001
BEFORE:	Fox R - Judicial Member
APPLICATION:	Claim for surrender of possession of premises
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Prudential Assurance v Health Minders Pty Limited,
REPRESENTATION:	APPLICANT W MacCallum, solicitor RESPONDENT In person
ORDERS:	1.Applicant entitled to possession of retail part of the premises on and from 9 October 2001; 2. Leave for further hearing to establish occupation fee for retail part; 3. No order for costs, no special circumstances.

1 In these proceedings Mr Walter MacCallum solicitor appeared for the Applicant lessor and the Respondent lessee appeared for himself. The Applicant lessor sought (after being granted access for the purpose of repairs on an urgent basis by this Tribunal in February of this year) an order for possession of retail premises at 76 The Esplanade, Terrigal, being premises which the Respondent lessee occupies partly as a take-away/café and (it transpires) partly as residence. The Applicant lessor alleged that the lease expired on 15 November of last year and, so after the expiry of the Termination Notice on 16 January of this year, was entitled to possession. The Applicant further sought an order for the payment of the cost of repairs to the building and an order for the payment of some rent arrears, being the difference between the rent actually paid by the Respondent lessee after the expiry of the Termination Notice, and the amount dictated by clause 14.4 of the lease.

2 The Respondent’s cross action was that he had exercised his option and so was entitled to further occupy the premises for a period of 5 years, and that the repairs to the building were matters of a structural kind, and were not his responsibility.

3 It became clear early in the hearing that the premises consisted of a 40 or 50 year-old building, built as a shop with residence over with a backyard area accessible from a rear lane. The structure at one stage, appears to have been length-wise divided, so that there is now beside the Respondent’s takeaway, a separate lock-up coffee shop which faces The Esplanade. The Respondent’s take-away also faces The Esplanade, but has several rear rooms which run the width of the land, around the back of, and “enclosing” the coffee shop. Also, at rear is the stairway which gives access to the residence, and which, prior to the installation of a security roller door which apparently runs the width of the rear yard of the building, gave separate and independent access to the residence.

4 The Applicant conceded that Section 79 limits my jurisdiction, in these proceedings, to the downstairs shop area, and not the whole of the area let by the lease.

5 The Affidavit of Mr Pitstock, the Applicant’s managing agent, and Mr Aitken, the solicitor for the Applicant, placed in issue two distinct matters- the exercise of an option of renewal and the internal wall, the cause of its collapse, and the cost of its replacement with a supporting “I” beam, apparently to prevent the risk of the collapse of the ageing concrete slab which forms the ceiling of the shops and is the floor of the residence above. The Respondent’s Affidavit addressed both of these matters.

6 I heard oral evidence from Mr Pitstock and the Respondent.

7 I am satisfied that the deterioration of the internal wall was the result of continued water ingress, and was not the result of actual, physical interference by the Respondent as the Applicant’s evidence suggested. I make these observations because the state of the wall, its collapse, and the need for repairs, took up a substantial part of the evidence even though, in the end, it was not relevant to the orders made.

8 The first issue which had to be resolved was whether or not the Respondent had effectively exercised the option.

9 The lease was for a period of five years, commencing on 16 November 1995 and ending on 15 November in the year 2000, with an option to renew for a period of five years. The relevant part of the lease states:

“if the lessee shall desire to take a new lease of the demised premises for a further term or terms as specified in item 5 of the reference schedule from the expiration hereof and prior to such expiration gives the lessor not less than 3 month’s notice in writing thereof…”

10 It is clear from the evidence that the question of continuation of the occupancy was not discussed between the Respondent and Mr Pitstock, even though he monthly called to collect the rent. Instead it was the subject of correspondence between Conditsis & Associates, Solicitors for the Respondent, and Aitken McLachlan & Thorpe, Solicitors for the Applicant.

11 The first of these letters was from Conditsis & Associates, dated 23 February 2000, and its text, omitting formal part was as follows:

“We are instructed to approach you at this time noting that the terminating date for the current lease is 16 November 2000. Although there is a five-year option on the lease, our client would like to renegotiate a new lease on the following terms:

1. A term of five years with an option for a further five years;
2. An option to purchase the premises within the initial term of the lease, that being the first five years.

12 Could you please obtain your client’s instructions with regard to the above and let us know as soon as possible so that we can organise any renegotiation prior to the current lease expiring in November 2000”.

13 The response of 14 March opened:

“We refer to your letter dated 23 February and advise that our client does not wish to agree to your client’s requests in that letter”.

The letter then went on to raise issues in relation to the structural situation following from the collapse of the internal wall.

Conditsis & Associates replied on 31 March addressing the issues of the collapse but raised nothing in relation to the continuation of the lease.

There was further correspondence of 17 April, again relating to the damage, to which Conditsis replied on 8 June, again making detailed responses to the structural situation, its need for repair, and the question of who would bear the cost. It went on to say:

“Notwithstanding all of the above, our client would like for this matter to be resolved amicably between the parties. As your client will no doubt be aware, the current lease to the property expires on 16 November 2000 and our client has requested a renewal of that lease. Our client would like to not only resolve the issues of the damage to the property, but also the issues relating to a new lease as soon as possible. He in no way acknowledges any fault or any liability in respect of the damage to the premises. However, having regard to the cost of litigation he would prefer not to go down that course. Could you please advise whether or not your client would be willing to discuss with our client firstly the arrangements for the repair of the premises and secondly the renewal of the lease and attempt to avoid costly litigation for both sides”.

14 There was a reply of 13 September which again only addressed structural matters and the cost thereof, and on 27 September Conditsis & Associates forwarded a letter which again firstly addressed the structural matter and then went on to say:

“Notwithstanding the above our client wishes to have this matter resolved so that the relationship between our clients can continue. In particularly we note our client is prepared to contribute one half of the cost of repair of the structural wall provided that a new lease between our clients is prepared and signed with a five-year term with a further option of five years. We note our client has always paid his rental on time and has kept the premises in good repair throughout his use. In fact, we would expect that your client would agree that our client has been a good tenant. Could you please obtain your client’s instructions with regard to his acceptance of our client’s which we suggest to you in more than fair in the circumstances. We confirm that our client will strenuously defend any action taken by your client as suggested in your letter of 14 September or in any other manner”.

15 This reference to legal action seems to have been to the 13 September letter from Aitken McLachlan & Thorpe, which in part said:

“If the wall is not reinstated within this time then our client will convert the lease to a month to month tenancy without further notice. This is permitted by clause 15.1 of the lease”.

There was then a letter of 28 November from Conditsis & Associates which said:

“We refer to previous correspondence and particularly to our letter of 27 September 2000. Could you please advise whether your client is willing to renegotiate a new lease with our client on the basis of our letter referred to above”.

16 On 5th December Aitken McLachlan &Thorpe wrote indicating that, as the lease was now at an end, a Notice of Termination would soon be issued. Such a Notice, apparently proper, was subsequently issued, requiring the premises to be vacated by 15 January 2001.

There was a 15 December reply from Conditsis & Associates which I am satisfied set forth the whole of the difficulty which now faces the Respondent.

“We note our clients sought negotiations in relation to a new lease on 23 February 2000 to which you replied in March 2000 with your client’s instructions. Whilst your letter advised your client’s instructions not to agree to the proposal for a new lease put by our client, it did not state that your client would not grant a new lease to our client and further more implied that your client’s only concern in relation to the premises and any lease was the repair of the damaged wall and that subject to that issue being resolved our client would be granted a new lease. As a result of the above and further correspondence since that time our client held his right to exercise the option on its current lease in obeyance, pending negotiation of responsibility for the damaged wall and terms of a new lease. At no time until 5 December 2000 did your client clearly make it know to our client that he would not negotiate any lease because of the alleged rent. Our client would have exercised his option under the current lease had he been aware that your client would refuse at some later time to negotiate a new lease”.

17 At the hearing the Respondent relied on this correspondence, and perhaps several other letters from Conditsis & Associates to Aitken McLachlan & Thorpe which added no substance, but were merely reminders seeking a response.

18 I am satisfied that, within time (ie before 15 August) there were only two letters of substance -- the 23 February request to which the response was:

“Advise that our client does not wish to agree to your client’s requests in that letter”

and the reminders from Conditsis & Associates of 25 July and 22 August, the latter of which referred to the letter of 8 June in which occurred the words:

“As your client will no doubt be aware, the current lease to the property expires on 16 November 2000 and our client has requested a renewal of that lease”.

Of course, the only “renewal” was the initial request for a further lease for five years with a five year option and an option to purchase. There was no hint of any request or indication of exercise of the option in any of that correspondence. In fact I gain a distinct impression from the correspondence that it specifically avoided any reference to or hint of a suggestion of exercising the option.

19 Nowhere in the correspondence is there any indication of:

“our client wishes to exercise the option” (let alone “and hereby does”)

and going on to say:

“but our client would prefer, instead of the further term of five years, seek to have that with an option of yet a further five years”.

20 The law in this area is fully set forth in the Court of Appeal decision of Prudential Assurance Company v Health Minders Pty Limited, a decision of Kirby P Samuels & McHugh JJA. In that case there was a somewhat equivocal note forwarded by the tenant personally (apparently without legal advice) but using words as plain as;

“I now give official notice that we intend to exercise our option re the above store”.

21 Those words were held to comply with the tests enumerated by Kirby P; the most telling of which is :

“3. The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it in all the circumstances of its receipt”.

The fourth indicator set out by the President is also worthy of note:

“4. Although a notice may misstate the terms of the option which is purports to exercise, it may nevertheless amount, depending on the circumstances, to an unqualified and unconditional exercise of the option”.

22 I am not at all satisfied that the course of correspondence between the Respondent lessee and the Applicant lessor as above set forth, even had it been written by the Respondent personally, without the benefit of legal advice, would have complied with these tests. It does not amount to an unequivocal statement of intention to exercise the option, and in fact seems to me to, even in layman's terms, specifically avoid doing that. However, when one considers that the correspondence was authored by the Respondent’s Solicitors, any doubt is removed, and it becomes extremely clear that exercise of the option was specifically avoided.

23 In relation to the 15 December “plea” from Conditsis & Associates, I note that at page 678 of the report Kirby P twice indicates, of that lessor:

“It had no duty to alert the Respondent {Lessee} to the incompetence of its exercise of the option, if that were the case”
and:
“There being no legal duty in the Appellant to assist the Respondent to cure any defects of its purported exercise of the option, and the Appellant being plainly undesiring of doing so, silence may not betoken that upon the letter’s receipt the Appellant read it to be an exercise of the option. On the contrary, it may just as readily indicate the opposite”.

24 I am satisfied that the word “renewal” as used in the letter of 8 June, referring, as it does, to a request for a new lease, with a further option, cannot in any way be a reference to an exercise of the existing option.

25 It follows that the Applicant’s Notice of Termination to expire on 15 of January 2001 is effective and the Applicant lessor is entitled to possession of the retail part. Of course the Residential Tenancies Act governs the occupancy of the residence, and I have no jurisdiction over that, even though both are governed by the same lease document.

26 In order to give the Respondent time for an orderly disengagement, and also to allow the Applicant time to institute the termination procedures under the Residential Tenancies Act, I direct the Applicant not to take possession until 9 October 2001. In the interim I note that the occupation by the Respondent tenant is generally in accordance with the former lease of the retail tenancy. I note the monthly occupation fee to be $6,944.00 but I note that this payment is strictly not within my power to direct, because I have no jurisdiction over the separate part of the premises which is the residence. Unless the parties agree on the break-up of residence occupation fee and retail tenancy occupation fee, the matter will have to be re-listed by approach to the Registrar for further directions on 13 September 2001, in order to arrange a short hearing to establish, by reference to expert evidence, the occupation fee payable in respect of the retail tenancy.

27 The Applicant sought an order for costs, but, all things considered, the retail tenancy dispute and claim having, substantially, been concerned with matters of damage and repair to the premises as well as the issue of the option exercise, I am not satisfied that there are special circumstances.