S.H.I.F.T Whitsunday Pty Ltd v McLean Cooke Pty Ltd
[2012] QCAT 38
•3 February 2012
| CITATION: | S.H.I.F.T. Whitsunday Pty Ltd v McLean Cooke Pty Ltd [2012] QCAT 38 |
| PARTIES: | S.H.I.F.T. Whitsunday Pty Ltd |
| v | |
| McLean Cooke Pty Ltd |
| APPLICATION NUMBER: | RSL087-10 |
| MATTER TYPE: | Retail shop leases matters |
| HEARING DATE: | 5 August 2011 |
| HEARD AT: | Cairns |
| DECISION OF: | Mr Mark Johnston, Member Ms Jody Gosling, Member Mr Don McBryde, Member |
| DELIVERED ON: | 3 February 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The Tribunal dismisses the Application. 2. The Tribunal orders the Applicant to pay the sum of $78,010.02 being overpaid rental monies for the period 1 December, 2007 to 30 November, 2010 within 14 days to the Respondent; 3. The Tribunal directs that a copy of this decision be provided to any Specialist Retail Valuer who might be subsequently asked to undertake a market valuation under the Lease and pursuant to the Act; and 4. The Tribunal gives the parties until 4pm on 2 March 2012 to file and exchange submissions in relation to costs. The Tribunal will then decide the matter of costs on the papers |
| CATCHWORDS: | Challenge to the validity of a Valuation made by a Specialist Retail Valuer Retail Shops Leases Act 1994, s 33 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT : | Mr J Hamiliton McInnes Wilson Solicitors for the Applicant |
| RESPONDENT: | Mr B Ledger Barrron & Allen Solicitors for the Respondent |
REASONS FOR DECISION
Background
The Respondent leased part of the Ground Floor of the Building within Lease A in Lot 297 on Plan SP 184769, Parish of Conway (being at the Shute Harbour Ferry Terminal, Whitsunday Drive, Shute Harbour). The Respondent operates a cafe known as the “Chocolate Starfish” from the premises.
The Applicant is the Lessor of the subject property and in turn leases the property from the Whitsunday Shire Council.
The parties approached the Registrar of the Retail Shop Leases Registry to appoint an independent expert valuer to determine the market rent payable under the Lease between the Applicant and the Respondent in relation to the subject property.
The Registrar appointed Mr Sheehan a Specialist Retail Shop Valuer as the Retail Shop Valuer (“the Valuer”) under the Retail Shop Leases Act 1994 (“the Act”) to undertake a review to determine the market rental as at 1 December 2007.
Mr Sheehan undertook the valuation of the market rental and produced a Valuation Report. In that Valuation Mr Sheehan assessed the market rental as $2,500 per annum. He arrived at that calculation by determining that the market rental was $660.00 a square metre or $42,241 plus GST per annum. He further determined that an adjustment was needed to take into account the obligation placed on the Respondent as tenant to undertake the cleaning responsibilities set out in clause 5.2 of the Lease. He calculated a cost for the cleaning on a commercial basis of $58,260,260 per annum plus GST. He then discounted that figure on the basis that there would be savings for the tenant to undertake the activity and attributed a value of $39,766 plus GST per annum to this as an outgoing. He then offset this against the market rent to obtain the effective rental as required by the Act.
The issues
The crux of this dispute is that the Applicant does not accept the Valuation provided by Mr Sheehan as the Valuer. The question for the Tribunal is firstly whether it has the authority to set aside a Valuation obtained pursuant to the provisions of the Act by an appropriately qualified Specialist Retail Valuer. If the Tribunal has that authority under what circumstances would the Tribunal exercise that power?
The Law
Sections 29 to 34 of the Act sets out directions to the Valuer which include having regard to such matters as the terms and conditions of a lease and the rent that would be reasonably expected to be paid for the shop if it were unoccupied and offered for renting for the use to which it may be put in accordance with the Lease. The Valuer must also determine the rent on the basis of a gross rent less lessor’s outgoings payable by the lessee and on an effective rent basis. The Valuer must not have regard to the value of the goodwill of the lessee's business or lessor’s fixtures and fittings in a retail shop and must have regard to the submissions from the lessor and the lessee about the market rent of the shop and any other prescribed matters. The valuation made must be “a speaking valuation” where the valuer gives detailed reasons for the determination and specifying the matters which have been taken into account. The legislation also permits the valuer to require the lessor to provide any relevant information about the leases.
Section 33 of the Act sets out the effect of the determination by the Specialist Retail Valuer:
The current market rent of the lease shop determined by the specialist retail valuer is the current market rent of the shop and the rent payable under the lease for the rental period under the review.
Overturning a Specialist’s Retail Valuation
The applicant is asking the Tribunal effectively to set aside the valuation provided by a Specialist Retail Valuer appointed under the Act. Generally, if a specialist valuer gives a valuation honestly and in good faith, the parties are bound by it even if a mistake is made. If there is a fundamental mistake, for example, if the expert reviews the wrong lease or the wrong property the valuation would not be in accordance with the lease (see for example Jones v Jones [1971] 1 WLR 840). But if the reviewer carries out the instructions in the lease, although these may be approached in different ways, there is no recourse (Jones v Sherwood Computer Services plc v Merost Pty Ltd (1988) 14 NSWLR 300 at 303 per Giles J). The purpose of the appointment of an expert is that there is special virtue in a simple, expressed valuation. The rationale behind this is that it is a matter of expert opinion and most difficult to prove that opinion is wrong.
To what extent might the valuation have to be erroneous before it can be called into question? The Tribunal is of the view that the expert had to depart from the instructions given in a material respect and the departure would have to materially affect the ultimate result. The Tribunal does not accept that the mere attribution of too much or too little weight to matters might vitiate the opinion.
Sheahan J in Mayne Nickless Ltd v Solomon [1980] Qd R 171 [at 178] in dictum, stated that he doubted whether speaking or non-speaking valuations made by a valuer chosen by the parties was impeachable for error or mistake and that if the mistake could be demonstrated by the party adversely affected, that party might have a remedy in damages against the valuer but nothing else.
Duncan in his book Commercial Leases in Australia Third edition on page 105 suggests the better view is that the operation of the rent review clause is subject to an implication that the expert should be seen to give due and proper weight to all relevant considerations which might thereupon the valuation. This goes to relevance.
The onus is clearly on the Applicant to provide evidence to impeach the valuation. The two areas that have been chosen are: the inclusion of the cleaning outgoings in the calculation of market rental by Mr Sheehan; and the decision by Mr Sheehan to only make a nominal allowance in relation to rental for the use of licensed areas by the Respondent.
The evidence
In addition to the written material contained on the Tribunal file, all of the parties attending the hearing were given the opportunity to express their views. These views, where specifically relied upon by the Tribunal, are discussed below. The parties prepared and exchanged affidavits and other material. The Tribunal has taken these into account along with the oral testimony before the Tribunal.
Discussion of the evidence
Mr Sheehan is an expert valuer who has been selected for the very purpose of deciding according to his own experience and examination the market rent for the Café (shop). Mr Sheehan’s evidence is that he is a Specialist Retail Valuer for the purposes of the Act and has some 30 years’ experience undertaking urban valuations. He consulted with parties and sought information from the Applicant about other leases in the centre. He also familiarised himself with the Valuation of J D Dodds Property Valuers (“J D Dodds”). He took all this information into account in making his Valuation.
It is clear to the Tribunal that Mr Sheehan was well acquainted with the requirements of the Act and he prepared the Valuation following the requirements set out in sections 29 to 34 of the Act.
The Applicant conceded that there were no issues with Mr Sheehan’s methodology in calculating the market rent. Mr Smith the Chief Executive Officer for the Port Binnli Group advised the Tribunal that he had qualifications as a valuer. He told the Tribunal that in his experience the difference between the valuations of J D Dodds and Mr Sheehan were not significant. Under cross-examination he told the Tribunal that he had no strong objection to Mr Sheehan's valuation of $42,240 as the market rent.
The issue for the Applicant is that Mr Sheehan in his valuation took into account cleaning that the Respondent is required to do to common areas and public toilets. J D Dodds by contrast did not make any allowance for these outgoings as part of their valuation of market rental. This difference is what is really in dispute between the parties.
On page 14 of his report Mr Sheehan notes that the tenant is required to undertake cleaning of the public toilets; licensed areas; and the common area. This is in addition to cleaning staff toilets. The public toilets in the common area are outside of the cafe and licensed areas and that the licensed areas are open to the public.
Mr Sheehan told the Tribunal that the arrangements in this case were that the tenant was responsible for cleaning the licensed areas; the public toilets; and the common areas of the Centre. He told the Tribunal that this was a highly unusual case. This was not in his experience a usual type of arrangement. He could accept these obligations where the licensed area was enclosed. This was not the case and the nature of the obligations would impact upon a prospective tenant and the rental which they were prepared to pay.
Mr Sheehan sets out the valuation considerations on pages 10 to 17 of his Report. He sets out the provisions of clause 5.2 of the Lease which refers to the cleaning obligations. His evidence is that a prospective tenant exercising due diligence of the Lease and conditions of the tenancy would become aware that the Lease required the lessee to clean the toilets to a commercial standard and to clean extra areas including common areas of the Centre. He assessed the rental as that 1 December 2007 on the following basis:
Based on the rental levels being paid at the Shute Harbour Marina and the new sections within Able Point Marina it is proposed to adopt a rental level of $660 per square metre. The market rental is assessed at 42,240 per annum plus GST. From the lease document the rental of the “Extra area” is one dollar per annum payable on demand. The area available to the Lessee under the licensed does not enhance the value of the Lease.
Mr Russell McLean’s affidavit of 31 May 2011 attaches at exhibit RM 13 a report by Terry Gould a Certified Practising Valuer who expresses his opinion about the inclusion of the cleaning outgoings in the market rent review in these terms:
It is my opinion that the expenses described in Clauses 5.2 (e) and 5.2 (f) of the lease meet the definition of “lessor’s outgoings” which is contained in section 7 of the Act. The concept of “effective rent” is defined in the Dictionary section of the Schedule to the Act as being: for the determination of rent under a retail shop lease, means the determination of the rent taking into account all associated advantages and disadvantages under arrangements made between the lessor and lessee that reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements”. “Clearly, the Act would require the additional expenses incurred by the lessee due to the terms of clauses 5.2 (e) and 5.2 (f) to be taken into account when determining the market rent under the lease.
In addition to the requirements of the Act, a determining valuer should also be aware of the relevant provisions of the “Australian and New Zealand Valuation and Property Standards” last published by the Australian Property Institute in 2008. These Standards include “Valuation Guidance Note 9, (ANZVGN9) Assessing Rental Value”. In relation to Market Rent, this Guidance Note provides the following definition and commentary: -
Market Rent: The estimated amount to which a property, or space within a property, should lease on the date of valuation between a willing lessor and a willing lessee on appropriate terms, in an arm's length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Whenever Market Rent is provided, the ‘appropriate lease terms’ which it reflects should also be stated.
Mr Gould in his letter of 8 April 2011 also expressed the opinion that the requirements of clauses 5.2 (e) and 5.2 (f) of the Lease were unusual:
Lease Clause 5.2 deals with the lessee's obligations with respect to cleaning and subsection (a) to (d) generally relate to the leased premises. These subsections do not appear to place any unusual or onerous burden on the tenant beyond the norm. Subsections 5.2 (e) and 5.2 (f) relate to “toilets (including staff toilets) installed within the Building” and to “Common Areas”. These two clauses are more unusual in that they appear to relate to areas outside the leased premises and they are likely to place an additional burden on the Lessee. This expectation is perhaps reinforced by the fact that these two subsections start with the words, “at the expense of the Lessee”.
Mr Michael Fahey in his affidavit of 30 May 2011 sets out the circumstances in which clause 5.2 came into bearing. He is a director of the Bloomsbury Rural Pty Ltd which was the previous Tenant of the subject tenancy. He states:
4.Between the time of the original agreement to Lease and the actual Lease being entered with Bloomsbury Rural, Ray Muller, the Director of SHIFT Whitsunday (at the time), indicated that he was having trouble getting cleaners to clean the toilets at the wharf area due to the distance from Airlie Beach.
5.At the time even though Ray Muller was a valuer by profession, he was having to go down to Shute Harbour personally to do the cleaning.
6.At that time, since our Lease had yet to be finalised, it was suggested that a clause be included in the Lease that Bloomsbury Rural (the tenant) be responsible for cleaning the toilets on the common area and also cleaning of other areas. This was inserted as a Clause 5.2 of the Lease.
7.At the time when this Lease was being negotiated I had stated if Bloomsbury Rural had to clean the toilets then there would need to be a reduction in the rental of $60 per day from the intended rental to give me some compensation for the cleaning costs.
8.The costs of cleaning that Bloomsbury Rural agreed to carry out as an obligation in the Lease (Clause 5.2) was ultimately taken into account when the initial yearly rent was agreed to for the initial lease which commenced in December 2001.
Mr McLean met with Mr Smith when the latter's company Port Binnli Group took over the Lease from Mr Ray Muller’s company. The issue of cleaning was obviously raised by Mr McLean and an agreement reached that the Respondent’s rental would be offset by an amount on account of the cleaning which the Respondent was undertaking. This led to the letter of 25 August 2005 from the Applicant to Mr McLean:
We have reviewed your lease arrangement and are happy to accept your offer to clean and maintain the public toilet facilities at Shute Harbour Island Ferry Terminal. We calculate that the cost of this work to be $7,000 per annum and this amount will be deducted from your gross rent, leaving your rent annual rent at $28,288.32 plus GST.
This arrangement continued for the next three years until the Applicant sought to end the arrangement and impose the responsibility entirely on the lessee. See exhibit RM 8 to the affidavit of Mr McLean. This is a letter from Port Binnli dated 6 October 2008:
Your current gross rent is $28,288.32 (ex GST) per annum. This is the reduced amount that was calculated to offset expenses met by you cleaning and keeping the toilets stocked with paper towelling and soap. You have had the benefit of this reduction in rent since July 2005.
Please note the cleaning and stocking of the toilets is actually a condition of your lease as stated below: … (the writer of the letter then refers to clause 5.2 (e)).
Mr Sheehan was able to obtain some of the other leases in the centre and the Applicant conceded at the hearing that no other tenant contributed to the cleaning costs for the centre. His view was that the obligation on the tenant was a very onerous obligation and relevant to his determination market rental.
Conclusion to the issue of including cleaning outings
The Tribunal having considered the evidence was not satisfied that Mr Sheehan had acted inappropriately in taking into account the cleaning costs.
The Tribunal accepts the evidence of Mr Sheehan that this was an unusual arrangement and that it was not inappropriate for Mr Sheehan to include the costs of cleaning as a valuation consideration.
Mr Sheehan has determined the effective rent has defined in the Act and explained in his Report and in oral evidence why he had done so.
Mr Gould another practicing valuer agrees with the approach that Mr Sheehan has undertaken.
The Tribunal does not accept that the Applicant has adduced sufficient evidence to establish that Mr Sheehan has made a mistake in his approach as a Specialist Retail Valuer in incorporating the cleaning outgoing as an appropriate valuation consideration.
The Tribunal accepts the evidence of Mr Fahey in relation to why clause 5.2 was drafted into the Lease. The letter of 25 August 2005 demonstrates that the Applicant after referring to the lease documentation accepted that it was appropriate to offset the cleaning costs incurred by the lessee against rental. It would appear that the adjustment of rental to take into account the onerous cleaning responsibilities placed on the lessee had been going on since December 2001.
The Tribunal accepts that the evidence of Mr Sheehan that the arrangement for the lessee to clean the common areas and public toilets was an unusual arrangement. Mr Gould agrees. The Tribunal accepts Mr McLean’s evidence in relation the particularly unpleasant and difficult nature of the undertaking is. The history set out in Mr Fahey‘s affidavit sets out the circumstances. Mr Muller was forced to clean of the Centre himself for six months because he was unable to source commercial cleaners from Airlie Beach because of the distance that was involved. The solution Clause 5.2 places an onerous obligation on the tenant in relation to cleaning.
Mr Sheehan has set out his methodology. Mr Terry Gould in his letter which is an exhibit to the affidavit of Mr McLean of 31 May 2011 agrees with his approach in relation to the inclusion of the cleaning in the market review of rent.
The Tribunal does not accept this as a ground to impeach the validity of the Specialist Retail Valuation.
Findings of Fact
The parties jointly approached the Registrar of the Act to appoint a Specialist Retail Valuer to assess the market rental under the Lease.
Mr Sheehan is a Specialist Retail Valuer under the Act.
Mr Sheehan undertook a market valuation in relation to the rental payable under the lease as at 1 December 2007.
Mr Sheehan had regard to the provisions of the Act in undertaking the valuation.
Historically a concession has been granted to the lessee of shop five (the respondent’s tenancy) because the lessee has the responsibility for cleaning the public toilets and common areas within the centre.
The Lessee is required under the terms of its lease to allow public access to the licensed areas.
The licensed areas are frequently used by members of the public and other tenants.
The calculation of the cleaning outgoings
Mr Sheehan explained to the Tribunal that he had looked at the outgoings in the way set out in his Valuation Report. This involves firstly looking at the point of view that he was entering into an agreement to lease the property from a landlord. He would have observed the requirements of clause 5.2 of the lease with the onerous cleaning requirements and attained a cost for employing a commercial cleaner. To this end he made various inquiries and came up with a calculation for the payment of a commercial cleaner as set out in his Report. The Tribunal was satisfied that this was an appropriate approach. His second step was to say that a prudent tenant would be prepared to undertake the cleaning and this would be a more cost-effective approach for meeting the requirements set out in the Lease. He has again set out his methodology in the Valuation Report and again the Tribunal is satisfied that this was an appropriate approach. He calculated a cost for the cleaning and attributed a value of $39,766 to this as an outgoing. The Tribunal notes that Mr Sheehan was not questioned at all by the applicant’s representative about the calculations contained in his valuation.
The Tribunal accepts the calculations made by Mr Sheehan. It is within his area of expertise and these were not seriously challenged at the hearing.
Tribunal’s Conclusion regarding calculation of the costs of cleaning as an outgoing
Mr Sheehan has turned his mind to the costs of cleaning required by Clause 5.2 (e) and (f) and quantified the costs of these services being carried out by a professional cleaner and then discounted these figures on the basis of the tenant undertaking the service. The Tribunal accepts this as an appropriate exercise of the responsibilities of the Valuer.
Use of Licensed areas
In relation to the licensed areas Mr Sheehan stated in his report at page 14:
From the lease document the rental of the “Extra Area” or common area is one dollar per annum payable on demand. The area available to the Lessee under the licence does not enhance the value of the lease.
The copy of the Lease that is attached to Application contains a schedule and at clause 28 of the Lease this refers to a new lease being granted in relation to Extra Areas. This is a reference to an area of approximately 158.7 m squared being the licensed areas attached to the Café. The Rental for this area has been set at: $1.00 dollar per annum and payable on demand.
Mr Sheehan has clearly been guided by the terms of the lease in coming to this value. He has clearly turned his mind to the area and its value. The Tribunal was of the view that this was within his area of expertise. This was supported by the examples that Mr McLean provided in his affidavit of 31 May 2011 of other outlets with licensed areas where no or only a notional rental was attributed. Further the acceptance of J D Dodds’ valuation and Mr Sheehan’s valuation as not being significantly different supports the contention that this was not a significant factor.
In relation to the licensed areas around the café the Tribunal accept the evidence of Mr McLean. These are not exclusive area under the lease – the licensed areas are included as public facilities.
The Tribunal accepts Mr McLean’s evidence that less than 20% of the people use these areas purchased items from the café. The area is a transit area and the public use the chairs and tables in the licensed area as a transit lounge.
Conclusion to issue regarding value of use of Licensed areas
The Tribunal accepts Mr Sheehan's evidence that he took into account the licensed areas in determining his valuation. He explained in his evidence why he had not placed much weight on these areas in calculating the market rental.
The Tribunal is of the view that the contentions of the Applicant are unsustainable.
Finding of Fact
The Lease ascribes a value of $1.00 per annum as the normal rent for the licensed areas.
Mr Sheehan has turned his mind to the value of the licensed areas.
Conclusion in relation to the Application
The purpose of the appointment of an expert is meant to save the expense of calling witnesses and having the conflicting views of experts thrashed out, when the parties are content and willing to accept the judgment of the person who they know to be reliable. For this reason the Act sets out the process for determining the market review by an appropriately qualified expert. In the words of Duncan Commercial Leases in Australia Third Edition at page 102: Therefore generally, if the expert gives a valuation honestly and in good faith, the parties are bound by it even if a mistake is made. Duncan then offers the view: However, this may depend on the nature of the mistake. If it is fundamental, for example, if the expert reviews the wrong lease or the wrong property, the valuation would not be in accordance with the lease. But if the reviewer carries out the instructions in the lease, although these may be approached in different ways, there is no recourse. In order for the applicant to succeed it would need to demonstrate that the specialist valuer failed in some fundamental way when undertaking the valuation in accordance with the Act.
The onus is on the applicant to establish some fundamental mistake for example, if the expert reviews the wrong release all the wrong property as stated above. The Tribunal is satisfied that Mr Sheehan has undertaken his valuation in accordance with the Act. The Tribunal is satisfied that Mr Sheehan has set out the basis of his valuation. The Tribunal is not satisfied that the Applicant has produced the evidence necessary to impeach or invalidate Mr Sheehan’s Valuation.
The Tribunal accepts the contention that the obligation on the tenant to undertake the cleaning of the centre is an arrangement that the valuer should have taken into account in determining a market rent.
The Tribunal is not satisfied that established a case for the Tribunal to look behind the Valuation and in accordance with section 33 of the Act Mr Sheehan’s determination of market rent stands. The Tribunal accordingly dismisses the Applicant’s application.
It follows from the Tribunal’s decision that the assessment of market rent assessed by Mr Sheehan stands and pursuant to section 33 of the Act is the market rental as at 1 December 2007.
Orders
The Tribunal dismisses the Application.
The Tribunal orders the Applicant to pay the sum of $78,010.02 being overpaid rental monies for the period 1 December, 2007 to 30 November, 2010 to the Respondent within 14 days.
The Tribunal directs that a copy of this decision be provided to any Specialist Retail Valuer who might be subsequently asked to undertake a market valuation under the lease and pursuant to the Act.
The Tribunal gives the parties until 4pm on 2 March 2012 to file and exchange in relation to costs. The Tribunal will then decide the matter of costs on the papers.
17
0
1