Salha Nominees Pty Ltd v Khaled El-Sheikh Pty Ltd

[2022] SADC 51

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

SALHA NOMINEES PTY LTD v KHALED EL-SHEIKH PTY LTD

[2022] SADC 51

Judgment of his Honour Judge Durrant  

5 May 2022

LANDLORD AND TENANT - RENT - BREACH OF COVENANT TO PAY - ACTIONS TO RECOVER RENT OR DAMAGES

LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - CONSTRUCTION AND INTERPRETATION

The applicant let to the tenant, commencing 1 March 2015, until 28 February 2015, premises for use as a seven-day pharmacy and medical centre. From August 2015, until November 2017, the premises suffered water leaks. The applicant, having been requested in writing by the respondent to address the cause of those leaks, took steps to do so. The applicant says that after works to the roof in December 2017, the respondent did not report any further leaking. The respondent, between April 2018 and July 2019, failed to pay rent when due or at all and subsequently vacated the premises and failed to make good. The applicant issued proceedings to recover unpaid rent in February 2019. The respondent, in June 2019, gave notice of termination under the lease asserting the applicant had failed, within a reasonable time of its written requests, to repair the leaking roof. The applicant says that notice was ineffective and invalid and that it accepted the repudiation of the lease by the respondent and is entitled to an award of damages, including for unpaid rent.

Held:

1. The rights contained in s 40 of the Retail and Commercial Leases Act 1995, and cl 4.11 of the lease are premised on the occurrence of an act or event leading to damage to the premises in which the leased premises are contained or to the leased premises, during the term of the lease.

2. Under s 40(1)(g) of the Retail and Commercial Leases Act 1995, and cl 4.11(d) of the lease, the 'damage' must be such that the leased premises cannot be used or are inaccessible or diminished.

3. Under s 40(1)(g) of the Retail and Commercial Leases Act 1995 and cl 4.11(d) of the lease, what 'repair' is required will vary according to the damage and the circumstances of the lease.

4. What constitutes a reasonable time within which the repair is to be made will depend on the nature of the damage and its impact and the steps necessary to repair that damage.

5. As the respondent has not established the occurrence of an act or event leading to damage to the premises in which the leased premises are contained or to the leased premises during the term of the lease such that the leased premises were unusable or inaccessible in whole or in part, the notice of termination was ineffective and invalid.

6. As the respondent has not established that in order to repair the damage asserted the applicant had to replace entirely the roof over the leased premises, the notice of termination was ineffective and invalid. 

7. Alternatively, as the respondent has not established that the damage asserted has not been repaired, the notice of termination was ineffective and invalid.

8. The delay between the requests for repair made between August 2015, and November 2017, and the giving of the notice of termination in June 2019, was unreasonable and for that reason the notice of termination was ineffective and invalid.

9. Alternatively, by reason of the delay between the requests for repair made between August 2015, and November 2017, and the giving of the notice of termination in June 2019, the respondent has waived its right to elect to terminate the lease and for that reason the notice of termination was ineffective and invalid.

10. In the further alternative, the respondent was not entitled to give notice of termination while repudiating its obligations under the lease and for that reason the notice of termination was ineffective and invalid.

11. The respondent by vacating the leased premises repudiated the lease and the applicant accepted that repudiation.

12. The applicant is entitled to damages, being interest on the late payment of rent, for unpaid rent, the difference between the rent obtained from a new tenant and the rent payable under the lease for the term of that new lease, cost incurred to restore the leased premises to good condition and the cost of making good the leased premises.

13. Subject to further evidence and submissions concerning whether any right of extension has been or may be exercised under the new lease, the applicant is entitled to damages in respect of rent under the lease from the date of expiry of the new lease and until the expiry of the lease on 28 February 2025, and the incentive payable to a further tenant, leasing fees payable in respect of a further tenant, and a marketing package necessary to attract a further tenant and interest. 

Retail and Commercial Leases Act 1995 (SA) ss 3, 4, 18, 40; Property Law Act 1969 (WA) s 81(1), referred to.
Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273; Dalla Costa v Beydoun (1990) 5 BPR 11; Grades v Singer [1945] DLR 182; Morris v Baron & Co [1918] AC 1; Italia Ceramics International Super Pty Ltd & Anor v CM Corporation Pty Ltd & Anor [2019] SASCFC 54; Bright v Dwyer (1978) 141 CLR 378; Champtaloup v Thomas [1976] NSWLR 264; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; W&R Pty Ltd v Birdseye [2008] SASC 321; BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; Robinson v Harman [1848] EngR 135; Karacominikas v Big Country Developments Pty Ltd [2000] NSWCA 313; Adelaide (SA) Pools & Spa Manufacturing and Installation Pty Ltd & Ors v Westcourt General Insurance Brokers Pty Ltd (No 2) [2021] SASC 123; Fallon v Johnston [2018] VSC 273; Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] 218 ALR1; Concut Pty Ltd v Worrell [2000] 75 ALJR 312, considered.

SALHA NOMINEES PTY LTD v KHALED EL-SHEIKH PTY LTD
[2022] SADC 51

Introduction

1. The applicant Salha Nominees Pty Ltd (the lessor), owns commercial premises at 1183-1185 Main North Road, Pooraka (the premises).[1]

   [1] Statement of Samer, Exhibit A3, [4], [5]; Joint Tender Book, Vol 1, Exhibit A1, [19], [35].

2. The respondent Khaled El-Sheikh Pty Ltd (the tenant), trading as the Tristar Medical Group, operates medical centres throughout Australia.[2]

   [2]    Affidavit of Khaled Mohammed El-Sheikh, Exhibit R21, [3].

3. By lease, commencing on 1 March 2015, and ending on 28 February 2025, the lessor let a portion of shops 5 and 7 and shop 6 of the premises (the leased premises) to the tenant for use as a ‘seven-day pharmacy and medical centre’ (the lease).[3]

   [3] Revision 5 - Statement of Claim (FDN27), [1]; Defence Revision 2 (FDN28), [1]; Joint Tender Book, Vol 1, Exhibit A1, [26]- [78]; Affidavit of Khaled Mohammed El-Sheikh, Exhibit A3, [9]- [15].

4. Intermittently, between 15 June 2015, and 30 November 2017, the premises suffered water leaks. The tenant says that it requested the lessor in writing, several times, to ‘repair damage’ to the premises and the leased premises.[4] The lessor did address the leaking of water through the roof of the premises. The lessor and tenant disagreed: as to why the leaking had occurred; who should pay for the work done; and, as to the effectiveness of the works. The lessor says that after significant work to the roof in December 2017, no further leaking was reported.

   [4] Defence- Revision 2, (FDN28), [11.4], [11.5]; Joint Tender Book, Vol 1, Exhibit A1, [171], [175] [183], [207], [217], [302], [316], [332], [348], [361] and [455].

5. The lessor claims that between April 2018, and July 2019, the tenant breached the lease. First, by failing to pay rent due,[5] second, by ceasing to use the leased premises as permitted,[6] third, by unauthorised use of the leased premises,[7] fourth, by vacating the leased premises,[8] and fifth, by failing to make good.[9]

   [5]    Revision 5 – Statement of Claim (FDN27), [3], [3.3]; Defence-Revision 2, (FDN28), [3].

   [6]    Revision 5 – Statement of Claim (FDN27), [6]; Defence- Revision 2, (FDN28), [6].

   [7] Revision 5 – Statement of Claim (FDN27), [6], [7] and [8].

   [8] Revision 5 – Statement of Claim (FDN27), [13]- [14].

   [9] Revision 5 – Statement of Claim (FDN27), [6] and [13]; Defence- Revision 2, (FDN28), [6], [13] and [14]; The tenant never operated a pharmacy from the leased premises.

6. The tenant says it terminated the lease by written notice dated 21 June 2019, because the lessor failed within a reasonable time to repair the leaking roof.[10] The lessor says the notice was ineffective and invalid, that it accepted the repudiation of the lease by the tenant and claims damages, including for unpaid rent, future lost rent, plumbing costs incurred, the cost of making good and interest.[11]

   [10] Revision 5 – Statement of Claim (FDN27), [14]; Revision 2 – Defence (FDN28), [11], [14].

   [11] Revision 5 – Statement of Claim (FDN27), [16]; Defence- Revision 2, (FDN28), [11], [16].

   The Trial

7. Contemporaneous documents detailed the reporting of and impact of water leaks and the works by the lessor in response.[12] Claudio Zollo and Douglas Phillips, for the lessor, and Onochie Ugochukwu, Marelda Cordier and Liam McElhinney, for the tenant, provided context and detail.[13]

   [12]  Joint Tender Book, Vol 1, Exhibit A1; Joint Tender Book, Vol 2, Exhibit A2; SDS Quote, Exhibit A5; Payment records SDS Plumbing invoice 25 September 2017, Exhibit A13.

   [13] Affidavit of Mr Claudo Zollo, Exhibit A18; Affidavit of Mr Douglas Philips, Exhibit A19; Affidavit of Liam McElhinney, Exhibit R12; Affidavit of Marelda Cordier, Exhibit R22; Affidavit of Onochie Ugochukwu, Exhibit R24; Joint Tender Book, Vol 1, Exhibits A1; Joint Tender Book, Vol 2, Exhibit A2; Objections as to admissibility, purpose and use of documents contained in Vol 1 and 2 and in witness statements were made, see (FDN 64), (FDN65), (FDN66) and (FDN73).

8. Samer Sallis – the sole director of the lessor- gave evidence about the responses of the lessor to the leaking and to prove loss.[14] Khaled Mohamed El-Sheikh- the sole director of the tenant- gave evidence about the medical centre, steps taken to improve its performance and his decisions to cease operations, vacate and give the notice of termination.[15] I was urged to reject parts of the evidence of Mr Sallis and Dr El-Sheikh.[16] The tenant also criticised the lessor for failing to call persons it said could have given evidence about the leaks.[17]

   [14] Statement of Samer, Exhibit A3; Supplementary Statement of Samer, Exhibit A7; Affidavit of Samer, sworn 6 September 2021, Exhibit A8.

   [15] Affidavit of Khaled El-Sheikh, Exhibit R21.

   [16] Respondents Outline of Closing Submissions filed 20 October 2021, (FDN 96), [1] to [17].

   [17] Ibid, [60]-[69]; Particularly, Mr Wayne Hunt (a roofing contractor engaged by the lessor), representatives of Hindmarsh Plumbing (who undertook work on the roof) and Mr Steven Slack of SDS Plumbing (who also carried out work on the roof and who considered the cause of the leaking).

9. The unchallenged evidence of Jordan Schmidt, an expert in commercial leasing, was in the form of a written report.[18] I accept Mr Schmidt as an expert, and wholly accept his expert opinions about obtaining a new tenant, the incentives and costs necessary to do so and the rent obtainable.[19] 

   [18]  Mr Schmidt was not required for cross-examination.

   [19]  Joint Tender Book Vol 1, Exhibit A1, [98].

10. Mr Schmidt described the commercial property rental market in the northern suburbs of Adelaide as thin and said it was common for tenancies like the leased premises to remain vacate for prolonged periods.[20] He thought a multi-faceted marketing campaign- consisting of on-site signage, print media and online advertising- would take between twelve and eighteen months to attract a tenant. He said such a campaign would cost $8,880.06 plus GST.[21]

    [20]  Book of Experts Reports with Instructions, Exhibit A9, Tab 1, [6].

    [21] Ibid, [8].

11. Having regard to usual industry practice, Mr Schmidt thought the lessor would likely have to agree commercial incentives of between 20-30% of the total nett rental in the form of a cash contribution upon hand over, a rent-free period or a contribution to fit-out.[22] Mr Schmidt said a reasonable incentive for a 5-year tenant would total $91,075.00 plus GST. Further, he thought leasing fees (being 12% of the gross annual average rental) would total $11,604.70 plus GST.[23]

    [22]  Ibid, [7].

    [23]  Ibid.

12. Building consultants, Mr Camporeale and Mr Short, gave written and oral expert evidence of their observations of the roof and leased premises. They agreed the leased premises were fit for use as a medical centre.[24] Mr Camporeale and Mr Short disagreed about the effectiveness of repairs to the roof they had observed and whether there had been a significant partial replacement of the roof above the leased premises.[25] No challenge was made to the expertise of either of Mr Camporeale or Mr Short and I accept them both as experts.[26]

    [24]  Book of Experts Reports with Instructions, Exhibit A9, Tab 2, [45]; Tab 4, [91].

    [25] Affidavit of Christopher George Short sworn 18 October 2021 (FDN 95), Exhibit R29; Affidavit of Denis Camporeale sworn 3 November 2021 (FDN98), Exhibit A30.

    [26]  Book of Experts Reports with Instructions, Exhibit A9, Tab 2, to 5.

13. Mr Short said he inspected the roof over the leased premises and the interior of the leased premises on 23 July 2020.[27] He had regard to a drawing of the leased premises to assist his oral evidence and explain to me his conclusions and observations.[28] Mr Short observed within areas of the leased premises delineated as store 2, the industrial health area and the rehabilitation room, some stained ceiling panels the result of water damage.[29]  He said that the ceiling panels within the leased premises measured either 600mm x 600mm or 600mm x 1200mm. 

    [27] Book of Expert Reports with Instructions, Exhibit A9, Tab 4, [75], [78].

    [28] Expanded Plan, Exhibit A6.

    [29] Book of Expert Reports with Instructions, Exhibit A9, Tab 4, [80]- [90].

14. Mr Short said that zincalume steel roof flashing had been recently installed above the reception and toilet areas. He observed capping in that area to be badly corroded and in need of replacement. He said that replacement roof sheets had been previously repaired with compound and silicone. In and around the roof mounted air conditioners installed by the tenant, he noted both old and new flashing, some of which had been poorly fitted and obviously repaired since installation.[30] In the area of the roof above storeroom 2 in the industrial health room, Mr Short observed a row of tek screws bogged up with silicone to stop leaks into the ceiling below. He thought that was likely done prior to the installation of the replacement roof sheets over the reception and toilet areas.

    [30] Ibid.

15. In respect of the 250sqm roof catchment area over the leased premises, Mr Short considered the installation of only one outlet into the box gutter to be a design fault and manifestly inadequate to cope with peak storm water loads or blockages of leaf, litter or hail. He thought that poor design a likely cause of leaking.[31]

    [31] Ibid, [87].

16. Mr Short detailed numerous efforts to stop leaking from the roof including a total replacement, in ‘recent years’, of approximately 40% of the sheeting in the area adjacent to the roof over the leased premises. Conversely, he thought the roof above shops 6 and 7 remained in original form. Mr Short said photographs in his report showed widespread repair to the roof over the leased premises and water stains and ceiling damage within, caused by water leaking from the roof.

17. Mr Short said ideally the roof should have been replaced as repairs had been further repaired. He observed, of the numerous repairs, some were many years old and some had been carried out in the months before his inspection. Nonetheless, he considered the leased premises fit for purpose and suitably fitted out for a medical practice or similar enterprise.[32] Mr Short said the photographic evidence he had been provided did not demonstrate or depict any damage caused by the installation of the air conditioning units over the leased premises.

    [32] Ibid, [91].

18. In cross examination,[33] Mr Short accepted box gutters are generally more prone to blockages than ordinary gutters and require more maintenance to clear debris on a regular basis.[34] He confirmed he had not conducted any water test to see where leaks might have been coming from and nor did he consult an engineer.[35] Mr Short agreed there would have been more than one source of leaking.

    [33] T360-396.

    [34] T361.7.

    [35] T361-362.

19. Mr Short said he had observed corrosion on the galvanised surfaces of the roof, in particular in the box gutters, and various attempts in the years and months before his inspection in July 2020, to coat over the corrosion that was there.[36] He considered that a band-aid approach and could not predict how long it would last.

    [36] T362.

20. Mr Short accepted he had not been provided with a chronology identifying which bits of work had been done to particular parts of the roof at particular times. He accepted a degree of speculation in his evidence as to what had caused the leaks. He said it was very difficult to assist as to the cause of any leaks, at any particular time and in any particular area. He had not, in his report, speculated on the cause of or sought to age the leaks.[37] Further, given the redecoration by the time of his inspection, it had been impossible for him to pinpoint or correlate the internal damage with corresponding areas of the roof.[38] Particularly, he said, he had not been asked to get into the roof to trace water damage back to its source.[39]

    [37] T381.18-38; T384.5-8.

    [38] T388.10-14.

    [39]  T338.

21. Mr Short thought, but was not certain, the box gutter configuration on the roof of the leased premises was original.[40] He speculated the premises were constructed in the 1950’s. While Mr Short thought the box gutters were inadequate and a design fault, he said he had not been provided, and nor had he observed, anything that indicated leaking in a straight line corresponding with the box gutter or with one end or some part of it.[41]

    [40] T39.1-4.

    [41] T390.19-30.

22. Mr Short was cross-examined about Exhibit A5- an SDS Plumbing quote for replacement of part of the roof in late 2017- as follows:[42]

    Q.Looking at Exhibit A5 now produced to you, I think in here there's three different parts to that quotation. One is about replacing some section of the box gutter, another is about replacing some roof sheets and another is about replacing flashings around the evaporative air cooling on roof. Could each of those three points have been relevant to a source of water leakage.

    A.They could well be but not in regard to the subject premises because the box gutter that's there is corroded. It has been coated internally with a waterproofing membrane of some sort. There is certainly not 40 new sheets of roofing material and there's no new flashings around the evaporative air- conditioner, around 11 evaporative air-conditioners. So none of that work - in my opinion none of this work that's quoted for here, I think you said it was an invoice, but it hasn't happened.

    Q.There is a document that shows that the bill was actually paid. Would it be that you wouldn't know one way or the other then whether the works set out there was carried out.

    A.Well, if this Exhibit A5 is a specification of work for the subject premises then none of this work has been carried out, none of it.

    [42] T391.26-T392.11.

23. Mr Short said further he had undertaken a later inspection on 27 September 2021, to consider if the work in Exhibit A5 had been carried out.[43] He reported the premises were divided into three sections of roof, each with an area of 214sqm. Each section, he said, drained into a galvanised steel box gutter (300mm by 180mm) with one outlet (250mm x 90mm). In his opinion that was insufficient to cope with a surge of stormwater.

    [43]  Affidavit of Denis Camporeale, Exhibit A28; Affidavit of Mr Short, Exhibit A29; See Respondents Submissions (FDN 96), [25].

1. Mr Short observed while several sections of the box gutter had been replaced, none had been replaced above the leased premises. He said two large areas of roof above the Dulux discount carpets store had been replaced but he did not consider that was the replacement of 40 roof sheets contemplated in Exhibit A5. He said those replacement sheets had not benefitted the leased premises. Mr Short said there had been a replacement of galvanised flashings and galvanised roof sheets above the leased premises but given all other recent flashings and replacement roof sheets were zincalume, he thought that work was of a different vintage to that contemplated by Exhibit A5. He had observed replacement flashing around the evaporative air conditioners.[44]

   [44] Affidavit of Denis Camporeale (FDN85) dated 13 September 2021, Exhibit A28.

2. Mr Camporeale inspected the leased premises on 24 August 2020 and assessed the roof, the suitability of the premises for the purpose of them being let, whether any repairs were required, and his observations about the opinions contained in the first report of Mr Short.[45]

   [45] Book of Experts Reports with Instructions, Exhibit A9, Tab 2, [42] and Tab 3.

3. Mr Camporeale considered the report of Mr Short to be a defects list. Mr Camporeale considered the roof to be generally sound, without excessive rust or deterioration. He said some roof sheeting over other tenancies had been replaced. He thought the box gutters over the tenancy were original and showing signs of severe rust. He saw the same waterproofing treatment seen by Mr Short and agreed with what Mr Short had said about the inadequacy of the box gutter. He observed that some roof flashing, capping and box guttering needed replacement. He noted maintenance work to the roof cladding and plumbing suitable in the medium term;[46] say five to ten years.

   [46] Ibid, Tab 2 and Tab 5.

4. Mr Camporeale thought the work undertaken to rectify obvious points of leaking- although crude in appearance and application- to be satisfactory and fulfilling its purpose. Mr Camporeale agreed the tenancy was fit to be operated as a commercial premise and rejected any suggestion it could not have been so occupied or operated in the past due to water penetration. Mr Camporeale thought that water had previously penetrated through the vent pipes, refrigeration pipework and electrical wiring of the air conditioning units installed by the tenant.[47]

   [47] Book of Experts Reports with Instructions, Exhibit A9, Tab 3.

5. Under cross examination, Mr Camporeale confirmed he had seen signs of past water damage to ceiling panels within the leased premises. He agreed that the anchoring of sheet metal into roof members rather than to the ridge was not best practice and would increase the risk of water penetration. Mr Camporeale said he thought the use of sealant around the vent pipe on the roof was a short-term solution; say, six months. He considered a long-term solution was something that would work for twenty years.[48] He confirmed that he had not been inside the ceiling cavity but had observed rust in the box gutters.[49] Mr Camporeale agreed the installation of more downpipes from the box gutter would be worthwhile.[50] He agreed there had been water leaks in the past into the leased premises but said he was unable to say exactly when that leaking had occurred. He agreed it was not possible to say when a stained and dried ceiling panel had been damaged. Mr Camporeale said that flashing had been installed around the base of the evaporative air conditioning units directly above consulting room 5.[51]

   [48] T198-199.

   [49] T200.

   [50] T201.

   [51] Affidavit of Denis Camporeale (FDN98), Exhibit A30 and by reference to Exhibit A5 and photos 352, 359 and 362 attached to Mr Short’s report.

   Established Facts

6. In my consideration of the leaking which occurred, I have principally had regard to the contemporaneous records and the evidence of Mr Sallis, Mr Zollo, Mr Phillips, Mr Ugochukwu, Ms Cordier, and Mr McElhinney.[52]

   [52] Joint Tender Book, Vol 1, Exhibit A1; Joint Tender Book, Vol 2, Exhibit A2; SDS Quote, Exhibit A5; Payment records SDS Plumbing invoice 25 September 2017, Exhibit A13.

7. I was urged by the tenant to find Mr Sallis an untruthful witness because he had deliberately concealed, after the tenant had specifically asked for a report, conclusions drawn by the lessors contractor SDS Plumbing as to the cause of the leaks.[53] The tenant also challenged Mr Sallis in cross examination that he had been untruthful when he had said 40 sheets of roofing and 70m of box gutter had been replaced in about December 2017.[54] I have accepted the evidence of Mr Sallis where consistent with the contemporaneous records or other witnesses.

   [53] Respondent’s Outline of Closing Submissions, [9]-[18] and [21]-[25].

   [54] T153. 23- 38; cf the Statement of Samer, Exhibit A3, [42] and the payment records for an SDS Plumbing invoice dated 25 September 2017, Exhibit A13 and the Affidavit of Denis Camporeale dated 13 September 2019, [4]- [5], SDS Quote, Exhibit A5 and the Affidavit of Chris Short, Exhibit A29, [3].

8. I was urged by the lessor to reject the evidence of Dr El-Sheikh that he had been motivated to give the notice of termination because the lessor had failed to repair damage to the premises.[55] I have accepted the evidence of Dr El-Sheikh where consistent with the contemporaneous records or the evidence of other witnesses. I have kept in mind that Dr El-Sheik said he provided general direction to his staff and left the day-to-day operation of the centre to them.[56]

   [55] Applicant’s Outline, [175]-[179].

   [56]  T434.13-15; T435.13-26; T440.34-T441.3; T442.1-8; T444.32-35; T465.15-20; T474.30-35; T488.27; T489.17; T490.17-23; T495.27-T496.23; T501.3-12; T509.33-36.

9. I have found the following facts to have been established.

10. The lessor is the owner of shops 5, 6 and 7 located within the premises.[57] The tenant is the operator of medical centres which trade as the Tristar Medical Group.[58]

    [57] Statement of Samer, Exhibit A3, [4], [5]; Joint Tender Book, Vol 1, Exhibit A1, [19], [35].

    [58]  Affidavit of Khaled El-Sheikh, Exhibit R21, [3].

11. In 2014, the tenant commenced commercial discussions with the lessor about opening a medical practice at the premises with at least eight doctors. In the event an eight-doctor practice was established, the tenant expected a pharmacy would also be able to operate from the leased premises.[59]

    [59]  Ibid, [4]- [12]; T411.1- 38, T453.13-38.

12. The lease was agreed to commence 1 March 2015, to expire on 28 February 2025.[60] Following rent-free and reduced rent periods,[61] annual rent of $87,000 pa plus GST was payable monthly in advance.[62]  The legislative structural warranty was lawfully excluded.[63] The permitted use of the leased premises under the lease was as a ‘seven-day pharmacy and medical centre’. The tenant agreed to keep the leased premises open for business every day, except public holidays.[64]

    [60] Together with two rights of extension, clause 3.04; Joint Tender Book, Vol 1, Exhibit A1, [35], [56].

    [61]  Until 1 October 2015; Joint Tender Book, Vol 1, Exhibit A1, [36].

    [62] Ibid, [4], [36] and [69], with annual CPI increases.

    [63]  Retail and Commercial Leases Act 1995, s 18; Joint Tender Book, Vol 1, Exhibit A1, [9], [18].

    [64] Ibid, [44].

13. At the expiry of the lease, the tenant agreed to remove its improvements and make good any damage.[65] During the tenancy, the tenant agreed to keep the leased premises ‘in good and substantial repair order and condition’, fair wear and tear and damage by storm or tempest excepted.[66] Clause 4.11 of the Lease was agreed in the following terms:[67]

    [65] Ibid, [50].

    [66] Ibid, [51].

    [67] Ibid, [96].

    (a) if the demised premises or the building of which the demise premises forms part is damaged –

    (i) the Lessee shall not be liable to pay rent, or any amount payable to the Lessor in respect of outgoings, or other charges, which is attributable to a period during which the demise premises cannot be used or are inaccessible due to damage;

    (ii) if the demised premises are still usable but their usability is diminished due to the damage, the Lessees liability for rent and any amount for outgoings attributable to a period during which usability is diminished shall be reduced in proportion to the reduction in usability caused by the damage;

    (iii) if the Lessor notifies the Lessee in writing that the Lessor considers the damage is such as to make its repair in practicable or undesirable, the Lessor 23 A1 p63 Form 65 7 or the Lessee may terminate this lease by giving not less than seven days’ notice in writing to the other and no compensation shall be payable in respect of that termination.

    (iv) if the Lessor fails to repair the damage within a reasonable time after the Lessee requests the Lessor in writing to do so, the Lessee may terminate this lease by giving not less than seven days’ notice in writing of termination to the Lessor.

    (v) paragraphs (i) to (iv) shall not affect a right of the Lessor to recover damages from the Lessee in respect of any damage or destruction to which those paragraphs apply.

    (b) the Lessee shall not be relieved of the obligation to pay rent if the damage resulting from the wrongful act or negligence of the Lessee or an employee or agent of the Lessee unless the Lessor is insured against the loss of rent under an insurance policy and the Lessee contributes to the insurance premium.

    ……

    (d) the termination of this lease under this clause shall not prejudice the Lessor's rights and remedies in respect of an antecedent breach of the Lessees covenants hearing contained or the Lessor's rights to recover any rent in respect of any period prior to the date of such termination.

14. On 9 April 2015, development approval was granted for the works necessary to fit out the leased premises.[68] The tenant commenced those works in April 2015, including the removal of walls to create an area for reception and administration, twelve consulting rooms and for the installation of air-conditioning.[69] Those works were carried out by a contractor engaged by and paid for by the tenant.[70]

    [68] Ibid, [80].

    [69]  Expanded Plan, Exhibit A6; Affidavit of Khaled El-Sheikh, [8]- [12], Exhibit R21.

    [70] Ibid; Statement of Samer, Exhibit A3, [16]- [17].

15. On 15 June 2015, prior to completion of the fit-out and prior to the opening of the medical centre, the tenant informed the lessor that:[71]

    ‘It seems Tristar Pooraka site has a leaking roof and to insure [sic] we make handover date 6th July could you please arrange someone to get to site ASAP to fix this issue? It seems there could be a number of leaks’.

    [71] Joint Tender Book, Vol 1, Exhibit A1, [180]; Exhibit R21, Affidavit of Khaled El-Sheikh [13].

16. In a response, less than two hours later, the lessor said it would ‘organise to attend to the roof leaks as soon as possible’.[72]

    [72] Joint Tender Book, Vol 1, Exhibit A1, [180].

17. On 16 June 2015, the tenant informed the lessor it anticipated the fit out would be complete by Friday 10 July 2015. It requested the leaks ‘be fixed ASAP’.[73] The lessor replied the same day it had ‘arranged for the roof repairers to attend to the problems as soon as weather permits’.[74] A contractor attended 18 June 2015.[75]

    [73] Ibid, [171].

    [74] Ibid, [171].

    [75] Ibid, [187].

18. On 7 July 2015, leaking remained of concern and the lessor replaced damaged ceiling panels and fixed damaged electrical work.[76] The ceiling panels measured 600mm by 600mm and 600mm by 1200mm and cost approximately $6.00 each.[77] They were easily replaceable by one person using a ladder.

    [76] Ibid, [183].

    [77]  T225.16-18.

19. On 9 July 2015, Old Port Roofing provided to the lessor a quote ‘to repair leaks on the roof in 5 areas’ for $4675[78] Those works were carried out in the week commencing 19 July 2015.[79]

    [78] Joint Tender Book, Vol 1, Exhibit A1, [186], [191].

    [79] Ibid, [191]; Statement of Samer, Exhibit A3, [25].

20. On 23 July 2015, the tenant updated the lessor by email about ‘three leaks throughout the clinic’. Two, it said, had been fixed,[80] but the third remained because water was dripping from the ceiling of the administration area and a wet ceiling panel had fallen to the floor.[81] The lessor considered that third leak to be new following recent rain.[82] The lessor replaced the water damaged panel in the administration area and arranged to attend with a contractor on 31 July 2015.[83]

    [80] In the back of the reception area and in the waiting area.

    [81]  Joint Tender Book, Vol 1, Exhibit A1, [204].

    [82] Ibid, [207], [209].

    [83] Ibid, [206], [213].

21. The tenant opened for business at the leased premises on Monday 3 August 2015.[84] The lessor arranged for Old Port Roofing to be on site that day.[85] On 4 August 2015, the tenant complained that,‘[i]t seems the entire roof is rusty and cause [sic] all the leaks?’.[86] The tenant requested the replacement of the roof above the leased premises as, ‘this is now the fifth patch up job in less than a matter of months’.[87] The lessor said it was, ‘just waiting for a report from the plumbers…. once the works have been completed so we will be able to assess the nature of the problems and the works required to ensure that they do not re-occur’.[88]

    [84] Ibid, [207], [211].

    [85] Ibid, [213], [218].

    [86] Ibid, [217].

    [87] Ibid, [217].

    [88] Ibid, [217].

22. On 12 August 2015, the tenant requested ‘an update of the roof and applicable replacement ceiling tiles and other damaged items’.[89] On 14 August 2015, the contractor engaged to undertake the fit out inspected the roof and said the leaks were ‘existing’, and ‘coming from the box gutters and existing a/c units’ and, ‘not from any of the works that [their] subcontractors had done’.[90]

    [89] Ibid, [222].

    [90] Ibid, [224].

23. Between the opening of the medical centre on 3 August 2015, and 15 August 2015, only nine patients attended. On 16 August 2015, no patients attended.[91]

    [91] Ibid, [241].

24. On 19 August 2015, Mr Hunt, the roof contractor engaged by the lessor, provided a photo to the lessor which he said showed roof damage caused by the fit out works undertaken by the tenant; particularly, by the installation of air conditioning units.[92] Mr Hunt invoiced the lessor for $5,142.50 for repairs to five leaks in the roof of the premises and the installation of new flashing to an air vent.[93] On 16 October 2015, Mr Hunt told the lessor that those ‘[r]epairs [were] completed cleaned up and all are happy’.[94]

    [92] Ibid, [220].

    [93] Ibid, [222], [249]; Exhibit A2, Joint Tender Book Vol 2, [560].

    [94] Joint Tender Book, Vol 1, Exhibit A1, [243].

25. On 21 October 2015, the lessor sent the invoice from Mr Hunt for $5,142.50 dated 19 August 2015, to the tenant for payment with an accompanying email:[95]

    ‘Please find enclosed invoices(x5) for the work carried out by Wayne Hunt and Hindmarsh Plumbing for repairs to the roof that was required as a result of the fit out works carried out by Tristar Medical Group.

    Salha Nominees has already paid significant amounts to renovate the roof and fit new copper piping, along with a variety of other work and repairs to the roof that were required since Tristar commenced its tenancy and are, at this stage, not requesting compensation for the payments already made.

    The bills attached, however, have been clearly identified as occurring specifically as a result of defective work by Tristar contractors and are related to the damage that resulted from the faulty installation of air conditioning ducting, dents to the roof panelling [sic] and damaged tiles etc.

    We have discussed the matter at length with Wayne Hunt, who is an independent contractor, and he has supplied photographic evidence to confirm the origins of the damages. He has also advised that he has discussed the issues with Mr Paul Butler and he is aware of the origin of the problems.

    We would ask that you please forward payment within 7 days directly to the contractors as per the information on their invoices’.

    [95] Ibid, [246]-[253].

26. On 30 October 2015, the contractor sent a further invoice from Wayne Hunt   for $495, in respect of ‘clean up and make good consulting rooms after water damage due to non-decommissioning of existing air conditioner and the replacement of ceiling [panels]’.[96] Water damage to an existing light in consulting room 5 was noted.

    [96] Joint Book Tender Book Vol 2, Exhibit A2 [568].

27. For the period of 3 August 2015, to 31 December 2015, 183 patients attended the medical centre.[97]

    [97] Ibid, [800]-[963].

28. By the end of February 2016, the tenant and the lessor disagreed as to the cause of and responsibility for the leaks and payment for repairs.[98]

    [98]  Joint Tender Book, Vol 1, Exhibit A1, [260].

29. On 11 March 2016, the tenant informed the lessor of a ‘request from the clinic for the replacing of roof tiles. It seems if they had a lot of rain the past couple of days and one of the ceiling panels has water damage and a large crack’.[99] The tenant identified twelve watermarks on ceiling panels which it said had been caused by water leaks.[100] The lessor sent its contractor to investigate and that contractor replaced damaged ceiling panels at the leased premises.[101]

    [99]  Ibid, [285].

    [100] Ibid, [302].

    [101] Ibid, [285], [288], [274].

30. On 22 June 2016, the tenant told the lessor:[102]

    Following on from this existing leak issue, as previously stated, the plumbers that came in some time ago now seemed to have only surveyed the problem, as discovered this morning the leakage is still persisting, now evidently pooling above one of the centre light covers in the main reception area.

    To reiterate, there are up to 10 significantly water marked ceiling panels that need to be replaced, 1 window seal and 1 light cover that both need to be surveyed for damage and possibly repaired due to rain breaching the clinic roof.

    [102] Ibid, [316].

31. In June and July 2016, further works to the roof were required.[103] On 5 July 2016, the lessor told to the tenant that:[104]

    Our contractors have advised that the main source of the leaks and water damage was as a result of the air conditioning that was fitted by Tristar and the damage caused during the process. We will do what we can to fix the problems, but once the final report has been received it may be in Tristar’s interests to chase up the contractors involved as the previous invoices discussed remain outstanding and we will need to address the payment matters, preferably without the need to refer for formal debt collection.

    In terms of the smell, this also appear to be as a result of the bathrooms that were fitted, but were not detailed in the plans given to Salha Nominees. It is really a matter for Tristar to sort through the contractors who undertook the works, but I have none the less asked our plumbers to see if they can do anything to address the matter.

    As you can see, we are cooperating to the full extent possible and would appreciate your assistance in resolving the long-term bills outstanding so that we can continue to assist you in the future.

    [103] Ibid, [327], [328].

    [104] Ibid, [327].

32. On 5 July 2016, a contractor engaged by the lessor identified approximately 130m of damaged roof sheeting and reported it was sealing up galvanised sheeting above the box gutters on the roof.[105] The contractor said he would send a quote to replace a 130m section of the roof and that, ‘[d]oing this repair work is the start of the process of elimination to rectify the leaks coming through the ceiling’.[106]

    [105] Ibid, [320].

    [106] Ibid, [320].

33. On 4 August 2016, the maintenance manager for the lessor reported that:[107]

    Just to confirm that the recent works as discussed by SDS Plumbing have now been completed. There are however still a few problem spots and I have spent three days on the roof at Parafield this week trying to determine the nature of the problems. I have had a good chance to watch it in action and have formulated an action plan.

    I am in the process of cleaning the mud build up from the box gutters. I have found that some of the bases of the gutters are rusted through. I spoke to Scott about it and he has suggested a bitumen coating to try to seal the rust spots and extend the life of the gutters. I am going to coat them and we can see if it has any affect. This will help to stop the water siting in some spots which could be the cause of the overflow issues.

    [107] Ibid, [322].

1. On 28 September 2016, the tenant told the lessor of a ‘severe leak at our Pooraka Clinic due to large storms hitting Adelaide today’ and damage to ceiling panels. It asked, ‘can you arrange for this leak to be fixed ASAP’.[108]

   [108] Ibid, [332].

2. On 17 November 2016, the tenant told the lessor, ‘[o]ur clinic has confirmed the leak has been resolved, but the ceiling tiles need to be replaced, as one is open and some are stained’.[109] On 18 November 2014, the lessor said it would replace a light fitting and a ceiling panel in the reception area.[110] Those works were done on 29 November 2016.[111]

   [109] Ibid, [348]; Also, a light fixture with water damage needed to be replaced.

   [110] Ibid, [341].

   [111] Ibid, [348].

3. On 28 December 2016, the lessor notified the tenant it would pursue an insurance claim in respect of storm damage to the premises on 28 September 2016, to ‘address the damage to the roof, carpets and any lighting or other issues’.[112]

   [112] Ibid, [352].

4. During December 2016, the lessor contacted the plumbing contractor who had undertaken the original fit-out works and requested they investigate plumbing ‘issues’ relating to both the roof of the premises and plumbing in the leased premises.[113] That contractor was requested by the lessor to provide a quote to fix damage to the roof at the premises due to the storm on 28 September 2016.[114]

   [113] Ibid, [352].

   [114] Ibid, [324].

5. For the year 1 January 2016, to 31 December 2016, 845 patients attended the medical centre.[115]

   [115] Joint Tender Book, Vol 2, Exhibit A2, [800]-[963].

6. On 8 February 2017, the lessor arranged for Hindmarsh Plumbing to attend at the site to ‘investigate water leaks and flooding’.[116] Hindmarsh Plumbing cleared the storm water drains and checked sumps and charged $2374.90 for doing so. The lessor paid that invoice. On 8 March 2017, the lessor contacted Hindmarsh Plumbing and enquired whether, once the works were completed, ‘there is any way we can test to check there are no further leaks’.[117]

   [116] Ibid, [359]; Joint Tender Book, Vol 2, Exhibit A2, [578].

   [117] Joint Tender Book, Vol 1, Exhibit A1, [325].

7. On 22 March 2017, the tenant was requested by its insurer to provide quotes for the repair of ceiling panels, vinyl and carpet, as a result of storm damage at the leased premises.[118] By tax invoice dated 23 March 2017, Hindmarsh Plumbing recorded it had repaired storm damage at ‘6/1185 Main North Road’.[119] That work included the replacement of 100 metres of broken vertical sections of the saw tooth roof and the testing and commissioning of new sheets.

   [118] Ibid, [375], Joint Tender Book, Vol 2, Exhibit A2, [605].

   [119] Joint Tender Book, Vol 2, Exhibit A2, [580]; T110.23-30.

8. On 26 April 2017, the lessor gave notice to the tenant of a CPI rent increase.[120]

   [120] Joint Tender Book, Vol 1, Exhibit A1, [365].

9. On 8 May 2017, Hindmarsh Plumbing attended at the leased premises to investigate and repair a sewer odour in the reception area and roof leaks.[121]

   [121] Ibid, [582].

10. On 16 June 2017, the tenant engaged a contractor to repair ceiling panels in the reception area. The contractor said they had ‘probably got worse after the storm’.[122] On 25 June 2017, a contractor attended and provided a quote to replace 26 damaged ceiling panels and three light boxes.[123]

    [122] Ibid, [366].

    [123] Ibid, [367].

11. On 27 June 2017, Hindmarsh Plumbing attended and provided a report of their observations and works carried out. They had found ceiling panels replaced only the day before had fallen down due to water damage in front of the reception desk. They had accessed the ceiling space to find nothing obviously wet but that the medical centre had left its heater on all night dripping condensate directly where the leak had occurred below. They had inspected the roof in the immediate area of concern and had found many issues: screws securing sheets on the roof were all in lower valley sections of sheet and that was not ideal as that was where water runs; that sheets had rusted where secured to the lower purlin closest to the box gutter enabling water to seep through the end of the sheets and drip down outside of the edge of the box gutter and leak into the ceiling space; that a relatively new colourbond box gutter had been installed over the top of old galvanised gutter in some sections making it hard to identify exactly what had caused the leaks as water had travelled in-between the two sections and could appear anywhere below; that the laps holding the new box gutter in place had not been siliconed; and, that the gutter at the western end of the premises held a lot of water. They had cleaned and fixed the area of box gutters with which they were concerned, including by clearing and cleaning, re-siliconing and sealing sections of the roof sheets close to the box gutters and all tek screws.[124]

    [124] Joint Tender Book, Vol 2, Exhibit A2, [603].

12. For the financial year ending 30 June 2017, the income generated by the medical centre at the leased premises amounted to $116,000. In that financial year, the expenses incurred in respect of the medical centre totalled $735,000, resulting in a nett loss of about $620,000.[125]

    [125] T423.19-26.

13. On 10 July 2017, the tenant requested it be provided any report ‘indicating that the cause of the leak is the result of the poor installation of the air conditioning and drainage by Tristar’.[126] In response the lessor said:

    ‘[t]hey have advised that the a/c’s cause moisture in the ceiling due to their positioning and they then drip into ceiling which has caused some of the staining on the ceiling tiles. Given that these a/c’s were not installed by Salha Nominees, they would suggest requesting the company that installed to make some adjustments so the moisture can be halted and any further staining as a result of this problem should be addressed before replacing ceiling tiles’.[127]

    [126] Joint Tender Book, Vol 1, Exhibit A1, [372].

    [127] Ibid, [372].

14. The tenant requested a formal report and the lessor replied all it had were ‘notes’.[128]

    [128] Ibid, [370].

15. On 17 July 2017, the air conditioning contractor engaged by the tenant advised the tenant that when the air conditioner was being used as a heater, it did not produce condensation. On 19 July 2017, the air conditioning contractor reported the installation and penetrations it had affected during fit-out were watertight and had ‘determined the cause of the damage to be related to the gutters outside’.[129]

    [129] Ibid, [406].

16. On 20 July 2017, the lessor forwarded by email to the tenant notes attributed to Steven Slack of SDS Plumbing as follows:[130]

    [130] Ibid, [408], [414]; of Joint Tender Book, Vol 2, Exhibit A2, [603].

    “Attended site early morning and accessed roof.

    Found roof sheets to be iced up from dew overnight.

    ·Medical Centre had left heater on all night which was dripping condensate onto roof directly where leak is occurring below.

    ·Refrigeration units have been installed in an awkward position not allowing easy access to box gutter to inspect and/or work in. This no doubt, will triple the time to clean and fix areas of concern with box gutter. They should have been moved up the ridge of roof at least a metre to allow clear access into box gutter.

    ·Completely cleared and cleaned section of box gutter, including removing perished silicone from two sections of laps, working in difficult conditions between air con units and saw tooth roof.

    ·Unsure condition of roof sheets underneath aircon units as cannot see.
    These would have to be removed to carry out any further work in this area.

    ·Very hard to identify exact story/history of work carried out on site as staff were very vague on issues.

    Steven Slack SDS PLUMBING”

17. On 17 August 2017, the tenant replaced three light fixtures and ceiling panels within the leased premises.[131]

    [131] Joint Tender Book, Vol 2, Exhibit A2, [613]-[614].

18. On 23 August 2017, the tenant experienced further issues with unpleasant smells from plumbing at the leased premises.[132]

    [132] Joint Tender Book, Vol 1, Exhibit A1, [418].

19. On 18 September 2017, the lessor received a quote (4615) for $26,240.00 from SDS Plumbers to replace 70 metres of box gutter and 40 roof sheets spanning 9.2 metres long in areas that required attention, and to ‘replac[e] flashing around 11 evaporative air cooling units on roof’.[133] On 25 September 2017, invoice 4615 was inputted into the accounts system of the lessor.[134]

    [133] SDS Quote, Exhibit A5.

    [134] Payment records SDS Plumbing Invoice 25 September 2017, Exhibit A13; T167.33-168.2; T153.23-154.4; T157-158.

20. Between 18 and 25 October 2017, the tenant took steps to arrange for a partial refurbishment of the leased premises to accommodate BodyFit SA.[135] BodyFit SA was an allied health and rehabilitation business owned by the tenant.[136] The tenant sought the approval of the lessor for the refurbishment,[137] including the demolition of dividing walls to convert consulting rooms 1-6 to a single open space.[138] On 24 October 2017, the lessor approved the refurbishment and told the tenant that 75% of the complex roof would be replaced the following week.[139]

    [135] Joint Tender Book, Vol 1, Exhibit A1, [421]-[425].

    [136] Ibid, [426], Business Name Record, BodyFit SA, Exhibit R10.

    [137] Ibid, [44], [425]-[426], cll 2.06, 2.21(a);

    [138] Ibid, [423], Affidavit of Khaled El-Sheikh, Exhibit R21, [44]-[46].

    [139] Joint Tender Book, Vol 1, Exhibit A1, [428].

21. On 26 October 2017, an audio speaker in the ceiling of the leased premises fell to the floor.[140] That was repaired on 28 November 2017.[141]

    [140] Ibid, [440].

    [141] Ibid, [621]-[622].

22. On 30 November 2017, the tenant informed the lessor that ‘ceiling panels ha[d] fallen out in consult room 6 and [were] sagging as a result of recent rains’.[142] The tenant requested those ceiling panels be fixed.

    [142] Ibid, [455].

23. On 1 December 2017, the lessor told the tenant that plumbers would attend the leased premises ‘as soon as possible’ and that the work to replace a large area of roof sheeting to prevent further leaks was set to take place in the coming weeks and that, ‘[h]opefully this will resolve all problems for the future’.[143]

    [143] Ibid, [459].

24. On 4 December 2017, the tenant commenced the operations of BodyFit SA at the leased premises.

25. Works were carried out on the roof of the premises in about December 2017, by SDS including ‘works to be done on the roof where a large number of sheets were to be replaced’.[144]

    [144] Supplementary Statement of Samer, Exhibit A7, [8].

26. For the year beginning 1 January 2017, ending 31 December 2017, a total of 1248 patients attended the medical centre.[145]

    [145] Joint Tender Book Vol 2, Exhibit A2, [800]-[963].

27. On 24 January 2018, the tenant experienced an unpleasant sewage smell in its reception area. That was fixed by 25 February 2018,[146] and was the consequence of sewer pipes having been cut open and left uncapped behind the main reception wall by the plumbing contractor engaged by the tenant to do its original fit-out.

    [146] Ibid, [470].

28. In August 2018, the tenant ceased operation of Bodyfit SA.[147]

    [147] Affidavit of Khaled El-Sheikh, Exhibit R21, [49].

29. On 19 October 2018, the tenant operated from the leased premises for the last time.[148] The tenant ceased operation of its medical centre at the leased premises because the medical centre was unviable.[149] During 2018, the tenant had reported that regulatory changes regarding visa and medical board supervision had made it ‘mission impossible to get a doctor to work in smaller rural and regional area[s] because there [was] no way… to meet the supervision requirements and … it became a serious issue’.[150]

    [148] Joint Tender Book, Vol 2, Exhibit A2, [880]; Statement of Samer, Exhibit A3, [72], [73] and [74].

    [149] Affidavit of Khaled El-Sheikh, Exhibit R21, [48].

    [150] T310.8-19.

30. From its opening in August 2015, until its closure in October 2018, ‘for the most part’, only two doctors had worked at the medical centre.[151] The tenant had taken steps to promote the medical centre to increase patient attendances from the surrounding area by advertising opening times and bulk billing, cold calling, using improved signage, by direct mail marketing and by offering allied health services through BodyFit SA.[152] For the period 1 January 2018, to 31 December 2018, 829 patients had attended the medical centre.

    [151] T411.7-33; Dr Irfan and Dr Jahangir.

    [152] T412.

31. The tenant did not, once it vacated the leased premises, remove its improvements nor make good any damage.[153]

    [153] Joint Tender Book, Vol 1, Exhibit A1, [50]; T503.18- 504.2.

32. In respect of the rent due under the lease on 1 April 2018, in the amount of $8556.92, the tenant paid 58 days late on 28 May 2018.

33. In respect of the rent due under the lease on 1 May 2018, in the amount of $8,137.04, the tenant paid 27 days late on 28 May 2018.

34. In respect of the rent due under the lease on 1 June 2018, in the amount of $8,137.04, the tenant paid 18 days late on 18 June 2018.

35. In respect of the rent due under the lease on 1 July 2018, in the amount of $8,137.04, the tenant paid 32 days late on 2 August 2018.

36. In respect of the rent due under the lease on 1 August 2018, in the amount of $8,137.04, the tenant paid 7 days late on 8 August 2018.

37. In respect of the rent due under the lease on 1 September 2018, in the amount of $8,137.04, the tenant paid 2 days late on 3 September 2018.

38. In respect of the rent due under the lease on 1 October 2018, and 1 November 2018 of $8,137.04 per month, the tenant did not pay on those due dates.

39. On 14 November 2018, the lessor gave written notice to the tenant of breaches of the lease by way of non-payment of rent in October and November 2018, subletting to BodyFit SA, and failing to open the leased premises for business. It demanded those breaches be remedied within 14 days.[154]

    [154] Joint Tender Book, Vol 1, Exhibit A1, [480].

40. On 21 November 2018, in response to the written notice of breach given on 14 November 2018, the tenant responded:[155]

    ‘With reference to the said, misunderstanding in part, of notification of Breaches of Lease as noted in the letter, I have been in contact with our wider team and have the following updates.

    1. In reference to Point 1 – Rental payments for October and November 2018 being in arrears. I have received confirmation from our Finance team that all outstanding accounts for October and November totally $16,247.08 (as noted in the letter) will be paid in full next Tuesday 27/11/2018 with a remittance advise to be sent to the landlord confirming the same once paid.

    2. In reference to Point 2 – Assignment or subleasing the site, there seems to be a misunderstanding or some confusion I think as BodyFit SA is Khaled El-Sheikh Pty Ltd – the Lessee. I’ve attached here a copy of the ASIC report for your reference. Please let me know if there’s any issues with this and apologies if there’s been any issues in the same. I was trying to look at options available to us, in providing additional services to the centre in a hope to make the centre profitable.

    3. In reference to Point 3 – As you may be aware, Australia is in the middle of a national GP crisis/shortage which I understand is now having a direct impact on Pooraka centre in recent times. While traditionally I’m not around each centre’s trading hours I have left a message with the applicable team to provide an update on this matter so I can inform you of the same’.

    [155] Ibid, [484].

41. In respect of the rent due under the lease on 1 October 2018, in the amount of $8,137.04, the tenant paid 57 days late on 27 November 2018.

42. In respect of the rent due under the lease on 1 November 2018, in the amount of $8,137.04, the tenant paid 26 days late on 27 November 2018.

43. In respect of the rent due under the lease on 1 December 2018, the tenant did not pay on the due date.

44. On 7 December 2018, the lessor, through its solicitors, noted the premises remained closed and while the rent for October and November 2018 had been paid, the December 2018, rent remained in arrears.[156]

    [156] Ibid, [488].

45. In respect of the rent due under the lease on 1 December 2018, in the amount of $8,137.04, the tenant paid 23 days late on 24 December 2018.

46. On 28 December 2018, the leased premises were flooded due to an isolation valve at the premises being left turned off by the tenant.[157] The lessor paid invoices in respect of a required attendance by plumbers at the leased premises to investigate water flowing from that valve and into an adjoining shop, leaks into the leased premises and other damage.[158] Those costs were the responsibility of the tenant under the lease and the tenant did not keep the leased premises in good repair and order by repairing the damage nor paid those costs.

    [157] Ibid, [494], [488], [544]; Statement of Samer, Exhibit A3, [33]-[34]; see Revision 5- Statement of Claim (FDN27), [4]-[5] and [16.4].

    [158] Joint Tender Book, Vol 1, Exhibit A1, [51], cl 2.23.

47. The tenant failed to pay the rent due under the lease on 1 January 2019, in the amount of $8,137.04.

48. On 22 January 2019, solicitors for the lessor notified the tenant that it was in default of payment of rent due 1 January 2019, and that it remained in default of payment of the rent due 1 December 2018, and further, that it had failed, in breach of the lease, to recommence trading from the leased premises.[159]

    [159] Ibid, [499].

49. The tenant failed to pay the rent due under the lease on 1 February 2019, in the amount of $8,137.04.

50. On 14 February 2019, a representative of the tenant attended the premises and observed in consulting room 5 that two ceiling panels had fallen through and needed replacement and that three ceiling panels in consulting room 6 needed to be replaced.[160] No complaint about water leaking into the leased premise was made at that time to the lessor or at all in respect of the observations made on 14 February 2019.

    [160]

51. In respect of the rent due under the lease on 1 February 2019, of $8,137.04, the tenant paid 25 days late on 26 February 2019.

52. By 19 March 2019, the tenant had engaged, without notice to the lessor, a letting agent Commercial SA to market the leased premises for rent.[161]

    [161] Statement of Samer, Exhibit A3, [53]-[54]; Dr El-Sheikh T494.22-T497.3 and T500.12-501.23.

53. On 26 March 2019, a contractor engaged by the tenant informed the tenant that 23 ceiling panels in the leased premises needed to be replaced – ten with slight damage, nine in poor condition and four in very poor condition.[162] The damage noted included the damaged ceiling panels identified on 14 February 2019.

    [162] Joint Tender Book, Vol 1, Exhibit A1, [524]-[530].

54. On 21 June 2019, the tenant served on the lessor the notice of termination in the following terms:[163]

    NOTICE OF TERMINATION

    WHEREAS

    [163] Ibid, [96].

55. The Lessor is the owner of the land at 1183–1185 Main North Road, Pooraka SA 5095, being the holder of the land comprised in Certificates of Title Volume 5027 Folios 103 and 104, together with the improvements thereon (Premises).

56. By Memorandum of Lease dated 17 April 2015 (Lease) between the Lessor and KHALED EL-SHEIKH PTY LTD ACN 089 155 948 (Lessee), the Lessor agreed to grant the Lessee the right to occupy a portion of the Premises, more particularly known as shops 6 and 7 and a portion of shop 5, on the terms and conditions contained in the Lease.

57. Since, at the latest, 11 March 2015 (being the date upon which the Lessee first notified the Lessor) the Lessor has been aware of damage to the roof the Premises (the Damage).

58. The Damage has resulted in the Lessee’s use of the Premises being substantially diminished.

59. Clause 4.11(a)(iv) if the Lease provides the Lessee may terminate the Lease by giving no less than seven (7) days notice in writing if the Lessor fails to repair the Damage within a reasonable time after the Lessee requests the Lessor in writing to do so.

60. The Lessor was served with a notice of the breach of the Lease by emails dated 11 March 2015, 15 June 2015, 31 July 2015, 4 August 2015, 12 August 2015, 26 June 2017 and 30 November 2017 (Notice to Remedy Default).

1. The Lessor, in breach of its obligations under clause 4.11(a)(iv) has failed to comply with the Notice to Remedy Default.

   NOW TAKE NOTICE THAT

   1. The Lessee HEREBY EXERCISES its rights under clause 4.11(a)(iv) of the Lease and HEREBY TERMINATES the Lease effective as at 2 July 2019 without prejudice to any other rights and remedies which the Lessee may have against the Lessor under the Lease.

2. When the tenant gave the notice of termination, it was in breach of the lease as it had failed to pay rent due for each of the months between and including December 2018 to July 2019.[164]

   [164] Statement of Samer sworn 6 September 2021, Exhibit A8.

3. Under clause 2.37 of the lease, the tenant was obliged to pay to the lessor interest at the rate of 2% per annum above the lessor’s bank overdraft rate on loans of less than $100,000, on any monies due and unpaid for more than two clear days; being 8.66%.[165] Any entitlement to interest applies from the due date until the date of payment in full.[166]

   [165] Bundle Overdraft Documents, Exhibit A16.

   [166] Joint Tender Book, Vol 1, Exhibit A1, [54].

4. By letter dated 15 July 2019, the lessor’s solicitors informed the tenant that the lessor contended the notice of termination was invalid and the vacation of the leased premises was a repudiation of the lease and that the lessor accepted that repudiation.[167] On 19 July 2019, the tenant notified the lessor that it would return the keys to the premises. The tenant returned those keys to the lessor on 22 July 2019.[168]

   [167] Response from Montgomery termination letter, Exhibit A1-551A.

   [168] Joint Tender Book, Vol 1, Exhibit A1, [96]; Statement of Samer, Exhibit A3, [74], [547] and [549].

5. On 2 August 2019, a contractor engaged by the lessor attended the leased premises and provided a quote in the amount of $19,300, to make good the premises from the tenancy of the tenant.[169] That quote was accepted by the lessor and the works the subject of the quote were carried out and paid for by the lessor.[170]

   [169] Joint Tender Book, Vol 2, Exhibit A2, [648].

   [170] Statement of Samer, Exhibit A3, [76];

6. On 9 August 2019, Urban Commercial Property Group were engaged by the lessor to market the leased premises for lease.[171] Later, Jones Lang LaSalle, Broadway Properties and CBRE were also engaged for the same purpose.[172]

   [171] Joint Tender Book, Vol 1, Exhibit A1, [141]-[145].

   [172] Statement of Samer, Exhibit A3, [76]-[79].

7. By tax invoice dated 5 September 2019, the lessor incurred legal costs in relation to the dispute the subject of this action and the drawing of proceedings in this action and prosecution of this claim.[173]

   [173] Joint Tender Book, Vol 2, Exhibit A1, [651].

8. On 1 April 2021, consequent upon its efforts to market the leased premises, the lessor entered into a lease commencing on 1 April 2021 and expiring on 31 December 2021, with SA Medical Services Pty Ltd, in respect of the leased premises. That new lease contained three rights of extension of lease of six months each.[174] The rent payable under the new lease was $92,400pa plus GST. The allowed use of the premises under the new lease was as consulting rooms and the leased premises were intended to be used to provide public vaccinations for COVID-19.

   Submissions of Applicant[175]

   [174] Joint Tender Book, Vol 1, Exhibit A1, [98]-[139].

   [175] The lessor provided an “Applicant’s Outline” in closing and Written Submissions of the Applicant filed 3 November 2021, (FDN99).

9. Mr Lazarevich, for the lessor, submitted it was not in dispute that the tenant was liable for interest in respect of the rent paid late in 2018 and in respect of the non-payment of rent in April, May and June 2019.[176] Further, he submitted, it was not in dispute that the tenant had not made good the premises at the end of the lease and that the lessor had incurred the cost of doing so.[177]

   [176] Revision 5- Statement of Claim, (FDN27), [3]; Revision 2 - Defence, (FDN28), [3].

   [177] Revision 5 – Statement of Claim, (FDN27), [2.4], [2.5], [2.7], [16.5], [17.6]; Revision 2 – Defence, [16.1], [16.2], [17.2].

10. Mr Lazarevich submitted that the balance of the claim of the lessor depended upon whether the tenant had effectively terminated the lease. The lessor submitted that turned upon whether the notice of termination was invalid or ineffective, and whether the purported requests in writing for repair should be read strictly - as notices to remedy default- and whether as a matter of fact there had been a default by the lessor. That required, submitted the lessor, the proper construction of ‘damage’ and ‘repair’ in clause 4.11 of lease and s 40 of the Act. Further, that required a determination, if a right to terminate had arisen, as to whether notice of termination had been given within a reasonable time.[178]

    [178] Revision 5 – Statement of Claim, (FDN27), [12.12], [12.13].

11. The lessor accepted water had leaked through the roof. However, it submitted, the tenant had not proved ‘damage’ to the roof had rendered, as it must, the leased premises unable to be used or accessed.[179] Rather, the lessor submitted, the evidence established that leaks had affected the leased premises in small part and for limited periods. That is, any damage to the premises or the leased premises had been contained or had not interfered with the use of the leased premises as a medical centre, beyond a temporary inconvenience.

    [179] Ibid, [12.2]- [12.5A].

12. As for the response of the lessor, Mr Lazarevich submitted that prompt steps had been taken on each occasion and the leaks had either been repaired or had been resolved entirely by the work undertaken in December 2017.[180] The absence of any further complaints, after December 2017, proved the effectiveness of those repairs.

    [180] SDS Quote, Exhibit A5.

13. In any event, Mr Lazarevich submitted the delay in the giving of the notice of termination in this case had been unreasonable, or alternatively, had meant the tenant had either waived its right to terminate or had elected not to terminate or, in the further alternative, was estopped from terminating the lease.[181]

    [181] Revision 5 – Statement of Claim, (FDN27), [17.11].

14. It was the tenant, submitted the lessor, who had breached the lease by both failing to pay rent and by its vacation of the leased premises in late 2018, without informing the lessor it had done so until 2019. When notices of default had been given by the lessor to the tenant, it was submitted, the tenant had responded with promises to pay, had made no mention of the state of the premises and, tellingly, had not given a notice of termination at that time. The vacation of the premises and production of the keys by the tenant, submitted the lessor, was a repudiation of the lease which the lessor had accepted on 15 August 2019.[182]

    [182] Ibid, [13]-[15].

15. The notice of termination, submitted Mr Lazarevich, had no legal basis and in the circumstances had been disingenuous. Particularly, that was because the tenant had operated a different business at the leased premises from that permitted in the lease and the medical centre had never been profitable and had been abandoned in late 2018 for that reason.

16. As a matter of law, submitted the lessor, any notice to remedy had to give the other party the opportunity to remedy, before the threatened action could be effective.[183] Consequently, submitted the lessor, the onus of proof in this case to establish an effective termination lay with the tenant.[184] That required the tenant to establish the leased premises were in some way, by consequence of ‘damage’, unfit or unsuitable for use.

    [183] See Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273; [11]- [12] in respect of the Property Law Act 1969 (WA), s 81(1).

    [184] Australian Tenancy Law and Practice [6.2.205]; Dalla Costa v Beydoun (1990) 5 BPR 11, 379; (1990) NSW ConvR 55-559; Grades v Singer [1945] DLR 182.

17. The evidence supported a finding, submitted Mr Lazarevich, of only transient or temporary consequence or interference with the use of the leased premises as a medical clinic. Such interference to the leased premises as there had been – principally damage to modestly priced and easily replaced ceiling panels – had been insufficient to trigger the right of termination contained in the lease.

18. As a further matter of law, the lessor submitted, a party to a contract which imposed certain obligations and conferred certain rights upon it, could not claim to exercise those rights while repudiating its obligations.[185] At the time of the purported termination, submitted the lessor, the tenant had been in breach of the terms of the lease which required it to keep the premises open and to pay its rent.[186] Those breaches, submitted the lessor, rendered the termination ineffective.

    [185] Morris v Baron & Co [1918] AC 1, [9].

    [186] Applicant’s Outline, [197].

19. As to quantum, submitted the lessor, it was entitled to an award of arrears of rent from 1 April 2019, to 12 July 2019, interest on late payment of rent as pleaded, the plumbing costs incurred but attributable to the tenant, its legal costs prior to issuing proceedings, the costs of making good the leased premises, the loss of rent from 12 July 2019, to 1 April 2021, the reduction in rent received from 1 April 2021, to trial (having regard to the new lease), leasing and marketing costs anticipated to attract a tenant after the expiry of the new lease and, damages for the future loss of rent (including tenant incentives) following expiry of the new lease and having regard to the likely balance of the unexpired term of the lease, interest and costs.

    Submissions of the Tenant[187]

    [187] Respondent’s Outline of Closing Submissions dated 15 September 2021; Respondent’s Submissions dated 20 October 2021 (FDN 96); T554-594.

20. Ms Heidenreich, for the respondent, also premised the outcome of this case on whether the tenant had been entitled to and had terminated the lease. She characterised the principal issues in dispute as going to: the meaning of ‘damage’ and ‘repair’ in the lease and Act; whether notice had been given of ‘damage’ that needed to be repaired; whether the required ‘repair’ had in fact occurred; whether any repair had occurred within a reasonable time; and, the impact of the passage of time between the failure to repair and the notice of termination.

21. The tenant submitted ‘damage’ should not be confined to future damage and encompassed both pre-existing defects to the premises and damage to the premises existing at the time of commencement of the lease and newly discovered damage to the premises. That is, the tenant submitted the concept of ‘damage’ had no temporal limit and it did not matter when the damage had occurred, only that the premises or leased premises had been damaged. In this case, it was submitted, the lessor had been obliged due to the long term of the lease to repair the roof via long-term means. That, it was submitted, had been requested by the tenant when it asked the lessor to replace the roof over the leased premises and the failure of the lessor to accede to that request and replace the roof over the leased premises had enlivened its right to terminate.

22. The tenant relied, in that respect, on the observation of Mr Short that other parts of the roof of the premises had been replaced and his opinion that replacement of the roof over the leased premises would have been ideal. That showed, it was submitted, replacement of the roof over the leased premises had been the appropriate repair in this case.

23. The Act and the lease required the tenant, submitted Ms Heidenreich, to make only a written request for repair of the damage. In any event, it was submitted, the written requests made by the tenant had been notices to remedy, as evidenced by the lessor having responded to them, albeit without properly effecting repair. The tenant characterised those responses as reactions but not repair and said I could not be satisfied that the damage to the roof over the leased premises had been repaired, only that ‘something’ had happened.[188] The whole of the evidence established, Ms Heidenreich submitted, that the lessor had taken steps but ‘those steps fell short of what was reasonably required to repair the damage and accordingly, there had been a “failure to repair” within a reasonable time’.[189]

    [188] Respondent’s Outline of Closing Submissions dated 15 September 2021, [88].

    [189] Ibid.

24. The tenant accepted neither the lease nor the Act set timeframes within which a request to repair had to be affected and within which termination of a lease had to occur in the event of a failure to repair. The tenant submitted that the necessary repair and the notice of termination had to be made and given within a reasonable timeframe and what was a reasonable timeframe was a question of fact and degree assessed in all the circumstances.[190]

    [190] Ibid, [94].

25. Ms Heidenreich said that the time which had elapsed in this case between the failure to repair and the giving of a notice of termination, had been reasonable.[191]  The assessment of reasonableness, it was submitted, had to have regard to the decision-maker who had instructed the giving of the notice of termination, Dr Khaled El-Sheikh. The ‘delay of some length’,[192] submitted the tenant, had been reasonable because the business of the tenant had been geographically dispersed, was headquartered in Victoria and involved busy medical practices. Particularly, submitted the tenant, Dr El-Sheikh had relied on his staff, had expected them to action things, had not been on the ground in Pooraka, had not been the person doing the face-to-face negotiations and, at the time had a lot of fires to put out.[193]

    [191] Ibid, [92].

    [192] T574.36.

    [193] T575.9-19.

26. In respect of the estoppel pleaded by the lessor, the tenant invited me to find Mr Sallis had knowingly informed the tenant of only limited aspects of the report about the leaks given to him by Hindmarsh Plumbing and that he did so to distort and obscure the true cause of the leaks. That conduct meant the lessor did not come before the Court with clean hands and should be denied any equitable remedy.[194]

    [194] Criticism was made of the interaction between Mr Sallis and Mr Camporeale at his first inspection of the premises and of a diagram (Exhibit A6) prepared by Mr Sallis, which the tenant said was misleading.

27. The tenant further submitted, in respect of the future loss claimed by the lessor, that category of damage had not been pleaded.[195] In any event, the tenant submitted, in having regard to the quantum of any claim for future rent, I should assume that all three rights of renewal of the new lease would be exercised and the lessor had failed to mitigate its loss as it has not proved the premises remained advertised for rent.

    [195] Respondent’s Submissions (FDN 96), [1].

    Consideration

28. Clause 4.11 of the lease and s 40 of the Commercial and Shop Leases Act 1995, provide significant rights ‘if the shop or the building of which the shop forms part is damaged’.[196] That clause and section are, with differences in nomenclature, in essentially the same terms. The principal issue in this case involves the application of that clause and section and the validity of the notice of termination.

    [196] Retail and Commercial Leases Act 1995, s 40; Defence- Revision 2, (FDN28), [11.3].

29. The lessor pleads for a declaration that ‘the purported termination’ of the lease is of no effect.[197] The tenant denies the lessor is entitled to rent due under the lease for part of the month of June 2019, and following, ‘by reason that [it] terminated the lease by notice dated 21 June 2019’.[198]  The tenant, to establish that defence, must prove it was entitled to and did terminate the lease. Absent an effective termination, the non-payment of rent, vacation of the leased premises and the giving of the termination notice constituted a repudiation of the lease, and the lessor has accepted that repudiation. The lessor evinced no intention in the lease to abandon its remedies for breach of contract at common law.[199]

    [197] Revision 5- Statement of Claim (FDN27), [12], [17.1].

    [198] Revision 5 – Statement of Claim (FDN27), [12].

    [199] Statement of Claim, [14]; Defence- Revision 2(FDN28), [14], [15.1]; The lessor accepted the repudiation on 15 July 2019, Response from Montgomery termination letter Exhibit A1, [551A], lease cl. 4.01, 4.02 and 4.03.; The tenant asserted that the common law right to accept repudiation had been displaced, respondents outline of closing submissions, [95]-[98].; Defence – Revision 2 (FDN28) [14]; Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] 218 ALR1, [15], [52]-[56]; Concut Pty Ltd v Worrell [2000] 75 ALJR 312, [23].

30. Clause 4.11(a)(iv) of the lease provides for termination by notice ‘if the Lessor fails to repair the damage within a reasonable time after the Lessee requests the Lessor in writing to do so’. The tenant relies, to support its asserted right to terminate in this case, on ‘request[s] to repair the Damage by correspondence dated 15 June 2015, 31 July 2015, 4 August 2015, 11 March 2016, 26 June 2017 and 30 November 2017’.[200]

    [200] Defence - Revision 2, (FDN28), [11.5]; Joint Tender Book, Vol 1, Exhibit A1, [96].

31. The notice of termination given by the tenant records a ‘notice of the breach of the Lease’ had been ‘served’ on the lessor on 11 March 2015, 15 June 2015, 31 July 2015, 4 August 2015, 12 August 2015, 26 June 2017, and 30 November 2017.[201] The notice defined those seven pieces of correspondence as the ‘Notice to Remedy Default’, ‘to repair the Damage within a reasonable time after the Lessee requests the Lessor in writing to do so’.[202] ‘Damage’ is defined in the notice as ‘damage to the roof’.[203]

    [201] Ibid, [96], see Recital F.

    [202] Ibid, [96], see Recital C and F.

    [203] Ibid, [96], see Recital C.

32. In its defence, the tenant pleads ‘damage’ more extensively as ‘defects and damage to the…roof which permitted significant ingress and leaking into the ceiling space and the [leased premises] themselves, which in turn has caused, and will continue to cause, damage to the [leased premises] including but not limited to caving in of the interior ceiling and other water damage’.[204]

    [204] Defence- Revision 2, (FDN28), [11.4].

33. In my view, cl 4.11(a)(iv) of the lease does not require the formality of a notice to remedy breach as contended by the lessor. Only a written request for the ‘repair’ of ‘damage’ within a reasonable time is required. The tenant says it alerted the lessor in writing on several occasions to leaking from the roof into the leased premises and requested ‘repair’.

34. The parties disagree as to what ‘damage’ means. The tenant submits that design faults or defects are ‘damage’ under cl. 4.11 as the concept has no temporal limit and includes damage or defects arising before the commencement of the lease. The lessor says ‘damage’ should be given its ordinary meaning and rejects the contention it includes defects and says the damage must occur during the lease.

35. The lease and the Act must be read whole and cl 4.11 and s 40 in context. In Italia Ceramics International Super Pty Ltd & Anor v CM Corporation Pty Ltd & Anor,[205] the Full Court described s 40 as ‘a beneficial provision’ and said ‘[a]dopting an objective approach increases certainty which in turn encourages the efficient resolution of disputes over s 40 of the Act’.[206] Kourakis CJ (Parker and Lovell JJ agreeing), took an approach to the construction of s 40(1)(b) consistent with the nature of the commercial rental market and rejected an application of the abatement provision in s 40 as being akin to a complex assessment of damages.

    [205] [2019] SASCFC 54.

    [206] Ibid, [40].

36. As both the lease and the Act are premised on the existence of a valid ‘retail shop lease’ or lease,[207] I read each sub-clause or sub-section as repeating the necessity that the let area or property within which that is contained, ‘is damaged’. I consider the beneficial rights contained in cl 4.11 are therefore premised on the occurrence of an act or event during the term of the lease which leads to ‘damage’.

    [207] Retail and Commercial Leases Act 1995, ss 3, 4.

1. Section 40 of the Act and cl 4.11 of the lease address four scenarios in the event of the occurrence of an act or event during the term of the lease which leads to ‘damage’. First, cl 4.11(a)(i) and s 40(1)(a) address the liability of the tenant to pay rent and outgoings when the leased premises cannot be used or is inaccessible. Second, cl. 4.11(a)(ii) and s40(1)(b) address the liability of the tenant to pay rent and outgoings where usability of the leased premisses is diminished. Third, cl. 4.11(a)(iii) and s 40(1)(c) address a situation where the lessor considers that the leased premises ‘is damaged’ such that repair is impractical or undesirable. Fourth, cl. 4.11(a)(iv) and s 40(1)(d) address the scenario where the lessor fails to repair the damage within a reasonable time after the tenant requests that be done.

2. I give the word ‘damage’ its ordinary meaning throughout; ‘injury or harm that impairs value or usefulness’.[208] I do not consider that ‘damage’ in clause 4.11 or s 40 is used as a descriptive term or a concept encompassing pre-existing defects. A pre-existing defect is a different concept to damage occurring during the lease, both factually and temporally. Pre-existing damage or defects had been addressed in this case by the lawful exclusion of the legislative structural warranty.[209]

   [208] Macquarie Dictionary Online, Macmillan Publishers Australia 2022.

   [209] Ibid, s 18; Joint Tender Book, Vol 1, Exhibit A1, [9], [18]; see also Mr Ugochukwu, T324.15-35.

3. That construction reflects a commercial and objective approach to a clause and section intended to be beneficial to the leasing relationship during the term of the lease. If damage during the lease entirely affects access to or use of the premises, the tenant may be excused from payment of rent. If damage during the lease causes a reduction in useability, an abatement in rent proportionate to that reduction is allowed. If the damage during the lease is so serious that repair is impracticable, the landlord can terminate the lease and, if the damage during the lease is not repaired within a reasonable time, the tenant can choose to terminate.

4. As to what is ‘repair’, I have also given that word its ordinary meaning; ‘to restore to a good or sound condition after decay or damage’, ‘to restore or renew by any process of making good, strengthening, etc’ and ‘to remedy, make good, make up for’.[210] What ‘repair’- temporary, short, medium or long term- is required will vary according to the circumstances. There may be more than one appropriate ‘repair’.

   [210] Macquarie Dictionary Online, Macmillan Publishers Australia 2022.

5. What constitutes a ‘reasonable time’ within which to affect repair will also depend on the circumstances; the nature of the damage and its impact on the use, the steps necessary to repair the damage and how long that might take. In this case, the tenant says it made seven requests between August 2015, and November 2017.

6. The first written correspondence said in the notice of termination to give notice of damage to the lessor on 11 March 2015, is conceded to be an error. It seems the tenant intended to refer to its complaint on 11 March 2016. That correspondence is in evidence but was not pleaded as a written request to repair.[211]

   [211] Joint Tender Book, Vol 1, Exhibit A1, [302]; Defence- Revision 2, (FDN28), [11.5]; Statement of Samer, Exhibit A3, [44]- [47], Affidavit of Marelda Cordier, Exhibit R22, [30]- [31].

7. The notice of termination next refers to correspondence to the lessor on 15 June 2015, as notice of damage and a request to repair.[212] Ms McNabb reviewed photographs and emailed the lessor, ‘[i]t seems the TriStar Pooraka site has a leaking roof and to ensure we make handover date 6th July could you please arrange someone to get to site ASAP to fix this issue? It seems there could be a number of leaks. Please find a few photos attached from site today’.

   [212] Joint Tender Book, Vol 1, Exhibit A1, [175], Defence -Revision 2 (FDN28), [11.5].

8. At that time the tenant had not finished its fit out works, was still within the rent-free period and had not commenced operations.[213] The lessor responded promptly and a quote to fix the leaks was provided by Mr Wayne Hunt on 9 July 2015. The lessor gave the go-ahead immediately including to replace flashing around a roof penetration and roof ventilator, replace two rusted sheets and install a new pan flashing around an air vent. Mr Sallis said that work was completed during the week of 19 July 2015.[214]

   [213] Statement of Samer, Exhibit A3, [27].

   [214] Ibid, [25].

9. The written correspondence from the tenant to the lessor sent on 31 July 2015, 4 August 2015, and 12 August 2015, reported the ceiling above the reception area had started to fall on 31 July 2015. The landlord again quickly engaged a contractor. Emails advised of the progress of work on 1 and 4 August 2015. The tenant asked for and the lessor replaced damaged ceiling panels.

10. By email dated 16 October 2015, Mr Hunt advised the lessor he had completed work to address the leaking, had cleaned up and everyone was happy. Mr Hunt and Hindmarsh Plumbing both said that work addressed damage caused by the fit out works carried out by the tenant. The accounts sent to the tenant identified poor work by the tenant’s contractors and leaking from the faulty installation of air-conditioning ducting and dents to the roof panelling. The contractor who installed the air conditioning defended his work as sound and said the inadequacy of the box gutters was the problem.

11. The evidence does not allow me to resolve the conflicting positions taken as to whether the fit-out works caused some of the leaking. Neither party called the contractors who did the fit-out or subsequent work and neither Mr Short nor Mr Camporeale could assist me satisfactorily about the standard of the installation of the air conditioning, save to say any gaps left could have presented a point of entry and that flashing had been replaced and there had been sealing around those units.

12. Old Port Roofing were on site promptly when the next report of leaks was made in March 2016. They examined the roof to determine the nature of the repairs required. A cracked ceiling panel was replaced by 4 April 2016, and in June and July 2016, more ceiling panels had to be replaced by the lessor.

13. There was another roof leak after a storm on 28 September 2016. An email from the tenant on 17 November 2016, recorded that ‘our clinic has confirmed that the leak has been resolved, but the ceiling tiles need to be replaced, as one is open and some are stained’. An email to the tenant on 29 November 2016, confirmed that stained ceiling panels had been replaced.

14. In April 2017, there was further communication about getting quotes for the replacement of ceiling panels and carpets damaged in a further storm.

15. Further water damage within the leased premises was reported in October and November 2017.[215] Emails around December 2017, refer to roof work being done consistent with the evidence of Mr Sallis that the works referred to in the quote of SDS were carried out.[216] Both Mr Short and Mr Camporeale observed the replacement of sheeting and box guttering, in areas other than above the leased premises, which could answer the description of those quoted works.[217]

    [215] Joint Tender Book, Vol 1, Exhibit A1, [116]- [511]; Affidavit of Mr D Philips, Exhibit A19, [18].

    [216] Statement of Samer, Exhibit A3, [43].

    [217] Photos of Mr Short, Exhibit R15, [352], [359] and [362].

16. I am not greatly assisted by the evidence or the experts as to either the nature of the ‘damage’ to the roof during the tenancy or what ‘repair’ was done and when it was done.[218] That is not a criticism of the two experts because, as Mr Short volunteered, they had not been provided with a chronology recording or identifying which bits of work had been done to which parts of the roof at any particular time. I accept the conclusion of Mr Short that such absence of information made it very difficult to find the cause of any leaks, at any time, and in any particular area.

    [218] T554- 555.

17. To the extent the tenant relies on defects in the design of the box gutter during the original construction of the premises in the 1950s as a cause of the leaks, that is misplaced. While Mr Camporeale agreed that may have caused leaking from the roof if there had been blockages or overflow, Mr Short could not be sure of his hypothesis as there had been no evidence of straight-line incursion into the leased premises below the gutter line.  Irrespective, the inadequacy of the gutter, for the reasons expressed, is a defect in design, not ‘damage’.

18. The leased premises did suffer leaks which mostly manifested as damaged ceiling panels in the leased premises; the replacement of which was inexpensive and easy. I have no doubt the leaking and its consequence was annoying, inconvenient, and stressful for the tenant. Mr Sallis was embarrassed by what had occurred, and the lessor did take the leaking seriously when it was notified and attended diligently to address them as and when they occurred. Particularly, the lessor engaged independent contractors to address the problem.

19. I do find the evidence supports the submission of the lessor that leaking from the roof was finally addressed in December 2017, because, while the tenant (during 2018) and the experts (in mid-2020), did observe some damaged ceiling panels in need of replacement, there is no evidence those panels were damaged by water leaks after December 2017.[219]  It follows therefore that I have declined to draw the inference, which the tenant urges, that there was further water damage after December 2017.

    [219] See Mr Ugochukwu at T324.35-T326.10, T338.13-22, T340.19-T342.8; ‘if I got like a report from the clinic of any damage or anything, I will, for sure, reach out to the landlord’.

20. Water leaking into consulting rooms would have meant the room would not have been able to be used for a time. While that is obvious, there was no evidence patient bookings were cancelled or could not be taken as a consequence. There was no evidence the premises were inaccessible at any time. No claim for abatement of rent was made. Given the number of doctors (about two) and the number of consulting rooms (12) there were sufficient rooms to see patients and no impact on the business beyond inconvenience. I find the tenant did not establish the leased premises were unusable, inaccessible or diminished in whole or in part.

21. I accept the expert view that some of the work to ‘repair’ the roof was crude and could have been done better, using more appropriate materials. It is the case that problems persisted intermittently from August 2015, until December 2017, mostly coinciding with heavy rain. The principal submission of the tenant was, given the long lease for commercial purposes, the roof should have been repaired before it gave its notice to terminate via long term means; replacement of the roof over the leased premises.

22. A reference to the replacement of the roof was made in writing by the tenant on 4 August 2015. The failure to comply with that ‘request’ is referred to in the notice of termination as founding, together with six other pieces of written correspondence up until 30 November 2017, the right to terminate on 21 June 2019.

23. Specifically, the 4 August 2015, correspondence complained that ‘it seems the entire roof is rusty and cause [sic] all the leaks?’[220] and requested the replacement of the roof above the leased premises as ‘this is now the fifth patch up job in less than a matter of months’.[221] The lessor promptly replied that it was ‘just waiting for a report from the plumbers…. once the works have been completed so we will be able to assess the nature of the problems and the works required to ensure that they do not re-occur’.[222]

    [220] Joint Tender Book, Vol 1, Exhibit A1, [217].

    [221] Ibid.

    [222] Ibid.

24. The lessor did not respond to say that it would replace the roof. Rather, it said, sensibly, that it would assess what was needed after more was known. The tenant does not mention or request replacement again. The tenant continues to engage with the lessor until 30 November 2017, about further leaking and what work is being done and in December 2017, significant work is undertaken to replace part of the roof, but not that part over the leased premises.

25. As already mentioned, I consider that the ‘repair’ required in a particular case must be assessed against all the circumstances. That includes the nature and extent of the damage and the permitted use of the premises. I do not consider that the length of the lease, of itself, gives rise to the conclusion contended by the tenant that the roof had to be replaced above the leased premises to affect ‘repair’. What would be required was a restoration of the roof to a good or sound condition.

26. Mr Short did say that replacement of the roof would have been ideal because he had been told that there were ongoing leaks and had identified repeated repair himself. He could not, however, say what ‘damage’ had occurred, when it had occurred and what was necessary to address it. His statement of the ‘ideal’ therefore was made without getting to the bottom of the leaking and I give it limited weight for that reason. I do not take Mr Short to have meant that no other means of repair could have been acceptable. In that respect, Mr Camporeale was satisfied with the albeit crude work that was done. Importantly, as well, there was no further complaint made by the tenant after the partial replacement work in December 2017.

27. For those reasons, I find the tenant has not satisfied me replacement of the roof was the only appropriate repair.

28. Alternatively, the tenant submitted I should find that work of varying degrees of proficiency and longevity had been undertaken on the roof and that the ‘damage’ to the roof had not in fact been repaired. There was evidence, submitted the tenant, that the lessor considered whether to test to confirm that there would be no further leaks.[223] It followed, said the tenant, as there was no evidence of that being done, that I could not positively find the roof had been repaired.[224]

    [223] Joint Tender Book, Vol 1, Exhibit A1, [65]- [325].

    [224] T401.33.

29. I decline to make that finding. I asked counsel for the tenant to identify the expert evidence about the adequacy of the work undertaken and what work the lessor should have undertaken to effect ‘repair’.[225] Ms Heidenreich said that the instructions given to the experts did not address those issues and that I was not assisted by any expert evidence which considered the state of the roof during the tenancy and exactly what work had been done and at what times and, as to the adequacy of those works.[226] I consider, without such evidence, that the absence of evidence of testing to determine if there were any leaks does not support an inference there were still leaks.

    [225] T547.28- 548.2.

    [226] T554-555.

30. The lay and expert evidence about the damage to the roof and its repair during the period of the tenancy has not satisfied me on the balance of probabilities that there had been ‘damage’ of a kind that materially impacted the ability of the tenant to use or access the leased premises or that the ‘repair’ required to address that damage was replacement of the roof or that ‘repair’ of whatever the damage was, had not been affected.

31. For those reasons, I find that the tenant has not established a valid basis for giving the notice of termination because it has not established ‘damage’ and that the lessor failed to ‘repair’ it as required by cl.4.11 of the Act.

32. Both parties accepted that the right to terminate in clause 4.11 of the lease is subject to an implied term that it must be exercised within a reasonable time.[227] The implication of such a term is reasonable and equitable, is so obvious it goes without saying and is necessary to give business efficacy to the contract and does not contradict any express term of the lease.[228] In the event I have erred in reaching the conclusions detailed above about damage and a failure to repair, I have considered whether the delay in giving the notice of termination was reasonable.

    [227] Bright v Dwyer (1978) 141 CLR 378; Contract Law in Australia, 5^th edn, Carter, Peden and Tolhurst, Lexis Nexis, [11]- [18]; Champtaloup v Thomas [1976] NSWLR 264, [273].

    [228] BP Refinery (Westernport) Pty Ltd v Hastings ShireCouncil [1997] HCA 40, [5]- [9] per Mason J.

33. In having regard to Ms Heidenreich’s submission that the ‘delay of some length’[229] in the giving of the notice of termination was reasonable, I have considered, as she urged, the circumstances of Dr El-Sheikh. Particularly, I have considered that the business of the tenant was geographically dispersed, headquartered in Victoria and involved busy medical practices and that Dr El-Sheikh had relied on his staff and expected them to action things and had not been on the ground in Pooraka or the person doing the face-to-face negotiations with the lessor and, at the time, had a lot of fires to put out.[230]

    [229] T574 .36.

    [230] T575.9-19.

34. Dr El-Sheikh said that the closure of the leased premises had been necessary because the tenant had ‘struggled to keep doctors at the [leased] [p]remises and doctors were complaining about the issues’.[231] He said the leaks were ‘a major issue’ and the smell was an issue.[232] That meant, he said, ‘the premises w[ere] not a premise we can operate from’.[233] Dr El-Sheikh said that he instructed the notice of termination be sent in June 2019, because he had concluded the ‘issues’ at the medical centre had not been and would not be resolved. He said that ‘the entire Pooraka Clinic was closed because we could not recruit doctors or retain patients’.[234]

    [231] Affidavit of Khaled El-Sheikh, Exhibit R21, [31]; T492. 20- T496.37

    [232] Affidavit of Khaled El-Sheikh, Exhibit R21, [13]- [30].

    [233] T433.25-27, 436.8- 28.

    [234] T504.3- 514.9; Revision 5-Statement of Claim (FDN27), [17.11], Affidavit of Khaled El-Sheikh, Exhibit R21, [49].

35. In assessing the evidence of Dr El-Sheikh, I have had regard to the contemporaneous records and the evidence of witnesses who supplemented those records. Having considered the whole of the evidence, I do not accept the evidence of Dr El-Sheikh that ‘the premises w[ere] not a premise we can operate from’[235] or that he had instructed the notice of termination be sent in June 2019, because he had concluded the ‘issues’ at the medical centre had not been and would not be resolved.[236] The evidence of Dr El-Sheikh in that respect is inconsistent with other evidence I accept, common sense and ordinary commercial practice.

    [235] T433.25-27, 436.8- 28.

    [236] T504.3- 514.9.

36. The evidence established the tenant persevered with its medical centre at the leased premises because it had invested in the site, believed in the location and its potential and that with time and effort and marketing the centre would succeed. It was only after the tenant had made a considerable effort to market the site and had spent even more money on the fit-out, yet continued to incur significant losses, that it made an unsurprising commercial decision to abandon the lease and vacate the premises. Having made that commercial decision, a contractual obligation to pay the rent remained for many years to come and the tenant responded to that obligation by, surreptitiously, but again unsurprisingly, engaging an agent to find another tenant.

37. The experience of Dr El-Sheikh was that general clinics in cities usually took between 12 and 16 months to become ‘very profitable’.[237] Profitability was dependant on increased revenue and that required more patients to be seen by the doctors. The problem at Pooraka was getting patients to attend at the centre in the first place.[238] Retention of patients was not an issue, there were not many to retain. The centre was operational and could accommodate up to twelve doctors and service a significant number of patients if demand required it. The two doctors on site were not busy and had capacity.

    [237] T406.36- 407.5.

    [238] T436. 30- 438.34, 449.35- 451.22.

1. The tenant responded to the revenue problem that presented itself in a rational commercial manner, by taking steps to get more patients to attend the medical centre. It embarked on a marketing campaign, made cold calls, put up new signage and sandwich boards, offered allied health services through BodyFit SA and tried to get an existing pharmacy to move to the site.[239] The efforts of the tenant showed it believed that getting more patients was the key to success.

   [239] Affidavit of Dr Khaled El-Sheikh, Exhibit R21, [42]- [47]; T438-448.12. 

2. The centre was losing a significant amount and if water leaks were the cause in whole or in part of such losses, common sense dictates the tenant would have made its position in that respect very clear in writing, and with increasing insistence. Instead, after December 2017, it was silent on the issue of water leaks. On 4 December 2017, the tenant commenced the operations of BodyFit SA at the leased premises and persisted with that business until August 2018.

3. Dr El-Sheikh was cross examined about his instruction to commence an allied health business at the site, the lack of complaint about leaking when notices of default were given by the lessor, the statement by Ms McNabb that a shortage of doctors was the problem at the site and how he could reconcile why he gave the notice of termination when he thought the centre would ultimately succeed and his rationale behind investing more money on setting up an allied health business when the leaking had not been resolved.

4. Dr El-Sheikh presented as an experienced medical centre operator. He had a number of staff working for him and Mr Ugochukwu was responsible for managing the leaks at the medical centre and he said that that he spoke to him regularly. He accepted that Mr Ugochukwu had provided no report of leaking at the leased premises after December 2017. He accepted there had been no effort made to obtain feedback from patients about their experience at the medical centre to support his conclusion that it was the smell and water leaks that was holding it back. He accepted the two doctors who were principally at the medical centre and continued to work at the leased premises throughout the whole period, were well below capacity.[240]

   [240] T436.18-437.4, T438.4-24, T439.24-28.

5. By the time of the notices of default, the tenant was behind in its rent and the medical centre was failing and the tenant was faced with many years until expiry of the lease. The responses to the notices are telling. The tenant responded to the notices of default by paying some of the overdue rent, promising to pay the balance and with explanations as to why the centres were struggling. The explanation made no mention of water leaks and unbeknownst to the lessor, the tenant had already engaged an agent to find a new tenant.

6. The tenant’s principal position at trial was that the roof over the leased premise should have been replaced. As already noted, a request to that effect was made in August 2015. Alternatively, as I understand it, the tenant says the last request to repair ‘damage’ had been made in November 2017. It bears repeating that no complaint about leaking was made after December 2017, and further that the premises were vacated in August 2018. It is also the case that proceedings to recover rent were on foot from 10 February 2019.[241] There was no repeat of the request to replace the roof after August 2015. The tenant had vacated months before the notice to terminate and no further warning of termination was given in circumstances where rent was payable monthly in advance and was subject to CPI review yearly and the lease was of a long duration.

   [241] Dr Khaled El-Sheikh was not cross examined about this action being commenced in the Magistrates Court on 10 February 2019, prior to the giving of the notice of termination and that in its defence dated 6 May 2019, the tenant had made no mention of water leaks or smells at all or to justify or excuse its non-payment of rent and the vacation of the premises.    

7. For all of the reasons stated, I find that the delay between those requests- August 2015, or late 2017- and the giving of notice of termination on 21 June 2019, was unreasonable and a breach of the implied term of the lease that any notice to terminate be given within a reasonable time. I find for that further reason, the notice was ineffective and invalid

8. The lessor contends even further alternate reasons why the notice of termination was ineffective and invalid. First, because the tenant could not have terminated the lease while it was itself in breach. Second, because it was a requirement of the election to terminate that it be made within a reasonable time and as it was not, the right to elect had been waived. Finally, because the tenant had been estopped from terminating.

9. The lease both imposes certain obligations and confers certain rights. I accept the lessor’s submission that the tenant cannot claim to exercise those rights while repudiating its obligations.[242] The failure to pay rent and to occupy the premises were breaches of essential terms by the tenant.[243] The tenant was therefore not entitled to give notice to terminate while in breach. For that further reason, the notice to terminate was ineffective and invalid.

   [242] Morris v Baron & Co [1918] AC 1, [9] per Lord Finlay LC ‘A party to a contract which imposes certain obligations and confers certain rights cannot claim to exercise these rights while repudiating his obligations in material particulars’; Australian Tenancy Law and Practice, Lexis Nexis, [2.6.185].

   [243] Joint Tender Book, Vol 1, Exhibit A1, [58], see cll.2.01, 2.06 and 4.03 of the lease.

10. Alternatively, the election to terminate had to be made within a reasonable time. For the same reasons already stated in respect of the implied term that the notice of termination had to be given within a reasonable time, the timing of the making of the election to terminate was unreasonable due to the undue delay in making that election. I find that means the tenant waived its right to make that election due to that delay and for that even further reason, the notice to terminate was ineffective and invalid.

11. As to whether the tenant had been estopped from terminating the lease, Ms Heidenreich submitted that the lessor has sought an equitable remedy with unclean hands. In doing so, the tenant referred to an asserted deception by Samer Sallis about the cause of the leaks. The lessor asserts, as its final alternative in this case, an estoppel by convention founded not on a representation of fact made and acted upon to its detriment, but on the conduct of relations between the parties based on an assumed state of fact that the tenant was continuing the lease.[244] Given my findings above, it is unnecessary for me to consider whether an estoppel arises in this case. I therefore make no finding in that respect.

    [244] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, [224] per Gibbs CJ, Mason, Wilson, Brennan, and Dawson JJ; W&R Pty Ltd v Birdseye [2008] SASC 321, [45]- [46].

    Damages and Interest

12. Where a lessor has sustained a loss by reason of breach of contract, it is, so far as money can do it, to be placed in the same situation, by an award of damages, as if the contract had been performed.[245] The entitlement to damages is subject to an obligation to take reasonable steps to mitigate loss.[246]

    [245] Robinson v Harman [1848] EngR 135; (1848) 154 ER 363.

    [246] Karacominikas v Big Country Developments Pty Ltd [2000] NSWCA 313, [187].

13. For all the reasons stated above, I have concluded that the lessor is entitled to be compensated for loss and damage suffered in consequence of the breach of contract by the tenant. The lessor has formulated its loss and damages by reference to the rent that would have been payable under the lease until expiry of the ten-year term, the rent it will receive until expiry of the new lease, the costs of repair and make good it incurred, and commercial incentives, marketing expenses and leasing costs expected or likely to be incurred under a future lease.

14. During the tenancy, the tenant was required to keep the leased premises ‘in good and substantial repair order and condition’, fair wear and tear and damage by storm or tempest excepted.[247] On 28 December 2018, the leased premises were flooded due to an isolation valve at the premises being turned off by the tenant and resulting in damage to the leased premises. I find that in doing so, the tenant was in breach of the lease by failing to keep the leased premises in good and substantial repair, order and condition.[248] The lessor paid the invoices for the attendance by plumbers at the leased premises in order to investigate water flowing from the leased premises into an adjoining shop, leaks in the centre and to repair damage as a result of the failure of the tenant to open the valve and has suffered loss in doing so.[249] I find the lessor is entitled to an award of damages in the amount of $2,054.00 in respect of the plumbing expenses incurred together with interest on that sum from the date of issue of these proceedings until judgment, at the rate of 8.66%.

    [247] Joint Tender Book Volume 1, Exhibit A1, [51].

    [248] Ibid, [494], [488], [544]; Statement of Samer, Exhibit A3, [33]-[34]; see Revision 5- Statement of Claim (FDN 27); [4]-[5] and [16.4].     

    [249] Joint Tender Book Volume 1, Exhibit A1, [51], see cl 2.23 of the lease.

15. The tenant has admitted it was late in paying rent for each of the months of April 2018, to March 2019, in breach of clause 2.01 of the lease. [250] The lessor is entitled to interest on sums outstanding pursuant to clause 2.37 of the lease, at the rate of 8.66% pa.[251] I find the lessor is entitled to interest at 8.66% pa on the late payment of rent for the months April 2018, to March 2019 (inclusive).

    [250] Revision 5- Statement of Claim, (FDN27), [3]; Defence – Revision 2 (FDN 28), [3.1].

    [251] Commonwealth Bank overdraft rate, Exhibit A17.

16. The tenant also admitted it had not paid at all the rent due for the period 1 April 2019, to 21 June 2019.[252] I find the tenant, in breach of the lease, did not pay monthly rent of $8,137.04 due in advance on l April 2019, 1 May 2019 and 1 June 2019.[253] I find the lessor is entitled to an award of damages in the amount of $24,411.12, together with interest at the rate of 8.66% pa on those component amounts from the date of default of payment under the lease until the date of judgment.

    [252] Revision 2- Defence, (FDN28) [3.7.2].

    [253] Revision 5- Statement of Claim, (FDN27), [3]; Defence- Revision 2, (FDN28), [3].

17. The tenant also failed, in breach of the lease, to pay monthly rent of $8,137.04 due each month in advance for the period 1 July 2019, and until the lessor accepted the repudiation of the lease on 15 August 2019.[254] I find the lessor is entitled to an award of damages in the amount of that rent together with interest on those amounts outstanding at the rate of 8.66% pa from the date of default of payment under the lease, until the date of judgment.

    [254] Revision 2- Defence, (FDN28) [3.7.2].

18. The tenant, in further breach of the lease, did not remove its improvements and make good any damage to the leased premises.[255] The lessor incurred costs totalling $19,300 in making good the premises.[256] I find the lessor is entitled to an award of damages in the amount of $19,300, together with interest on that sum from the date of payment of the final instalment of that invoice on 21 February 2020, until judgment, at the rate of 8.66%.

    [255] Joint Tender Book Volume 1, Exhibit A1, [50].

    [256] Joint Tender Book Volume 2, Exhibit A2, [648], see Invoice dated 5 August 2019.

19. Due to the efforts of the lessor, a new lease, commenced 1 April 2021, was agreed allowing the new tenant to operate as a COVID-19 vaccination clinic. That new lease contained three rights of extension which if exercised, would mean the lease could expire as late as 30 June 2023. The lease was due to expire on 28 February 2025.

20. The tenant submitted that, given the short term of the new lease, in order to mitigate future damage, the lessor should have continued to advertise the leased premises.[257] If a lessor acts unreasonably in failing to minimise its loss arising from a tenant’s breach of contract, its damages will be reduced to the extent to which, had it acted reasonably, its damages would have been less. What is reasonable must be assessed objectively in the circumstances, based on the evidence and it is for the tenant to prove that the lessor has acted unreasonably, and the extent to which it has done so.[258] There has been no complaint about the efforts of the lessor prior to agreement of the new lease. In the circumstances, the lessor successfully relet the leased premises without having to give the incentives contemplated by Mr Schmidt.

    [257] Respondent’s Submissions, [12].

    [258] Adelaide (SA) Pools & Spa Manufacturing and Installation Pty Ltd & Ors v Westcourt General Insurance Brokers Pty Ltd (No 2) [2021] SASC 123, [1027] per Doyle J; Fallon v Johnston [2018] VSC 273, [23] per Bell J.

21. I find the lessor has acted reasonably in all the circumstances, objectively considered and having regard to the evidence of Mr Sallis, in its attempts to lease the leased premises to minimise its loss.[259]

    [259] T117-118.

22. For all the reasons above, I therefore find the tenant is liable to pay damages to the lessor in respect of the difference between the rental payable under the new lease from its commencement on 1 April 2021, and the rent payable under the lease, plus interest on that shortfall sum at the rate of 8.66% from the dates those rental payments would have been due under the lease.[260] Given that the new lease is subject to a right of extension from 31 December 2021, I have taken notice of the ongoing vaccination program being provided in the community. Whether the new lease has been extended could impact on my assessment of damages and in the circumstances, I will hear the parties further respect of whether the new lease has been extended.

    [260] Supplementary statement of Samer, Exhibit A7, [7].

23. In the event the first extension of the new lease has been exercised, I do consider it likely that the two further rights of extension may be exercised. In doing so, I have again taken notice of the ongoing vaccination program being provided in the community.

24. For all the reasons above, I find the tenant is liable in damages to the lessor in respect of the rent payable under the lease from the date of expiry of the new lease and until the expiry of the lease (as if it had not been terminated by the lessor). That loss was part of the pleaded case.[261] Given I consider there is a likelihood rights of renewal have been and will be further exercised, I must have regard to that prospect in my assessment of whether to award damages for any loss of rent because of the breach of the lease by the tenant for the period from the end of the new lease until the date when the lease would, but for the tenant’s breach, have expired; 28 February 2025.  I will hear the parties further about that also.

    [261] Revision 5 – Statement of Claim, (FDN 27), [16.6].

25. In that respect and for the assistance of the parties, I note again that I have accepted the unchallenged expert opinion of Mr Schmidt that it would take between 12 and 18 months to find another tenant. Subject to hearing from the parties as to the impact of any actual or likely extension of the new lease, I consider that a further award of damages for future loss of rent for a period of 18 months following expiry of the new lease is warranted. It follows that the costs of marketing and leasing the premises will be incurred. 

26. I have also accepted the opinion of Mr Schmidt that a marketing campaign will be necessary to obtain a future tenant. He speculated a marketing package would be multi-faceted and consist of on-site signage, print media, online advertising and engagement with the market. He said such a package would cost the lessor $8,880.06 plus GST.[262] I am also inclined to award the lessor damages by way of future loss in the amount of $8,880.06 plus GST.

    [262] Ibid, [8].

27. I have also accepted the opinion of Mr Schmidt that the lessor will need to provide commercial incentives to secure a future tenant.[263] In doing so I have considered that the tenant was able to agree both rent free and reduced rent periods in respect of the lease and while the new lessee was offered incentives but declined, an incentive was offered.

    [263] Ibid, [7].

28. Mr Schmidt said that to secure a 5-year term for the leased premises the lessor will need to provide an incentive in the amount of between 20-30% of the total nett rental in the form of either: a cash contribution upon hand over; the agreement of a rent-free period; or, a contribution toward fit-out; an amount of $91,075.00 plus GST.[264] I am inclined to make an award of damages for future loss in the amount of $91,075 plus GST.

    [264] Ibid.

29. I further accept the expert opinion of Mr Schmidt that the likely leasing fees payable by the lessor in respect of a future lease would amount to 12% of the gross annual average rental on a new 5-year lease; being $11,604.70 plus GST. I am further inclined to award of damages by way of future loss in the amount of $11,604.70 plus GST.

30. I decline to make any order for the payment of legal costs of these proceedings under the lease. The costs of these proceedings will be the subject of further submissions, including in respect of the application of UCR 33 and the rights of the parties to taxation of costs.

    Form of Judgment and Orders and Costs

31. I will hear the parties further as to the matters noted and as to the final calculation of damages, judgment sums interest, the form of any orders or declarations and as to costs.

    
    

Ibid, [511]-[518]; The representative of the tenant who took photos in evidence, was not called,

T309.2-7.