RELAX BEDDING PTY LTD and HYDROX NOMINEES PTY LTD
[2019] WASAT 129
•10 DECEMBER 2019
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION: RELAX BEDDING PTY LTD and HYDROX NOMINEES PTY LTD [2019] WASAT 129
MEMBER: MR S WILLEY, MEMBER
MS D QUINLAN, MEMBER
HEARD: 1 NOVEMBER 2019
DELIVERED : 10 DECEMBER 2019
FILE NO/S: CC 617 of 2019
BETWEEN: RELAX BEDDING PTY LTD
Applicant
AND
HYDROX NOMINEES PTY LTD
Respondent
Catchwords:
Retail shop - Questions arising under a lease - Whether tenant exercised the option for a further term before expiry date - Whether landlord required to give notice of further term under s 13C - Landlord’s protracted lack of response to tenant’s requests to discuss option and new market rent to be applied to any further term - Whether landlord’s lack of response is a breach of the lease - Non‑payment of rent for extended period - Whether tenant currently in breach of lease - Latest date for tenant to exercise option - Whether landlord can refuse further term
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 13, s 13C, s 13C(2), s 16(1), s 16(1)(a), s 16(1)(b), s 16C, s 26, s 26(1)(c)
Result:
Matters dismissed
Category: B
Representation:
Counsel:
| Applicant | : | Mr W Hill (director) |
| Respondent | : | Mr C Slater & Mr M Reid |
Solicitors:
| Applicant | : | in Person |
| Respondent | : | Jackson McDonald |
Case(s) referred to in decision(s):
Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
These proceedings arise in the Tribunal pursuant to an application made under s 16(1) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the Retail Shops Act) by Relax Bedding Pty Ltd (applicant or tenant) referring questions arising under a lease where the applicant is the tenant. The landlord is Hydrox Nominees Pty Ltd (respondent or landlord).
The landlord is the registered proprietor of an estate in fee simple described as Lot 806 on deposited plan 71347, being the whole of the land comprised in certificate of title volume 2790 folio (the land). The land is located at Lot 806 Joondalup Drive, Joondalup and comprises a number of large and small retail shop premises in a retail shopping centre as defined under the Retail Shops Act.
By a written lease agreement dated 2 June 2016 (lease) between the landlord and the tenant as well as Messrs William Hill and Brian Breeden as guarantor, the landlord agreed to lease to the tenant retail shop premises 'Shop T4B' (premises) for a term of five years with two options to renew for a further term of five years each: see pages 2 to 77 of the respondent's bundle of documents (RB).
Questions for determination
It is common ground that the seven questions for determination in these proceedings identified below are all questions between the parties arising under the lease. The Tribunal concurs and, therefore, s 16(1)(a) of the Retail Shops Act is satisfied. The Tribunal will now proceed to determine those questions under s 16(1)(b) of the Retail Shops Act.
The questions arising under the lease for determination by the Tribunal are outlined as follows:
1.Whether, before the expiry date of the original term, the tenant gave the landlord notice that it wished to exercise its option for a further term as provided under clause 27 of the lease.
2.Whether the landlord has complied with its obligations under s 13C of the Retail Shops Act regarding notice to the tenant of the date after which the option can no longer be exercised.
3.Whether the landlord has breached the lease by not responding over a protracted period of time to requests from the tenant to discuss the option for the further term and the market rent to be applied.
4.If the tenant has not given notice to the landlord of its exercise of the option, whether the landlord has breached the lease by not communicating to the tenant that it is going into a situation of holding over under clause 16.2 of the lease.
5.If the tenant has not given notice to the landlord of its exercise of the option, what is the latest date by which the tenant can now elect to exercise its option.
6.Whether, by the non-payment of rent since the expiry date of the original term, the tenant is currently in breach of the lease.
7.If the tenant is in breach of the lease and seeks to exercise the option, whether the landlord can refuse to grant a lease to the tenant for the further term.
There were a number of other questions that were identified by the tenant in its statement of issues, facts and contentions lodged on 28 August 2019 (TSIFAC). The landlord has acknowledged discrepancies in the lease document for instance the start and conclusion dates, the area of the lease and the share for variable outgoings. Questions three to five in the TSIFAC have therefore been resolved by the parties by agreement dated 3 September 2019 (the correction agreement): see pages 93 ‑ 94 RB.
Question six of the TSIFAC relates to an allegation of misleading and deceptive conduct under s 16C of the Retail Shops Act. This question required the tenant to be granted leave to amend its application to include s 16C of the Retail Shops Act which the Tribunal denied at the directions hearing on 24 September 2019.
The tenant has also indirectly raised the question of whether the landlord was in breach of the lease for undertaking negotiations with another potential tenant prior to the end of the original term of the lease. The Tribunal does not accept that this is a question arising for determination under the lease. The Tribunal observes that, in a commercial context, it is entirely appropriate for both tenant and landlord to consider their options and opportunities when approaching the end of a term of a lease. Considering commercial options and opportunities does not interfere with a tenant or landlord's rights and obligations arising under a lease.
Terms of the lease
The terms of the lease that are relevant to determining the issues arising in these proceedings are as follows.
Clause 2.1(a) of the lease provides that the landlord leases the premises to the tenant for the term beginning on the commencement date and ending on the expiry date. Pursuant to the lease and the correction agreement the commencement date of the lease is 1 November 2013 and the expiry date is 31 October 2018.
Clause 2.1(b) of the lease provides that the tenant must pay the rent by equal monthly instalments in advance on each rent day which is defined in clause 1.1 and item 2 of the reference schedule to mean the first day in each month.
Clause 6.1 of the lease relevantly provides that the tenant must make payments under the lease to the landlord without set‑off, counterclaim, withholding or deduction. Clause 6.2 of the lease provides that the landlord is not required to demand payment by the tenant unless the lease says that a demand must be made.
Pursuant to the lease the rent at the commencement date was $230 per square metre. In accordance with clauses 1.1 and 2.4 as well as Item 3 of the reference schedule the rent payable under the lease increased by 4% on 1 November each subsequent year. Therefore, the rent increased on 1 November each year as follows:
a)2014 to $239.20 per square metre;
b)2015 to $248.76 per square metre;
c)2016 to $258.72 per square metre; and
d)2017 to $269.07 per square metre.
Clause 2.5 of the lease provides for market rent review as follows:
On and from each Review Date for which a market review is specified in Item 3 as the method of review, the Rent will be the current market rent of the Premises agreed or determined in accordance with the following procedure.
(a)Not earlier than 3 months before and not later than 6 months after the relevant Review Date, either the Landlord or the Tenant may notify the other of the amount it considers to be the current market rent for the Premises at the relevant Review Date.
(b)The Landlord and the Tenant may agree on the current market rent at a relevant Review Date at any time. If neither party gives a notice within the period specified in paragraph (a), the provisions of paragraph (c) operate.
(c)If the Landlord and the Tenant cannot agree on the current market rent within 1 month after the date of the first notice given under paragraph (a), the current market rent for the Premises at the relevant Review Date is to be determined by a valuer in accordance with the Retail Legislation.
(d)Any variation in the Rent, when agreed or determined, will take effect from the relevant Review Date.
Clause 16.1 of the lease provides that the lease starts on the commencement date, with its provisions binding the parties on and from that date, and ends at midnight on the expiry date or any other earlier date on which the lease is terminated.
Clause 16.2 of the lease provides that if the tenant continues to occupy the premises after the expiry date with the landlord's approval, it does so under a monthly tenancy which either party may terminate on one month's notice ending on any day and at a rent which is 1/12th of the rent applicable as at the expiry date increased by 10%. This is known as 'holding over'.
Clause 16.3 of the lease provides that, subject to clause 16.2, the monthly tenancy is on the same terms as the lease except for those changes which are necessary to make the lease appropriate for a monthly tenancy (but any bond or bank guarantee may not be reduced) or on terms the landlord requires as a condition of giving its approval to the holding over.
The lease provides for options to renew for beyond the initial lease term. 'Further Term' is defined by clause 1.1 of the lease as: '[t]wo options of five years each commencing from the day after the Expiry Date'. Item 3 of the reference to the lease provides that the date for a market rent review under the lease is the commencement date of a further term.
Clause 27.1 of the lease provides:
(a)Subject to clauses 27.3 and 27.5, the Landlord must grant the Tenant a lease of the Premises for each of the Further Terms if the Tenant exercises its option or further option to extend the lease of the Premises for each of the Further Terms by giving notice to the Landlord by the later of:
(i)three months before the Expiry Date or the expiry date of the extended lease term; and
(ii)three months after the date of the agreement or determination of the current market Rent for the Premises at the start of the Further Term.
(b)The option or further option is not exercisable after the date calculated under paragraph (a). The option or further option is also not exercisable more than 12 months before the Expiry Date or the expiry date of the extended lease term.
(c)Irrespective of whether or not the date calculated in paragraph (a) is after the Expiry Date or expiry date of the extended lease term, each of the Further Terms must commence as set out in clause 27.2(a).
(d)The Tenant must also ask the Landlord to give the Tenant an updated Disclosure Statement at least seven days before the lease for each of the Further Terms is entered into.
Clause 27.2 of the lease provides:
The lease for each of the Further Terms will:
(a)commence on the day after the Expiry Date or the expiry date of extended lease term and expire on the last day of each of the Further Terms; and
(b)otherwise be on the same terms as this Lease except that:
(i)on the exercise of the last option by the Tenant, this clause 27 and the definition of Further Term in clause 1 will be marked “Not applicable to this Lease”;
(ii)the Rent applying as at the commencement date of the Further Term will be determined under clause 2.5;
(iii)the Review Dates and the rent review methods during the Further Term (if any) will be as specified in Item 3;
(iv)the Bank Guarantee will be increased to reflect an increase in Gross Rent or other money payable by the Tenant under this Lease, then the Tenant must deliver to the Landlord a replacement or additional Bank Guarantee for that increased amount within ten Business Days of the date of the Landlord's demand;
(v)the Reference Schedule will then be varied and updated accordingly; and
(vi)any variations made by the parties to this Lease during the Term that are intended to apply during the Further Term will be included.
Clause 27.3 of the lease provides:
The landlord cannot be required to grant a lease of the Premises for each of the Further Term to the Tenant if the Tenant:
(a)has not remedied to the Landlord's reasonable satisfaction any default of which the Landlord has given notice to the Tenant, either when the Tenant exercises the option or at any time after that up to and including the Expiry Date or expiry date of the extended lease term; or
(b)has persistently defaulted during the Term or extended lease term and the Landlord has given notice of those defaults to the Tenant.
Background facts
Many, if not all, of the relevant background facts are not in dispute between the parties. What is in dispute is the operative effect of those facts under the terms of the lease which will be considered by the Tribunal later in these reasons.
On 13 August 2018 the landlord's agent emailed the tenant indicating that:
a)the lease agreement would expire on 23 October 2018;
b)there was an option of five years to exercise if the tenant so wished;
c)if the tenant decided to exercise the option it was required to be in writing; and
d)the agent would discuss the tenant's options at a time convenient to the tenant: see page 191 of the applicant's bundle (AB).
Approximately 20 minutes later on 13 August 2018, Mr Bill Hill, a director of the tenant, sent an email to the landlord's agent thanking them for the notification, noting the tenant's efforts to survive the last year or so and asking if they could discuss the option and other issues at their upcoming meeting the following week: see page 192 AB.
On 20 September 2018 the tenant sent an email to the landlord's agent stating that Mr Hill had tried to call the agent on various occasions to discuss the lease including the renewal option without a response. The tenant noted that they needed to agree a rental rate for the new period and asked the agent to return his telephone calls: see page 194 AB. The agent replied by email on 21 September 2018 apologising for not responding as he had been very busy: see page 195 AB.
On 21 September 2018 the tenant and the landlord's agent discussed matters on the telephone. After the discussion, the tenant sent an email to the landlord's agent indicating the tenant wished to take up the option subject to the new market rent being agreed and indicating it would await communications and referencing its earlier questions about the lease, lettable area and commencement date: see page 64 AB.
On 22 September 2018 the tenant remedied a breach of the lease resulting in a default notice by paying the outstanding amounts in full. As at this time there were no notices of default or breaches outstanding.
On 17 October 2018 the tenant sent an email to the landlord's agent noting the absence of a response to the errors in the lease or the new rental rate, however with Mr Hill stating:
I do not believe the variation regarding the date of expiry of the initial term of the lease and the issue of the size of the premises is of major consequence so we formally propose to take up the option at a rental rate of $210 per sq.m.
(emphasis added: see page 65 AB)
In the same email, the tenant asked the landlord's agent to call Mr Hill to discuss the option and the tenant's proposed rent.
On 29 October 2018 the tenant followed up with a further email requesting a response to Mr Hill's email from two weeks earlier noting they are now at the end of the original term of the lease: see page 66 AB.
On 29 October 2018 the landlord's agent responded to the tenant suggesting a meeting that Friday and that 'it' (presumably the tenant's proposed rental rate) had been sent to his client for review: see page 67 AB.
On 31 October 2018, the original term under the lease expired as corrected in the correction agreement: see pages 92 – 93 RB.
As the tenant continued to occupy the premises after the expiry date, for the last part of October 2018 until 24 September 2019 the landlord issued invoice notices with a 10% increase for rent on the rate applied in the original term pursuant to clause 16.2 of the lease.
On 1 November 2018, the tenant and landlord's agent exchanged emails confirming their discussion to occur the next day on goings on at the site and the landlord's agent stated that he had asked for an update on the lease from his client.
On 5 November 2018, the tenant sent an email to the landlord's agent confirming the position of the tenant as follows:
Thank you for your time on the telephone on Friday.
To reiterate, our existing position is as follows:
•We are at the end of our current lease period and have stated our intention to take up our option, in this regard, we have provided our valuation of the premises for the ongoing period and await your reply.
•Our current lease has errors in it. The dates for the start and end of the term is wrong and the size of the premises is wrong. Based upon the surveyors' [sic] report appended to the lease, we have been overpaying.
•We have made application to the State Administrative Tribunal and claim compensation for the conduct of the landlord (Hydrox Nominees Pty. Ltd.)
Past efforts to have any effective communication with the landlord have been in vain and we have suffered financially during this time.
Further to our telephone discussion on Friday, I've attached a rough sketch of the amended premises which, if acceptable to [the landlord], we would consider relocating to. We have been advised previously that our existing premises are sought after by another potential tenant and if so this may be of benefit to both parties.
I have had a discussion with CBRE, your leasing agent, who provided the latest plan for the centre and as you are not now involved in the lease arrangements perhaps you can instigate a discussion with the property manager.
(See page 71 AB)
On 12 November 2018, related proceedings in the Tribunal (CC 2471/18) were commenced by the tenant and other related applicants. The landlord's agent sent an email to the tenant stating that:
Given that you are proceeding with your claim through the SAT we wont be looking at anything new for the moment.
The Landlord would prefer to get any dispute settled before potentially entering another agreement and complicating matters further.
Happy to discuss at some point tomorrow as I'm tied up rest of the day[.]
(See page 214 AB)
On 30 April 2019, following case management in the Tribunal which revealed the issues in the present proceedings are distinct from CC 2471/2018, the tenant commenced these Tribunal proceedings.
On 3 September 2019, after discussions between the parties, the tenant and the landlord entered into the correction agreement which resolved some aspects of the dispute as to provisions of the lease. The correction agreement provided that the lease should be read as if it provided a commencement date of 1 November 2013, expiry date of 31 October 2018, starting rent as $90,160 per annum plus GST (being $230 per square meter for a lettable area of 392m²) and the tenant's proportion of outgoings set at 2.1218%: see pages 93 – 94 RB. Given the correction to the size of the lettable area, issues arose about whether the tenant had overpaid rent and outgoings for the original term of the lease. The correction agreement therefore provided for any overpayment by the landlord granting a credit of $10,000 to the tenant.
During September 2019, the parties exchanged email correspondence on the applicable current market rent for the further term: see pages 95 – 100 RB.
On 24 September 2019 the landlord accepted the tenant's proposed rate of $220 per square metre and agreement was reached as to the rate of the current market rent to apply to the further term of the lease: see pages 102 – 105 RB.
On 24 September 2019, in the same letter where agreement was reached on the applicable current market rent for the further term, the landlord issued a credit note in the sum of $58,934.05 including GST in respect of amounts it says are payable under the lease by the tenant which had been invoiced to the tenant in the period after expiry of the original term on 1 November 2018. The landlord submits the credit note represents the adjustment for rent and outgoings because of the correction agreement (the credit of $10,000), the newly agreed market rent ($220 per square metre) and a reversal of all outgoings charged since 1 November 2018. After the credit note, that left a balance of $76,958.52 the landlord submits is owed by the tenant as unpaid rent and outgoings.
On 25 September 2019 the landlord sent to the tenant a notice of default identifying the failure to pay rent since 1 November 2018 and GST as a breach of the lease requiring the payment of $76,958.52 within 14 days and reserving the landlord's rights if the breach was not remedied.
During the course of the final hearing the tenant informed the Tribunal that in October 2019, it had paid rent from 25 September 2019 to the end of October 2019. The tenant submits it had applied the $10,000 credit from the correction agreement and subsequently paid $7,686.29. The landlord acknowledged this amount was paid, however disputes that this is the total amount owing as rent and outgoings. The landlord also disputes the tenant's calculation from 25 September to 31 October 2019 with the $10,000 credit as the landlord's calculation for that period is $7,905.33.
The tenant commenced further proceedings in the Tribunal on 10 October 2019 (CC 1583/2019) and a directions hearing was held on 1 November 2019 on the same day of the final hearing in these proceedings. At the directions hearing the landlord undertook not to exercise its right of re-entry under the default notice issued on 25 September 2019 until the Tribunal gave its decision in these proceedings or the tenant is given written notice three business days in advance.
Tenant's case
The tenant relies on its TSIFAC, its reply to the landlord's SIFAC (LSIFAC) the bundle of documents provided to the Tribunal (described as AB in these reasons), the written and oral evidence of Mr Hill and Mr Brian Breedon who are co‑directors of the tenant as well as the oral submissions made by Mr Hill at the final hearing.
The tenant seeks orders in its favour and compensation. The basis for the tenant's position in these proceedings can be summarised as follows:
a)The tenant, if it had not exercised the option, was deliberately prevented from doing so by the protracted lack of response from the landlord regarding the proposed market rent to be applied to the further term.
b)The landlord has not complied with its obligation to provide notice to the tenant of the right to exercise the option as required under s 13C of the Retail Shops Act.
c)The landlord has breached the lease by not responding over a protracted period to the tenant's attempts to discuss the exercise of the option.
d)The tenant, by not knowing where it stood with exercising the option, was prevented from making a fully informed decision regarding its future and left in limbo for an extended period.
e)The landlord is in breach of the lease as it should have notified the tenant that it was going into holding over and the landlord was not permitted to charge the 10% increase in rent.
f)The correction agreement, agreement as to current market rent and default notice as well as the inactions and actions of the landlord are all contrived to achieve the landlord's long held intention to prevent the tenant from exercising the option and remove the tenant from the premises as the landlord has another tenant ready to take over the premises.
g)Following on from the agreement, the tenant has paid rent in October 2019 from 25 September 2019 and the whole of October 2019.
h)The tenant did not pay rent from 1 November 2018 to 24 September 2019 due to its financial situation which have been caused by the landlord and the matters arising in Tribunal proceedings CC 2471/2018.
i)The tenant relies on the outcome of CC 2471/2018 being in its favour in order to meet its rent obligations.
j)The landlord's contrived behaviour is preventing the tenant from obtaining a fair hearing in these proceedings and CC 2471/2018.
Landlord's case
The landlord relies on its LSIFAC, the bundle of documents provided to the Tribunal (described as RB in these reasons) as well as its written and oral submissions.
The landlord submits that the tenant's application to be determined by the Tribunal does not give rise to any order in the tenant's favour or discernible compensation and, therefore, the proceedings should be dismissed.
The basis for the landlord's position in these proceedings can be summarised as follows:
a)The tenant is somewhat equivocal in its submissions as to whether it had exercised its option for a further term on 17 October 2018 with the tenant stating that this is to be determined by the Tribunal.
b)The landlord submits the tenant has not exercised the option, but on 17 October 2019 purported to do so in the context of s 13C of the Retail Shops Act, and therefore, the landlord did not need to provide notification.
c)The landlord is not in breach of the lease because discussions with the tenant to exercise the option did not progress at the speed the tenant wished. The terms of the new lease arising by the option required no further discussion. Before the option could be exercised, the rent for the further term had to be set at current market rent and that has recently been agreed.
d)The landlord is not in breach of the lease with regards to holding over. The landlord did not need to give express approval to the continued occupancy of the premises in accordance with clause 16.2 of the lease in order to be entitled to recover rent for the period after the original term expired and while the tenant remained at the premises. At the expiry date the tenant chose to remain at the premises and in doing so entered into a period of holding over governed by the terms of the lease. The respondent simply gave an inferred consent by applying the 10% increase to the rent in accordance with clause 16.2 of the lease. This involved no change to the rights of the parties already set out in the lease agreement.
e)The landlord's recent agreement to a figure for rent of $220 per square metre for the further term was not made because of some trick or device as suggested by the tenant. The landlord is not aware of the tenant's financial situation. The tenant frequently refers to losses incurred including in the periods when the tenant was not paying rent. The landlord has allowed a credit for all the changes to the rent that should occur by reason of the correction agreement and the agreed market rent. There is now nothing that should prevent the tenant from making the payment of the rent that is due and remains unpaid.
f)The tenant's inability to pay rent over the last 12 months is a basis for terminating the lease and a reason to refuse to grant the option for a further period.
g)The landlord's entitlement to terminate the lease for the failure to pay rent for the premises in the period after the original lease expired is not compromised by any allegation in this or any other Tribunal application.
h)There is no suggestion that the correction agreement relieved the landlord from its obligation to meet all the terms of the lease and any other obligations under the Retail Shops Act, or the law in general.
i)The landlord has not behaved in a contrived manner. If the tenant was to remedy the default notice by paying the outstanding amount and exercise the option before 24 December 2019, the landlord concedes that, under the terms of the lease and the Retail Shops Act, the tenant can remain.
The Retail Shops Act
Relevant to these proceedings, s 16(1) of the Retail Shops Act provides that a party to a retail shop lease may refer to the Tribunal any question between the parties which they believe to be a question arising under the lease. Section 16(1) of the Retail Shops Act then provides that the Tribunal shall determine whether or not the question referred is a question arising under the lease and, if it is such a question, hear and determine it.
Section 26 of the Retail Shops Act provides the Tribunal with broad powers to make orders following the determination of questions arising under a lease or other proceedings brought before the Tribunal under the Retail Shops Act.
Section 13C of the Retails Shops Act provides as follows:
(1)If a retail shop lease provides, whether directly or by operation of section 13, an option or a further option of renewal of the lease exercisable by the tenant, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable ‑
(a)at least 6 months; and
(b)no more than 12 months,
before that date but is not required to do so if the tenant exercises, or purports to exercise, the option before being notified of the date.
(2)If subsection (1) requires the landlord to notify the tenant but the landlord fails to do so within the time specified by that subsection ‑
(a)the retail shop lease is taken to provide that the date after which the option is no longer exercisable is instead 6 months after the landlord notifies the tenant as required; and
(b)if that date is after the term of the lease ends, the lease continues until that date (on the same terms and conditions as applied immediately before the lease term ends); and
(c)the tenant, whether or not the landlord has by then notified the tenant as required, may give written notice of termination of the lease to the landlord specifying a day that is ‑
(i)on or after the date on which the term of the lease ends; and
(ii)before the date until which the lease would otherwise have continued because of paragraph (b).
(3)If the tenant gives the landlord a notice of termination under subsection (2)(c), the lease terminates on the day specified in the notice.
(4)If an option to renew is exercised because of subsection (2)(b) after the term of the lease ends, the lease for the further term commences on the expiry of the previous lease, disregarding for this purpose any period during which that lease continued because of that subsection.
In Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 his Honour Buss JA summarised the proper approach to construction of written contracts (in that instance a lease) at [84] ‑ [86] as follows:
The general principles to be applied in the construction of written contracts are set out in the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v. Dunlop ((1888) 39 Ch. D. 387, at p. 393), which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case [2008] WASCA 268 ((1880) 16 Ch. D. 681, at p. 686). Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd ((1932) 147 L.T. 503, at p. 514), that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd ((1968) 118 C.L.R. 429, at p. 437)) (109 - 110).
The construction of a written contract involves ascertaining what a reasonable person would have understood the parties to mean. Consideration should ordinarily be given not only to the language of the document, but also to the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:
This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 - 462 [22]) [40].
Also see Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 82 ALJR 419 [8], [53]; Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757, 773 - 774.
The preponderance of Australian authority supports the proposition that post-contractual conduct is not admissible in determining what a contract means, as distinct from determining whether it was formed. See Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; [2008] WASCA 268 (2001) 53 NSWLR 153 [26] (Heydon JA). Also see County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 [161]; Bowesco Pty Ltd (receiver and manager appointed) v Zohar [2007] FCAFC 1; (2007) 156 FCR 129 [79].
Question one – before the expiry date had the tenant exercised its option for a further term?
Question one asks the Tribunal to determine, before the expiry date of the original term, whether the tenant had exercised the option for a further term.
The Tribunal finds on a plain and ordinary reading of the lease that under clause 27 of the lease it is not possible for the tenant to exercise the option until the current market rent had been either agreed, or determined.
The lease provides clear terms that the current market rent for the further term can be set by agreement or, if not agreed, by determination under clause 2.5 of the lease and the Retail Shops Act. That process can be initiated by either the landlord or the tenant. Under the terms of the lease and the Retail Shops Act, neither party can prevent the ultimate determination of the current market rent.
Prior to 24 September 2019 there had been no determination of the current market rent to apply to the further term. On 24 September 2019 the parties agreed the current market rent to apply to the further term at $220 per square metre.
The Tribunal finds that Mr Hill's email of 17 October 2018 did not constitute the applicant exercising its option for a further term. However, the email of 17 October 2018 as will be explained in question two, is found by the Tribunal to be the applicant purporting to exercise its option. It is clear under the terms of the lease that the option cannot be exercised until current market rent has been agreed, or determined.
Therefore, in answer to question one, the Tribunal finds that before the expiry date of the original term, the tenant had not exercised its option for a further term in accordance with the requirements of clause 27 of the lease.
Question two – s 13C of the Retail Shops Act
Question two asks the Tribunal to determine whether the landlord has complied with its obligations under s 13C of the Retail Shops Act.
Section 13C of the Retails Shops Act provides that the landlord must notify the tenant in writing of the date after which the option is no longer exercisable between six and twelve months before that date. Section 13C(2) of the Retail Shops Act provides certain protections for a tenant where they have not been notified which includes:
a)extending the last date to exercise the option;
b)a right to terminate; and
c)if the option last date is after the lease expires that the lease continues until that date on the same terms (for example, holding over provisions would not apply).
However, s 13C of the Retail Shops Act also provides that the landlord is not required to provide notification if the tenant exercises, or purports to exercise, the option before being notified.
A tenant's right to an option for a further term is either in their lease or by operation of s 13 of the Retail Shops Act. The purpose of s 13C of the Retail Shops Act is to ensure that tenants are aware of their right to exercise an option of a further term with sufficient time to consider their commercial options as to whether to exercise the option for a further term.
Although the landlord's agent sought to notify the tenant of the option by email on 13 August 2018, the Tribunal finds that this notice did not comply with the requirement in s 13C of the Retail Shops Act that the notice be given six to twelve months before the expiry date.
However, in the facts and circumstances of this case, this does not mean that the landlord has contravened the requirements of s 13C of the Retail Shops Act.
The Tribunal finds that the tenant, at all material times, was well aware of its right of an option for a further term. More importantly, the Tribunal finds in the context of s 13C of the Retail Shops Act that the tenant's email of 17 October 2018 was a purported exercise of that option. Once that occurred, there was no further requirement to serve the notice under s 13C of the Retail Shops Act. Therefore, the other provisions of s 13C of the Retail Shops Act, such as those mentioned above favourable to the tenant, did not apply.
Therefore, in answer to question two, as the Tribunal has found that the tenant purported to exercise the option on 17 October 2018, the Tribunal finds that following that purported exercise s 13C of the Retail Shops Act had no further operative effect. Following the purported exercise of the option on 17 October 2018, there was no longer any obligation for the landlord to comply with to give notice under s 13C of the Retail Shops Act.
Question three – landlord's lack of communication
Question three asks the Tribunal to determine whether the landlord has breached the lease by not responding over a protracted period of time to requests from the tenant to discuss the option for the further term and the market rent to be applied.
In answer to question one above, the Tribunal has found that the lease has clear terms regarding the exercise of an option for a further term. Current market rent for the further term must be agreed, or determined, before the option can be exercised. That process can be initiated by either the landlord or the tenant. Under the terms of the lease and the Retail Shops Act, neither party can prevent the ultimate determination of the current market rent.
Thus once the landlord failed to respond or communicate in a way that was satisfactory to the tenant, prior to the expiry date or at any time since the expiry date the tenant could make its own decision as follows:
a)pursue the choice regarding whether to exercise the option by initiating the determination of the market rent for the further term under clause 2.5 of the lease and s 11 of the Retail Shops Act and, in the meantime, go into holding over under clause 16 of the lease; or
b)vacate the premises at the expiry date or at any time since with one months' notice once the tenant went into holding over.
There are no provisions in the lease requiring discussion to seek to agree market rent or that compels one party to suggest a market rent or respond to a suggestion or discuss the tenant's commercial options or feasibility in proceeding with the option of a further term under the terms of the lease. These are matters for the tenant to ultimately decide on its own without assistance required from the landlord.
The Tribunal finds that the landlord is not in breach of the lease because discussions with the tenant to exercise the option did not progress in a way deemed satisfactory by the tenant. The operation of the terms of lease required no further discussion.
It is unfortunate that the landlord did not respond over a protracted period of time to requests from the tenant to discuss the market rent to be applied to the further term and the option of a further term and this was no doubt frustrating to the tenant. However, the Tribunal finds that this protracted lack of response by the landlord was not a breach of any terms of the lease. When the tenant did not obtain a response from the landlord that the tenant considered was satisfactory then the terms of the lease provided the tenant with the options mentioned above.
Therefore, in answer to question three, the Tribunal finds that the landlord is not in breach of any provision of the lease for not responding to the tenant's ongoing requests for discussion about the option or to the tenant's proposed market rent.
Question four – holding over
Question four asks the Tribunal to determine whether the landlord has breached the lease by not communicating to the tenant that it is going into a situation of holding over under clause 16.2 of the lease.
Clause 16.2 of the lease provides for the situation where a tenant, with the landlord's approval, continues to occupy the premises after the expiry date and the rent to be charged. This is known as holding over. The lease does not expressly require the landlord to formally notify the tenant of its approval or that holding over had commenced.
By the operation of clause 16 of the lease as well as the tenant's conduct of continuing to occupy the premises and the landlord's conduct of invoicing for the holding over rent increase of 10%, it is clear that holding over commenced from 1 November 2018.
Therefore, in answer to question four, the Tribunal finds that the lease does not require the landlord to expressly notify the tenant that holding over had commenced and the landlord is not in breach of any provision of the lease in that regard.
Question five – last date by which tenant can exercise option for further term
Where the Tribunal has found in answer to question one that the tenant has not given notice to the landlord of its exercise of the option before the expiry date, question five then asks the Tribunal to determine the latest date by which the tenant can now elect to exercise its option.
The Tribunal has also found that on 24 September 2019 the parties agreed the current market rent that will apply to the further term.
Therefore in answer to question five, by operation of clause 27.1(a)(ii) of the lease, the Tribunal finds that the last date by which the tenant can exercise its option for a further term is 24 December 2019.
Question six – by the non‑payment of rent is the tenant in breach of the lease
Question six asks the Tribunal to determine, by the non‑payment of rent since the expiry date of the original term, whether the tenant is currently in breach of the lease.
The payment of rent, similarly the right to exclusive possession of the premises which is a defining characteristic of a lease, are fundamental terms of any lease: see clause 2.1 of the lease.
The Tribunal finds that the tenant's continued occupation of the premises since 1 November 2018 without paying rent is in breach of a fundamental term of the lease. The Tribunal finds that the tenant's reasons for not paying rent for such an extensive period are without justification in the circumstances and without any foundation in the terms of the lease or the Retail Shops Act.
The tenant submits that it relies on the outcome of CC 2471/2018 being in its favour in order to meet its rent obligations. In the separate proceedings CC 2471/2018 the tenant is one of three tenant's seeking for the Tribunal to order compensation be paid by the landlord for unrelated claims arising under the Retails Shops Act. The tenant may or may not be successful in any of those claims. The Tribunal finds that whilst the outcome of CC 2471/2018 may factually, or practically, relate to the commercial viability of the tenant's business, it bears no legal relationship to the tenant's ongoing obligation under the lease to pay rent.
Clause 6.1 of the lease expressly provides that the tenant must make payments under the lease by the method the landlord reasonably requires without set‑off, counterclaim, withholding or deduction.
The tenant submits that the landlord has behaved in a contrived manner, by agreeing the current market rent and other minor matters in dispute in order to issue the default notice. The tenant also submits that the contrived behaviour by the landlord is preventing the tenant from obtaining a fair hearing in these proceedings and CC 2471/2018.
The Tribunal finds the tenant's submission that the landlord has behaved in a contrived manner in these proceedings is without any factual or legal foundation. In (somewhat belatedly) agreeing the current market rent and agreeing the minor issues in dispute, the landlord has nonetheless still acted in accordance with the terms of the lease. Moreover, in recalculating or backdating the rent owing to 1 November 2018 by applying the recently agreed current market rent rather than the holding over rent as the landlord was entitled to apply until the agreement was reached, the Tribunal finds that the landlord has acted in a manner that is both more than fair and reasonable in the circumstances.
Therefore the Tribunal finds, apart from one incomplete payment in October 2019 of $7,686.29 which did not represent the correct partial rent calculation, the tenant has not paid rent and outgoings since 1 November 2018.
The Tribunal accepts the landlord's calculations in this regard and finds that the tenant currently owes $76,958.52 minus the amount paid in October 2019 of $7,686.29, being a total balance currently owing of $69,272.23 for rent and outgoings.
Therefore, in answer to question six the Tribunal finds, by the substantive non‑payment of rent since the expiry date of the original term on 1 November 2018, the tenant is currently in breach of the lease.
Question seven – whether the landlord can refuse to grant a further term
Where the Tribunal has found in answer to question six that the tenant is in breach of the lease, if the tenant seeks to exercise the option before 24 December 2019, question seven asks the Tribunal to determine whether the landlord can refuse to grant a lease to the tenant for the further term.
Clause 27.3 of the lease provides that the landlord cannot be required to grant a lease to the tenant for each of the further terms if the tenant has, on or before exercising the option, not remedied to the landlord's satisfaction any default of which the landlord has given notice.
As further evidence of the fact that the landlord has not behaved in a contrived manner, the landlord submits that if the tenant was to remedy the default by paying the outstanding amount and exercise the option before 24 December 2019, the tenant would be granted a further term.
Therefore, in answer to question seven, if the tenant remains in breach of the lease as found in answer to question six and seeks to exercise the option on or before 24 December 2019 without remedying that breach, the Tribunal finds that the landlord is able to refuse to grant a lease to the tenant for the further term.
Conclusion
In conclusion, the Tribunal answers the questions for determination and finds as follows:
1)The tenant, before the expiry date of the original term, did not exercise its option for a further term.
2)When the tenant purported to exercise the option on 17 October 2018 there was no longer any obligation for the landlord to give notice under s 13C of the Retail Shops Act.
3)It was not a breach by the landlord of any terms of the lease when the landlord did not respond over a protracted period of time to requests from the tenant to discuss the market rent to be applied to the further term or the option for a further term.
4)The landlord also has not breached the lease by not communicating to the tenant that, upon the expiry date of the original term, the tenant is going into a situation of holding over.
5)The latest date by which the tenant can now elect to exercise its option is 24 December 2019.
6)By the substantive non-payment of rent since the expiry date of the original term on 1 November 2018, the tenant is currently in breach of a fundamental term of the lease.
7)If the tenant remains in breach of the lease and seeks to exercise the option on or before 24 December 2019 without remedying that breach, the landlord is able to refuse to grant a lease to the tenant for the further term.
Orders
Having determined the questions arising under the lease, in the exercise of the Tribunal's discretion pursuant to s 26(1) of the Retail Shops Act, the Tribunal finds that the appropriate order we consider now needs to be made is to dismiss these matters brought by the tenant.
Accordingly, we order as follows:
1.Pursuant to s 26(1)(c) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), the matters are dismissed.
I CERTIFY THAT THE PRECEDING PARAGRAPH(S) COMPRISE THE REASONS FOR DECISION OF THE STATE ADMINISTRATIVE TRIBUNAL.
MS D QUINLAN, MEMBER
10 DECEMBER 2019
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