Richardson v Lockevo Pty Ltd

[2010] NSWADT 305

CITATION:	Richardson v Lockevo Pty Ltd [2010] NSWADT 305
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Michael Richardson RESPONDENT Lockevo Pty Ltd
FILE NUMBER:	105133
HEARING DATES:	11 November 2010
SUBMISSIONS CLOSED:	11 November 2010
DATE OF DECISION:	23 December 2010
BEFORE:	Fox R - Judicial Member
CATCHWORDS:	Section 19 valuation
LEGISLATION CITED:	Retail Leases Act 1994
CASES CITED:	Adwell Holdings Pty Ltd v Bourne (2007) NSWSC 170 Beale v Government Insurance Office of New South Wales(1997) 48 NSWLR 430 Frumar v Owners of Strata Plan 36957 [2006] NSWCA 278 at par 45 Perri v Exego Pty Ltd [2009] NSWADT 170
REPRESENTATION:	APPLICANT Mr Kent, solicitor RESPONDENT Mr Breisch, solicitor
ORDERS:	1 Declare, pursuant to Section 72 (1)(f)(iii) of the Retail Leases Act 1994, that the parties are not bound by the “current market rental” valuation by Kirk Robert May dated 16th July2010, of premises at Unit 1/334 Wagga Road, Lavington, because it is not a valuation for the purposes of Section 19 of that Act 2 No order for costs.

REASONS FOR DECISION

1 This matter commenced as an application under s32A of the Retail leases Act 1994 for the review of a determination of current market rent made by Specialist Retail Valuer Kirk Robert May on 16^th July 2010 of factory premises at Unit 1/334 Wagga Road Lavington NSW pursuant to his appointment by this Tribunal on 3^rd June 2010, in accordance with s19. [see. Application 105029]

2 The authorised use of the premises fell clearly within the Schedule 1 use:- “Pet shops, pet grooming and supplies shops and aquarium shops”.

3 Upon the Applicant Lessor changing his solicitor, to instruct Mr Kent of Myer Vandenberg Lawyers of Canberra, that firm, by letter of 30^th September, requested that instead of directing a review under s32A, the Tribunal declare the valuation to be void for failure to comply with s19(1)(c) in that the it did not apply the formulae set out in s19(1)(a).

4 At directions by way of telephone link up on 30^th September the Respondent Lessee’s solicitor, Mr Breisch of Challenge Legal Melbourne conceded Mr Kent’s point, and proposed that I make the order sought. I was not prepared to do that without considering both the valuation and the law, and called for written submissions. These were made by Mr Kent, and were in hand when the matter was the subject of further consideration (by telephone) on 11^th November 2010, when Mr Breitsch adopted them.

5 Section 19 provides:-

(1) A retail shop lease that provides for rent to be changed to current market rent is taken to include provision to the following effect:
(a) The current market rent is the rent that would reasonably be expected to be paid for the shop, as between a willing lessor and a willing lessee in an arm’s length transaction (where the parties are each acting knowledgeably, prudently and without compulsion), determined on an effective rent basis, having regard to the following matters:
(i) the provisions of the lease,
(ii) the rent that would reasonably be expected to be paid for the shop if it were unoccupied and offered for renting for the same or a substantially similar use to which the shop may be put under the lease,
(iii) the gross rent, less the lessor’s outgoings payable by the lessee,
(iv) rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied retail shops.
The current market rent is not to take into account the value of goodwill created by the lessee’s occupation or the value of the lessee’s fixtures and fittings on the retail shop premises.
(b) If the lessor and the lessee do not agree as to what the actual amount of that rent is to be, the amount of the rent is to be determined by valuation carried out by a specialist retail valuer appointed by agreement of the parties to the lease, or failing agreement, by the Tribunal.
(c) The matters set out in paragraph (a) are to be taken into account by a specialist retail valuer appointed under paragraph (b) in determining the amount of the rent.
............................................................................
(e) A valuation for the purposes of paragraph (b) is to be in writing, to contain detailed reasons for the specialist retail valuer’s determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination.

6 It seems appropriate to indicate that the lease is quite unusual in that it arose from the exercise of an option to renew the lease, the rental for the first year of which was set by reference to the Consumer Price Index, and the rental for the second year of the 5 year term being set by reference to current market, so enlivening s19. More usual would be a provision which required the rent at commencement of the lease resulting from the exercise of the option to be set by reference to the current market, but such valuation is covered by s31.

7 Section 19 is for all practical purposes identical to s31, and so it should be borne in mind that my remarks in these reasons apply equally to s31.

8 The valuation, at item 4, under the heading “RETAIL TENANCIES ACT 1994”

recited S19 (1) (a) verbatim, and went on to state:-

6.0 CONCLUSION:

6.1 The subject premises present as versatile, general purpose factory premises located prominently on a busy arterial road and within close proximity to the largest local regional shopping centre.

6.2 Local agents advise that vacancy rates are relatively high with extended letting up periods for properties when they fall vacant. This state also existed during 2009.

6.3 The leasing evidence that I have to hand indicates that rentals have declined mildly in recently.

6.4 After having regard to the provisions of the Retail Tenancies ( sic ) Act 1994 from which I am guided to value similar use, comparable properties, I have sought to focus on the differences between the various nearby premises in order to make my conclusions in this matter. My comments are set out in the comparable leasing grid attached to this report.

7.0 VALUATION :

Following my inspection of the subject property, thoughtful analysis of the evidence available to me, my consideration of market conditions for this type of property at that time and other factors I believe to be relevant, it is my considered opinion that the subject property has a Retrospective Rental Value as a 1 November, 2009 of $56,100 per annum plus GST.

9 The parties contend:-

“that Mr May either did not have regard to the matters of s19(1)(a), he did not provide detailed reasons for his determination and he did not adequately specify the matters to which he had regard.” and so the valuation was “not a valid s19 valuation”.

This submission is based entirely on the decision of this Tribunal in Perri v Exego Pty Ltd [2009] NSWADT 170, and presumably referred to the para 62 “Conclusion of Principle” (xix) set out in that decision as follows:-

Section 19(1)(a) is a code, or contractual term imposed by statute, and a valuation that takes into account matters not referred to in s.19(1)(a) is not a complying s.19 valuation. There is no provision in s.19 that entitles a valuer to take into account matters other than as set out in s.19(1)(a).

10 I respectfully disagree with that interpretation. Clearly enough s19(1)(a) sets a guide which the appointed valuer must follow, but I do not read the section as setting out an exclusive code or set of matters to be included, or excluded. Admittedly the not so uncommon legislative words to the effect of “any other matter the valuer may consider relevant” do not appear, but neither does the word “only” appear in the last words of the ss(a) introduction. It does not say:- “.....having regard only to the following matters”. The valuer is appointed as an expert, and is expected to apply his skill and knowledge to establish a rental amount, and only he or she knows what is, and what is not relevant to that skilled exercise. I am of the view that as long as the valuer has considered all of the matters raised, and has not considered the identified matter excluded, he or she has complied with s19 (1)(c) and are at liberty to have regard to other matters which they in their expert opinion consider to be relevant, (so long as, of course, they are clearly stated and their relevance explained).

11 Mr. Kent’s submission to the effect that the valuation is bad because it included reference to matters which are not set out in s19 fails.

12 It should be borne in mind that the Tribunal in Perri was dealing with a valuation which adopted the Australian Property Institute definition of “current market rent” as found in the lease being considered, a definition which was held to be different to that given in (and applied by) s19. Of course, that is not to say that the other “Conclusions of Principle” are not correctly stated in Perri, especially:-

(xiii) A valuation that does not comply/adopt/apply the strictures in s.19(1)(a) by taking them into account (s.19(1)(c)) is not a s.19 valuation

13 The obligations imposed by s19 were (in effect) considered by Young J in Adwell Holdings Pty Ltd v Bourne (2007) NSWSC 170. That was a case where the Retail Leases Act did not apply because the lease in issue was for a term which had a potential to be longer that 25 years (see s6(1)(b)), but the document imported the statutory formula, and so s19 applied by contract. His Honour said:-

However, I would agree with Mr Sharpe that the contract required the valuer to give “detailed” reasons; this goes further than merely requiring “sufficient” reasons and requires the valuer to set out details as to how he or she arrived at the determination. Further, when it says that it is to specify the matters to which the valuer had regard, that does not just mean setting out by rote what is in the Act, but actually dealing with how those matters were considered in the process of making the valuation.

To my mind the valuer fell far short of providing detailed reasons and specifying the required information in the random thoughts he proffered with respect to the valuation which he gave. Accordingly, in my view the valuation is suspect because of that.”

14 As I trust I have made clear, I do not believe that the valuer failed to comply with s19 when he adverted to matters other than those mentioned or prohibited. I do, however accept that the valuer failed in giving reasons as required by s19(1)(e), and so he fell into the very error identified in Adwell. There was a “rote” recitation of s19(1)(a), followed by a conclusion set out in very general terms, giving no guidance of how or what was considered by the valuer in respect of those various matters. The reasons are not “detailed”.

15 Valuers have to comply with this requirement for obvious reasons. Firstly, as a matter of procedural fairness, the parties are entitled to know what led the valuer to his or her conclusion. Secondly, they need to know these matters so that they can assess whether they should seek to exercise the right of review given them by s32A. Thirdly, if there is an application for review, such detail is necessary to give the review valuers something to review. This is a requirement for the review valuers to do what (in this context) the Macquarie Dictionary describes as a “re-examination” or “to look over again”. S32A does not direct that the review valuers carry out another valuation de novo, it directs that the review valuers have another look at the valuation, and then, by ss(4) & (5) implies that that may amount to a complete “re-valuation”.

16 The same point is made in several decisions of the NSW Court of Appeal when considering the obligations of costs assessors appointed pursuant to the Legal Profession Act 2004 to give reasons for their determinations. [The legislative structure in the LPA governing costs assessors’ obligations in this regard, is not dissimilar to that which applies to valuers under the RLA.] See:- Frumar v Owners of Strata Plan 36957 [2006] NSWCA 278 at par 45

“.....In my opinion, however, the observations of Meagher JA in Beale v Government Insurance Office of New South Wales (1997) 48NSWLR 430 at 444 are applicable; that the balancing act in considering the sufficiency of a statement of reasons “involves the adoption of, at the least, a minimum standard which places the parties in a position to understand why the decision was made sufficiently to allow them to exercise any right of appeal”.

17 Mr Kent drew attention to another aspect of the valuation which failed to comply, in that s19(1)(a)(ii) requires a consideration of the rent as if the premises were unoccupied and offered for occupation for a similar use. The premises are, broadly speaking, occupied as a pet shop, and so the valuer’s assessment of the rent for a “versatile, general purpose factory” brings with it the very real prospect that the rent identified would be different if the premises, instead of being used as a pet shop, fitted out (at the incoming lessee’s expense), were let as a factory. The general exposure of premises to passing traffic may indicate a higher rental for a use which involves marketing to the public, as opposed to a use which might be described as manufacturing, warehousing or storage. All four of those kinds of uses would appear to fall within the description given by the valuer, so failing in his obligation was to have regard to a similar use.

18 Yet another aspect of concern is the failure to clearly indicate a consideration of the impact of rent holidays and other concessions referred to in ss1(a)(iv). That seems to me to be a matter of great relevance in view of the valuer’s reference to long vacancy periods. The “loss” which a lessor might have to bear in offering concessions to attract another tenant might lead to a quite significant reduction in rent, even if overviewed for the whole of the term.

19 For all of the above reasons I accept the submissions of the parties, and will pursuant to s72(1)(f)(iii) declare that they are not bound by the valuation because it is non-compliant, and so not a valuation for the purposes of the relevant section. That will end this application, because the Act gives me no power to order anything else.

20 I note that the thrust of the definition of “Retail Tenancy Dispute” in s63(1) strongly suggests that a valuer cannot be made party to proceedings in this Tribunal. If the valuer could be made a party then s72(c)(i) would appear to authorise an order directing the valuer to “have another go”.

21 It seems appropriate to state that nothing in these reasons is intended to indicate that the monetary rental value set by the valuer is in any way faulty or wrong. It is his reasons which have failed to comply; his conclusion may well be correct, but there is insufficient detail for the parties to judge that.

22 It also seems appropriate to observe that it follows from my declaration that the valuer has not completed the task set him by his appointment made in matter No105029.