Sanderson and MARKOTIS & ORS

[2005] WASAT 344

SANDERSON and MARKOTIS & ORS [2005] WASAT 344

Jurisdiction:	STATE ADMINISTRATIVE TRIBUNAL	Citation No:	[2005] WASAT 344
Act:	COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
Case No:	CC:270/2005	Heard:	DETERMINED ON THE PAPERS
Coram:	MR T CAREY (MEMBER)	Delivered:	21/12/05
No of pages:	10	Judgment Part:	1 of 1
Result:	Question of the existence of the applicant's obligation to upgrade answered affirmatively
Category:	B
PDF Version

Parties:	PAUL RAYMOND SANDERSON VICTOR MARKOTIS JIM MARKOTIS JOHN MARKOTIS
Catchwords:	Commercial tenancies – Lessee's obligation to upgrade shop­front – Whether obligation continued both during and after overholding period – Whether obligation waived
Legislation:	Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 16(1)
Case References:	Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221 Nil
Orders	For the above reasons, the Tribunal's response to the question referred by the applicant is as follows:,"The lessee is required, notwithstanding the expiration of the period of holding over, to comply with his obligation regarding the upgrading of the shop-front of the demised premise pursuant to clause 7.1(b) of the lease.",There will be an order to this effect.

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA) CITATION : SANDERSON and MARKOTIS & ORS [2005] WASAT 344 MEMBER : MR T CAREY (MEMBER) HEARD : DETERMINED ON THE PAPERS DELIVERED : 21 DECEMBER 2005 FILE NO/S : CC 270 of 2005 BETWEEN : PAUL RAYMOND SANDERSON

Applicant

AND

VICTOR MARKOTIS
JIM MARKOTIS
JOHN MARKOTIS
Respondents

Catchwords:

Commercial tenancies – Lessee's obligation to upgrade shop­front – Whether obligation continued both during and after overholding period – Whether obligation waived

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 16(1)

(Page 2)

Result:

Question of the existence of the applicant's obligation to upgrade answered affirmatively

Category: B

Representation:

Counsel:

Applicant : N/A
Respondents : N/A

Solicitors:

Applicant : Self-represented
Respondents : Mr V Butler

Case(s) referred to in decision(s):

Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221

Case(s) also cited:

Nil


(Page 3)

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

1 The applicant was the lessee of a retail shop for a number of years, the last year of which being on an overholding basis. The original lease and extension documents imposed an obligation on the lessee to pay an amount on the upgrading of the shop-front once every five years and in any event during the last months of a term of the lessee.

2 The applicant argued that the obligation was not enforceable against him because any "term" of the lease was completed, and the period of overholding, if it was to be regarded as a term, was also completed. He also argued that the respondents had waived the obligation because they did not enforce it during the initial term and made no further reference to it in any subsequent term.

3 The Tribunal construed the relevant clause in the lease, noting that the definition of "further term" included any period of holding over where the context required. It found that the obligation regarding upgrading arose during the overholding period and continued despite the tenancy having been determined. Further, no waiver was demonstrated by the lessor's inaction during earlier terms, because of the recurrent nature of the obligation.

Introduction

4 The applicant leased from the respondents shop 10 in Bunbury City Plaza Shopping Centre from 4 October 1994 until on or about 2 November 2004. The initial lease is in writing dated 9 March 1997, with two options for what are described as the "first further term" of three years commencing 4 October 1997 and the "second further term" of three years commencing 4 October 2000. It is common ground that the applicant was permitted to remain as lessee in an overholding capacity for the period from the cessation of the second further term until the ultimate vacation date.

5 The applicant has referred, under s 16(1) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the CTA Act), the following question arising under his former retail shop lease:

"Whether Lessee has an obligation to return to the premises after expiration of a period of holding over … to upgrade the shopfront pursuant to clause 7.1(b) of the lease."

(Page 4)

6 Clause 7.1 of the lease is reproduced below:

"Repair and Maintenance by Lessee

7.1 (a) The Lessee shall at all times during the Term and otherwise so long as the Lessee may remain in occupation at the Lessee's own expense when where and so often as is needed maintain replace repair and keep the Demised Premises and every part thereof and all additions thereto including exterior and interior entrances the shop fronts floor coverings glass and show windows and plate glass and all partitions doors fixtures Fire Equipment and Appurtenances in good clean substantial tenantable repair and condition to the reasonable satisfaction of the Lessor fair wear and tear and damage by fire storm tempest earthquake explosion and the risks mentioned in the Insurance Outgoings excepted save where the insurance moneys shall have been rendered irrecoverable by some act or default on the part of the Lessee or the Lessee's servants agents or lawful visitors and shall at least once in every five 5 years of the Term and the Further Term (calculated from the Date of Commencement) and in any event during the last 6 months of the Term or the Further Term or forthwith upon any sooner determination thereof with materials and to standards reasonably approved by the Lessor repaint and/or repaper the inside of the Demised Premises.

(b) Without limiting the generality of Clause 7.1 the Lessee shall once in every 5 years during the Term and the Further Term (calculated from the Date of Commencement) and in any event during the last 6 months of the Term or the Further Term or forthwith upon any sooner determination thereof expend an amount equivalent to the aggregate amount of Annual Rental and the Lessee's Outgoings Contribution and Sinking Fund Contribution percentage rent paid or payable during the immediately preceding 3 months on the

(Page 5)

upgrading of the shop-front of the Demised Premises to the satisfaction of the Lessor and, without limiting the generality of the foregoing, on the painting re-painting or replacement of any signs and the refurbishing re-design and if deemed necessary by the Lessor at his absolute discretion the complete re-design and replacement of the shop-front of the Demised Premises."

7 Item 13.6 in the second schedule to the lease provided for the amendment to cl 7.1(b) (erroneously referred to in the item as cl 7.2) by the deletion, towards the end of cl 7.1(b), of "at his absolute discretion" and the substitution therefore of "provided that the refurbishment is necessary and reasonable".

8 The expression "Further Term" is defined by the lease to mean any further term identified in the lease and any shorter term in the event of the early termination of such a further term "and when the context so requires includes any period of holding over".

9 Clause 12.2 of the lease, headed "Option to renew," provided that in the event of the lawful exercise of the lessee's option, the lessor was required to lease the premises to the lessee for a further term "upon the same covenants, conditions and stipulations contained or implied in this Lease", with one exception which is not relevant.

10 The final necessary reference to the lease documents concerns the two deeds of extension entered into on 14 October 1997 and 14 November 2000 respectively. In the case of both deeds:

(a) clause 2 provided that the lessor extended the original lease for the additional term on the terms of the deed of extension;

(b) clause 4 provided that all the provisions of the original lease apply (with only necessary modifications) during the additional term, with exceptions which are irrelevant;

(c) clause 5.1 imposed an obligation on the lessee, during the additional term, to comply with all the lessee's obligations apart from the payment of rent (which was dealt with separately) under the original lease;

(d) clause 5.2 contained the lessee's acknowledgement that, in respect of the additional term, the lessor had all the rights and powers, and might exercise all the remedies contained in the original lease.

(Page 6)

11 Negotiations between the parties occurred in the period February – October 2003 regarding the possibility of a further extension of the lease, culminating in an offer to lease being signed by the applicant on 27 October 2003. However, no further lease was signed, although the applicant was permitted to remain in occupation of the premises as an overholding tenant. By a notice dated 28 September 2004, the applicant gave the respondents one month's notice of termination of what is described in the notice as "my periodic tenancy". On 30 September 2004, the respondent's agent wrote to the applicant referring to the notice of termination and drawing his attention to what were said to be his obligations under cl 7.l(a) (specific reference was made to the provisions for the painting of the premises during the last six months of the term) and cl 7.1(b) "with respect to the calculation of outgoings pertaining to the shop front that relates to the last six months of the term". The evidence suggests that the applicant vacated the premises on or about 2 November 2004. He has made no payment referable to cl 7.1(b).

12 The respondents have alleged that the applicant has also failed to comply with his obligation under the lease to make good the premises. However, this claim has not been pursued in accordance with the Tribunal's order on 12 September 2005, which required the respondents, by 26 September 2005, to file and serve his own application, if he wished to do so, setting out any claims he wished to pursue against the applicant. The merits or otherwise of any make good claim do not therefore fall for determination.

13 The sole issue for the Tribunal to decide is whether the obligation under cl 7.1(b) of the lease remains. The arguments raised by the applicant, both personally and by solicitors on his behalf, amount to the following propositions:

1. The obligation did not survive the termination of either the term of the lease under the lease and deeds of extension thereof, or alternatively the period of holding over.

2. There was, on the facts, a waiver of the obligation.

14 I will deal with each of these contentions in turn. Before doing so, I will make a few comments on the clause giving rise to the obligation in question.

Construction of cl 7.1(b)

15 Clause 7.1(b) is consistent with similar clauses found in many commercial leases in its requirement for a periodic upgrading of the

(Page 7)

premises or a part thereof, in this case the shop-front. The obligation is expressed to arise "every five years during the term and the further term ... and in any event during the last six months of the term or the further term". Of these alternatives, the relevant one for present purposes is that the obligation arises in the last six months of the "Further Term", bearing in mind the inclusion in the definition of "Further Term" of "when the context so requires includes any period of holding over".

16 Clause 7.1(b) imposes a requirement of expenditure of an amount calculated by reference to annual rental and lessee's outgoings and sinking fund contributions. The qualification "to the satisfaction of the lessor", in my view, is directed to the way in which the works funded by the amount calculated as set out are to be carried out. The reference to "painting, re-painting or replacement of any signs and the refurbishing re-design" describe specific types of work which might, subject to the other requirements of the clause including the lessor's satisfaction, be carried out. The final, amended provision of the clause permits the lessor to nominate, as the works to be carried out, the complete redesign and replacement of the shopfront, but only where it is necessary and reasonable. The justification for the proviso is that in the situation of a continuing tenancy, the lessee's enjoyment of the premises should only be disturbed to the extent that replacement of the shopfront would necessarily entail only where there is a good case for the replacement occurring.

Does the obligation survive termination of a term or further term under the lease or any extension, and a period of holding over?

17 The proposition upon which the applicant relies was expressed in a letter from his solicitors to the respondents' agent in the following terms:

"If my client had an obligation at all it would be to expend an amount of money on upgrading and if that obligation existed at all it existed in respect of the period prior to the holding over commencing."

18 The applicant himself, in the document supporting his application, asserted:

"The terms of the lease do not require the applicant to pay the respondents an amount to be expended by the respondents at its discretion after the expiration of a period of holding over. The obligation is only capable of performance while there is a current term or period of holding over."

(Page 8)

19 I do not accept either of these two different contentions. Based on the construction of cl 7.1(b) above, the lessee is obliged to expend the amount for the purpose and calculated in the manner set out "in any event during the last six months of the term or the further term". I find that the context does require that "further term" included the period of overholding, so that the obligation did arise during the last six months of the overholding period. The terms of the lease and assignments of lease referred to above make quite clear that all relevant covenants of the tenant existed for the periods of the extended and overholding periods. Further, there is simply no basis to suggest that an obligation such as the one under consideration disappears once the tenancy is determined. Although it is true that the clause refers to the relevant amount being expended "during the last six months of the term or the further term", this is not to suggest that in any case where the lessee fails to comply with such an obligation during the specified period, the lessor would not be able to bring proceedings post the term of the lease seeking relief for breach of the obligation.

20 There may be a question whether the amount the applicant is required to spend will be allocated to the necessary purpose of "upgrading of the shop front of the demised premises". It would not be permissible for the respondents to allocate any part of that amount (assuming it was paid directly by the applicant to them) on any other purpose. However, this is not a question that the Tribunal has been requested to explore, nor could it be as the applicant has to this point refused to spend the money. I note that the landlord's demand, in the agent's letter dated 30 September 2004, at a time when the applicant was still overholding, was in the unexceptionable terms of drawing attention to the applicant's obligations under cl 7.1(b) with respect to the calculation of outgoings pertaining to the shop front that relates to the last six months of the term.

Has a waiver of the obligation been demonstrated?

21 The letter from the applicant's solicitors contended the following:

"The purpose of clause 7.1(b) is to require long-term tenants to expend money on refurbishment of the premises. The requirement was waived at the end of the first five years."

22 A request by the respondents' solicitors to the applicant's solicitors for particulars of the alleged waiver went unanswered. However, the applicant, in an affidavit filed with the Tribunal, suggested that the grounds for the waiver allegation were that no dialogue took place between the parties regarding the matter of the cl 7.1(b) obligation during

(Page 9)

the first term, the two further terms, nor the holding over period. (The demand made by the respondents' agent before the applicant vacated the premises has been overlooked by the applicant.) Another way of expressing the point might be to say that by their failure to require compliance with the provision during the terms and holding over period, the respondents waived any obligation which survived the term of the lease.

23 A distinction is to be drawn between a covenant to do a definite act capable only of a breach once and for all and a continuing covenant. In Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221 at [238], Dixon J said:

"If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being forever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided. The distinction may be difficult of application in a given case, but it must be regarded as one depending on the meaning of the covenant."

24 The obligation under cl 7.1(b) is of the second type to which Dixon J referred, despite the reference to time in the clause. Indeed, the time references underline the recurrent nature of the (separate) obligations. In such a case, a failure to enforce the covenant when the opportunity first arises has no effect on, and cannot be regarded as a waiver of, the obligation when it later arises.

Response to the referred question

25 For the above reasons, the Tribunal's response to the question referred by the applicant is as follows:

(Page 10)

"The lessee is required, notwithstanding the expiration of the period of holding over, to comply with his obligation regarding the upgrading of the shop-front of the demised premise pursuant to clause 7.1(b) of the lease."

There will be an order to this effect.







I certify that this and the preceding [25] paragraphs comprise the reasons for decision of the State Administrative Tribunal.









___________________________________

MR T CAREY, MEMBER