Tsoukalas v Nguyen (International) Trading Co Pty Ltd; Dung Viet Nguyen and Nguyen (International) Trading Co Pty Ltd v Tsoukalas

[2021] NSWCATCD 30

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Tsoukalas v Nguyen (International) Trading Co Pty Ltd; Dung Viet Nguyen and Nguyen (International) Trading Co Pty Ltd v Tsoukalas [2021] NSWCATCD 30

Hearing dates:

15 March 2021

Date of orders:

18 May 2021

Decision date:

18 May 2021

Jurisdiction:

Consumer and Commercial Division

Before:

G Ulman, Senior Member

Decision:

(1) In application COM 20/44332 Nguyen International Trading Co Pty Ltd pay Alexander Tsoukalas the sum of $23,938.64 within 28 days.

(2) Application COM 20/46994 is dismissed.

Catchwords:

LEASES AND TENANCIES — Retail leases — Claim for unpaid rent, outgoings and make good costs — Claim for return of bank guarantee proceeds — Whether COVID-19 Regulation precluded the landlord from presenting the bank guarantee — Whether the proceeds of the bank guarantee should be repaid to the tenant

Legislation Cited:

Retail Leases Act 1994 (NSW)

Civil and Administrative Tribunal Act 2013 (NSW)

Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW)

Category:

Principal judgment

Parties:

In COM 20/44332
Alexander Tsoukalas (Applicant)
Nguyen (International) Trading Co Pty Ltd (Respondent)

In COM 20/46994
Dung Viet Nguyen and Nguyen (International) Trading Co Pty Ltd (Applicants)
Alexander Tsoukalas (Respondent)

File Number(s):

COM 20/44332 and COM 20/46994

Publication restriction:

Nil

REASONS FOR DECISION

Introduction

1. These proceedings involve two applications arising out of the lease of shop premises at Newtown (premises). The lease was for a term of three years commencing on 22 July 2017 and terminating on 21 July 2020 .

2. COM 20/44332 is an application by Mr Alexander Tsoukalas, the owner of the premises. From now on I will refer to Mr Tsoukalas as “the landlord”. The respondent to the application is Nguyen (International) Trading Co Pty Ltd to whom I will from now on refer to as “the tenant”. The landlord claims the balance of outstanding rent, outgoings and make good costs.

3. COM 20/46994 is an application by Mr Dung Viet Nguyen (Mr Nguyen) and the tenant. The landlord is the respondent to the application. Mr Nguyen, who is a director of the landlord and a guarantor under the lease, was the original applicant. At the hearing (conducted by AVL), I pointed out to Mr Nguyen and to his Aunt, Ms Sue Tree, who was appearing for him with leave, that in view of the relief being sought, the tenant should also be an applicant to the claim. Mr Nguyen and Ms Tree agreed as did Mr Sanhueza who was given leave to appear for the landlord. Accordingly an order was made under section 44(1) of the Civil and Administrative Tribunal Act 2013 (NSW) (CAT Act) joining the tenant as a co-applicant to COM 20/46994. In the application, the tenant seeks the return of $19,067 being the amount of the bank guarantee bank guarantee provided as security for its obligations under the lease. The guarantee has been presented by the landlord and the proceeds paid to him. It also seeks to have amounts owed to the landlord repaid over 12 months.

4. A mediation of the dispute was unsuccessful with the Deputy Registrar, Retail Tenancy Disputes issuing a certificate under section 68 of the Retail Leases Act on 9 October 2020.

Background

5. In July 2014, the landlord leased the premises to Partners 88 Pty Ltd for a term of three years commencing 22 July 2014 and ending on 21 July 2017 (2014 lease). The 2014 lease contained an option to renew for a period of three years. It describes the use of the premises as “café/restaurant”.

6. The tenant acquired the restaurant business being conducted from the premises in about July 2015, assumed the obligations under the 2014 lease and continued to operate a restaurant business from there. The option to renew the lease was exercised by the tenant and a new lease entered into commencing 22 July 2017 and ending on 21 July 2020 (lease). The use of the premises remained unchanged.

7. In May 2017, the tenant leased the shop next door to the premises and from there operated another restaurant business.

8. Since March 2020, New South Wales and the whole of Australia has been in the grip of the COVID 19 pandemic. The tenant says that the pandemic affected its business forcing it to close the restaurant on 23 March 2020. It did though to continue to provide a takeaway service from the shop next door. The tenant’s evidence is that it qualified for and been granted Jobkeeper payments by the Federal government.

9. At the time the restaurant closed, the monthly rent payable under the lease was $10,261.23 plus GST or $11,287.35 inclusive of GST. The lease also required the tenant to pay 100% of council rates, water rates, water usage and water trade waste. It is not in dispute that the tenant’s last rent payment before the lease ended in July 2020 was $5864.60 which was part payment for the period 22 March to 21 April 2020.

10. Unsurprisingly the pandemic was the catalyst for rent relief negotiations between the parties. Between 24 April and 3 August 2020 the parties and their representatives engaged in correspondence negotiating a rent relief agreement. Both the landlord and tenant say agreement was reached on the terms of rent relief to be provided to the tenant but they disagree over the terms agreed.

11. The tenant says there was a rent relief agreement in place and by reason of the National Cabinet Mandatory Code of Conduct and the Covid 19 regulations introduced by the New South Wales Government, the landlord was precluded from presenting the bank guarantee.

12. The landlord says the tenant breached the rent relief agreement by not making any payments after the final payment of $5864.60 and so he was entitled to present the bank guarantee for payment. He also says that he was forced to do so by reason of his poor financial circumstances. The landlord is 86 years of age, the rent being paid by the tenant to lease the premises was his sole source of income and the proceeds of the bank guarantee were used for his daily living expenses such as rent and food. This was not challenged by the tenant.

13. It is not in dispute that the tenant vacated the promises on 21 July 2002 the day the lease came to an end or that the bank guarantee for $19,067 provided by the tenant as security for its obligations under the lease was presented by the landlord on 5 August 2020 and paid out on 13 August 2020.

14. The landlord also says that the tenant failed to comply with its make good obligations under the lease entitling the landlord to be paid compensation for the make good costs. This is denied by the tenant

The respective claims

15. The parties have not filed any points of claim or points of defence nor affidavits or conventional statutory declarations. The parties have had a number of attempts to articulate their respective claims and to provide evidence in support. Working out what relief each is seeking and how the evidence fits with the respective claims has not been without its difficulties.

Landlord’s claim

16. In his application filed with the Tribunal (landlord’s application), the landlord claimed an amount of $32,519.11 from the tenant. This is made up of two separate amounts; $21,335.31, which I understand is for unpaid rent, and $11,183.80 in damages, which I understand is for make good costs. The landlord’s application did not contain any explanation as to how each of these amounts were calculated.

17. In a later document filed with the Tribunal on 15 December 2020 (landlord’s statement), the landlord said that he was claiming $35,724.44. The amount is particularised as follows:

1. rent arrears (March – July)   inclusive of GST

($11,287.35 - $5864.60)             $39,284.80

2. outgoings (Sydney Water and Council rates)   $2220.84

3. make good costs inclusive of GST      $13,285.80

Less proceeds of bank guarantee         $19,067

Balance claimed                $35,724.44

18. The make good costs claimed comprise two quotations totalling $10,183.80 (inclusive of GST) from John O’Neill, Builder (John O’Neill), and a number of additional amounts that total $3102. These are John O’Neill’s quotations:

1. Quotation dated 27 July 2020

To remove three large air-conditioner and repair

area around air-conditioner                $1230

To deep clean carpet, damaged by tenant

walking through oily kitchen floors                $980

To replace one broken blind                $180

To clean mould and grease from large cool room       $340

To clean the side passageway all pathway cover

(sic) with oil and grease                   $880

To clean floors in two front rooms             $680

Total cost labour + materials                $2908

Plus10% GST   $290.80

Total cost including GST                $3198.80

2. Quotation 10 August 2020

To remove two large exhaust fan for cooking in kitchen    $1200

To remove all external steel venting system           $1400

To remove all counter benches in front shop           $790

To repair any damage on ceiling or floors and remove items

approximate quote                          $600

Tipping fee                            $860

To remove large shed on top floor of building and take to tip     $1500

Total cost labour + materials                  $6350

Plus 10% GST                         $635

Total cost including GST        $6985

19. The work described in both quotations had not been undertaken by the time of the hearing and so the costs have not yet been incurred by the landlord.

20. In addition to the amounts specified in the above-mentioned quotations, the landlord also claims other costs totalling $3102. These are said to be for the supply, painting and installation of four doors, removal of wiring from the upstairs of the premises, the removal of surveillance cameras on the ground floor and patching, the repair of the front grill and track, the removal of extra lights in the ceiling where a counter was placed and to clean the toilet, side passageway, windows and upstairs outside landing. No quotations or any supporting documents were provided by the landlord. Mr Sanhueza said that these figures were calculated by him based on his building experience.

Tenant’s response and claim

21. By its application filed with the Tribunal on 13 November 2020 (tenant’s application) the tenant seeks the return of the bank guarantee. It says that under the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Regulation), the landlord was not permitted to present the bank guarantee for non-payment of rent and outgoings.

22. The tenant also says it reached an agreement with the landlord on rent relief. In the various documents filed with the Tribunal, the tenant describes the terms of agreement in a number of different ways. In the application, the agreement is described as follows:

April 24, 2020: Landlord via LJ Hooker agreed to the 50% waived (reduced) rent and 50% deferred rent for 2 months

May 11, 2020: Landlord via LJ Hooker agreed to our proposal of 50% waived and 50% deferred rent back to March 21, to the end of the lease July 21, 2020

23. In a summary of its claim filed with the Tribunal on 14 December 2020 (tenant’s summary and response), the tenant says that a proposal dated 15 April 2020 was accepted by the landlord on 24 April 2020. It says the proposal was that 50% of the rent be waived and 50% deferred and paid in 12 months starting 21 September 2020. It says that an amount of $17,346.64 was agreed to be paid over 12 months from 21 September 2020 to 21 August 2021. It also says the landlord having presented the $19,067 bank guarantee, it owes the tenant $1720.36 which is the difference between the two amounts.

24. The tenant calculates the amount of $17,346.64 as follows:

4 months rent March/April 2020 ($10,261.23 x 4)    $41,044.92

Less part payment for March/April 2020          $5864.60

Less 50% rent waived ($5130.61 x 4)         $20,522.44

Plus outgoings                   $2688.80

Total amount of deferred rent and outgoings

to be paid from 21 September 2020 to 21 ‘

August 2021   $17,346.64

25. In a response filed on 15 January 2021 to the landlords statement (tenant’s response), the tenant repeated the terms of the proposal said to have been accepted by the landlord on 24 April 2020 but then said the amount owed to the landlord for rent was now $16,709.20 to be repaid over 12 months and the landlord owes $2357.80 after allowing for the $19,067 bank guarantee.

26. The difference between the amounts stated in the tenant’s summary and response and the tenant’s response appear to be due to the tenant including GST in the rental payments and deducting $2688.80 for outgoings. The reason given by the tenant deducting the outgoings was “Covid 19 retail lease principle #8”

27. The tenant therefore concedes it owes money to the landlord but nevertheless seeks the return of the bank guarantee proceeds and an order for the outstanding amounts to be paid over 12 months.

28. The tenant disputes that the landlord is entitled to any make good costs. It says that it cleaned the premises before they were vacated. In support, it has provided a copy of a tax invoice dated 19 July 2020 from Quality Cleaning for $1700. It also says that many of the items that landlord is asking it to remove were in the premises before it vacated including the cool room and grease trap. Further, the two exhaust fans and steel ventilation systems it says are attached to the building structure and have become part of the building. The tenant also says that some of the items left behind enhance the premises for benefit the landlord. The list of those items is said to include a new sewerage system for the whole of the building, stair coverings, rewiring of electrical circuits repainting of walls including the partition wall.

29. Other allegations have been raised by the parties against each other regarding various breaches of the lease and even allegations of assault. While the relationship between the parties once the pandemic hit appears to have been somewhat rocky to say the least, in my view none of these additional allegations that have been raised are relevant four the purposes of determining the current disputes the subject of both applications.

Jurisdiction

30. Under the terms of the lease, the premises were leased to the tenant as a café/restaurant. There is no dispute that the lease is subject to the Retail Leases Act 1994 (NSW) (Act) and that the Tribunal has jurisdiction to determine the dispute between the parties to these proceedings. There is also no dispute that the Tribunal has jurisdiction to deal with dispute in so far as it arises out of the Regulation.

The Lease

31. Clause 2.1 of the lease contains a covenant by the tenant to pay to the landlord without demand and free of all deductions the rent reserved by the lease that is set out in item 1 of the lease reference schedule. Item 1 contains the amount of annual rent payable. Item 2 provides that the rent is to be paid on the 22^nd day of each month.

32. Clause 2.2 of the lease provides that the tenant is to pay within 14 days of written demand the outgoings or the proportion of outgoings set out in item 7 of the reference schedule. The outgoings for the purposes of the clause include all council rates, or water rates and/or charges for water trade waste. Item 7 of the reference schedule provides that the outgoings or proportion of outgoings is 100% of council rates, water rates, water usage and water trade waste.

33. By clause 6.1 the tenant is required to keep the interior of the premises and all fixtures and fittings, including any carpets curtains and blinds, in good and substantial repair and condition but having regard to their condition at the commencement of the lease. At the end of the lease the tenant is required to deliver up the premises and the fixtures and fittings of the landlord in good repair, order and condition.

34. Clause 6.2 qualifies the obligations in clause 6.1 (the lease says clause 6.2 but this appears to be a typographical error) by saying that they do not include responsibility for fair wear and tear having regard to the condition of the premises at the date the tenant first went into occupation.

35. Clause 6.3 then provides as follows:

Without prejudice to the provisions of clause 6.1 and 10.4 hereof, the Lessee will in the last year of the term of this Lease and at intervals of not more than three (3) years and from time to time, if necessary or reasonably required clean and restore the whole of the interior of the demised premises including all partitions or additions made to the demised premises and treat as previously treated all internal surfaces of the demised premises by painting, staining, polishing or other method previously used thereon or a reasonable alternative thereto and also by replacing all carpets or floor titles which are worn or damaged otherwise than by fair wear and tear and in need of replacement. PROVIDED however that the Lessee will only be required to clean and restore the interior of the demised premises to the condition the premises were in at the commencement of this Lease, fair wear and tear excepted.

36. Clauses 10.2 and 10.3 set out what the tenant is required to do on vacating the premises in terms of removing its fixtures and fittings. They read as follows:

10.2   The Lessee may at or prior to the determination of this Lease (and upon such determination shall, if so required by the Lessor) take, remove and carry away from the demised premises all fixtures, fittings, plant, equipment or other articles brought upon the demised premises by the Lessee with the consent of the Lessor together with any items referred to in clause 7.1 hereof, but the Lessee shall in such removal do no damage to the demised premises to the Lessor's reasonable satisfaction prior to vacating the demised premises.

10.3    If the Lessee shall not have completed the removal and making good referred to in clause 10.2 by the expiration of the term of this Lease (or in the case of the determination of the term of this Lease within fourteen (14) days after such determination), then the Lessor may remove and store such partitions, alterations additions or other fixtures, fittings or goods as the Lessee shall have failed to remove and the Lessee undertakes to repay on demand all costs and expenses incurred by the Lessor in so doing and the Lessor may alternatively elect not to effect such removal in which case the Lessor shall by notice in writing given to the Lessee or left at the demised premises notify the Lessee that unless the Lessee shall have effected such removal within fourteen (14) days after the date in which such notice is given requiring such removal, then those partitions, alterations, additions or other fixtures, fittings or goods as have not been removed by the Lessee shall be forfeited to the Lessor and shall at the expiration of such fourteen (14) days period become the property of the Lessor.

37. Clause 7.1 of the lease referred to in clause 10.2 contains general covenants dealing with what the tenant may or may not do while occupying the premises. They are not relevant for the purposes of these proceedings.

Hearing

38. As mentioned, the hearing was conducted by AVL. Leave was given pursuant to section 45(1)(b)(i) of the CAT Act for the landlord’s friend, Mr Sanhueza, to represent him and for the tenant and Mr Nguyen to be represented by Mr Nguyen’s Aunt, Ms Tree. The landlord and Mr Nguyen were also present throughout the hearing.

Evidence

39. The parties’ relied on a number of submissions or statements and a quantity of documents attached to their respective applications and also subsequently filed with the Tribunal.

40. In addition to the documents annexed to the landlord’s application, he relies on the tenant’s statement and the documents attached and on a further statement filed 27 January 2021 (landlord’s further statement) which also had documents attached. The statements are not signed but Mr Sanhueza confirmed at the hearing that the landlord adopted both as his statements of evidence.

39. The tenant’s evidence, in addition to the documents attached to the tenant’s application, consists of 5 spiral bound books. Two of the books comprise the tenant’s summary and response to which I have already referred. At the front of both books is a statutory declaration made by Mr Nguyen on 10 December 2020 declaring that all the information provided is true and correct. On 15 January 2021, two further books containing evidentiary documents were filed by the tenant in response to the landlord’s statement (tenant’s second response). The fifth book was filed on 9 February 2021 in response to the landlord’s further statement (tenant’s third response).

40. At the hearing Mr Sanhueza was given an opportunity to cross examine Mr Nguyen and Ms Tree was given an opportunity to cross examine the landlord. Mr Sanhueza declined to cross examine Mr Nguyen but Ms Tree did want to cross examine the landlord. There was an issue as to whether or not the tenant was responsible for removing the air-conditioning units in the premises and I permitted Ms Tree to question the landlord about those units. The evidence arising out of that cross examination has had no bearing on the outcome.

Issues

43. In my view, the parties’ applications raise the following issues for determination:

1. Did the parties in April 2020 or later enter into a rent relief agreement and if they did, what were the terms of that agreement?

2. Was the landlord by reason of the Regulation precluded from presenting the tenant’s $19,067 bank guarantee on 5 August 2020 and applying that amount against any money owed to it by the tenant?

3. What consequences flow from the determination of issues (1) and (2)?

4. Is the tenant liable to the landlord for the make good costs?

Consideration

Did the parties in April 2020 or later enter into a rent relief agreement and if they did, what were the terms of that agreement?

44. The first issue for determination is whether the landlord and tenant entered into a rent relief agreement in April 2020 or later, and the terms of any agreement.

45. The landlord says there was a rent relief agreement but the tenant breached the agreement. Relevantly, the landlord’s statement says this:

(O)nce the agent had contacted him in relation to purported hardships experienced by (the tenant), he had asked for financials to help him make a considered and informed decision. He has never received financials of the tenant's (sic). He eventually received a letter from Teresa Tran and Associates representing (the tenant).….He believes this was unsatisfactory in making an informed decision.

Landlord claims he had agreed to rent reduction of 50% pay now and 50% pay later. As the 50% pay now undertaking by (the tenant) was never met, the Landlord viewed this as a breach of their agreement thus giving the Landlord to repudiate (sic) the said agreement.

46. The landlord does not explain what was intended by the term “50% pay later”.

47. The tenant’s application contains a response to the landlord’s claim. In it the tenant says this about what was said to have been agreed by the parties in April 2020:

We, the impacted tenants made a proposal under the COVID -19 guidelines to the landlord of 50% waived and 50% deferred rent, with the deferred rent to be paid within 12 months instead of 24 months. We honoured the contract by staying until the end of lease period July 21, 2020 despite generating no income.

April 24, 2020: Landlord via LJ Hooker agreed to the 50% waived (reduced) rent and 50% deferred rent for 2 months

May 11, 2020: The landlord via LJ Hooker agreed to our proposal of 50% waived and 50% deferred rent back to March 21, to the end of the lease July 21, 2020

May 14, 2020: The landlord via LJ Hooker demanded our financial statement to support our proposal of 50% waived and 50% deferred rent. Our accountant forwarded our financial statements to LJ Hooker and we requested the landlord to provide signed documents of our agreement.

On the same day, the landlord via LJ Hooker wanted to terminate our lease immediately. May 19, 2020 - Landlord sacked Jim LJ Hooker who was involved in our negotiations under the COVID -19 code of conduct. The landlord claimed that given that LJ Hooker no longer represented him, the landlord did not need to follow the previous agreements. That is not acceptable as we already fulfilled the condition of provide (sic) our financial statement and removed the moving sign from (the next door) window.

None of the emails from any of the three solicitors demonstrated that the correct information regarding the proposal was communicated by the landlord.

Please note: Our accountant did not make any proposal on our behalf; our accountant simply provided our financial statement to LJ Hooker as requested by the landlord.

48. I should say at this point that I am comfortably satisfied that as a result of the COVID 19 pandemic and the restrictions the New South Wales government imposed upon commercial activities and the general population, from late March 2020 the tenant was unable to meet its rental obligations and was forced to close the business it was conducting from the premises. It is clear that as a consequence some effort was then made by the parties to try and negotiate a rent relief agreement.

49. While the parties have no doubt done their best in articulating their respective positions on the rent relief negotiations and their understanding of the outcome, the issue can only be determined, in my view, by reference to the contemporaneous correspondence that passed between them and their representatives.

50. Before turning attention to the correspondence. I should mention that in the tenant summary and response, it refers to a rent relief proposal dated 15 April 2020 having been accepted on 24 April 2020. None of the contemporaneous documents in evidence records a rent relief proposal by the tenant dated 15 April 2020.

51. The earliest correspondence relating to the rent relief negotiations that is in evidence is an email from Mr Nguyen to Mr Marinos dated 24 April 2020. Mr Nguyen thanked Mr Marinos for his response “about the rent reduction from the landlord”. Then, after referring at some length to the global pandemic and the National Cabinet’s Mandatory Code of Conduct (Code), Mr Nguyen proposed a rent relief arrangement whereby there was a 50% rent reduction commencing March 2020 and a 50% deferral of the rent which was to be paid by equal instalments over 12 months with payments to start “when restriction is lifted and we can be back to our usual business trading”. By that I take the tenant to be saying the rent instalment payments would start when trading from the restaurant resumed. In the same email Mr Nguyen also proposed that the arrangement be reviewed in of October 2020 and he pointed out what the Code said about how commercial and retail leases should be dealt with as a consequence of the pandemic.

52. Next in the sequence of correspondence is a letter dated 28 April 2020 from VS George Lawyers, the landlord’s solicitors, to Mr M Russoniello, the tenant’s solicitor. They refer in their letter to an email from Mr M Russoniello dated 14 April. That email is not in evidence. In their letter, VS George Lawyers noted that a rent reduction offer had been made by the landlord’s agent on 24 April and that the tenant rejected the offer the same day. They go on to say that the landlord is willing to honour rent payment terms offered which was a 50% deferral of the rent from 22 May to 21 July with the deferred payments due by 1 August. The letter also contained an offer by the landlord to waive 50% of the deferred payments but only if the tenant remedied what were said to be a number of breaches of the lease mentioned in the letter.

53. Next is an email from Mr Marinos to Mr Nguyen dated 11 May 2020. In it he says the landlord has agreed to discount the rent by 50% commencing 22 March 2020 for the balance of the term of the lease and paid on the due date. Mr Marinos said the landlord’s offer was conditional upon the tenant removing newspaper that was said to be covering the shopfront, and “remove any residential subletting from the upstairs”.

54. On 14 May 2020, Ms Teresa Tran of Teresa Tran & Associates wrote a letter addressed “To whom it may concern”. Ms Tran says her firm acts as the accountant and tax agent for Mr Nguyen “trading as Nguyen International Pty Ltd”. She goes on to say that from mid-March 2020 there was a significant drop in the restaurant’s income forcing its complete closure, and from 1 March 2020 the tenant’s second shop (the one next door) was restricted to takeaway delivery due to restrictions imposed by the government. Ms Tran said this had impacted on her clients business in April 2020 with a drop in turnover of 49.5% compared to the same period in April 2019. She said her client had applied for and been granted Jobkeeper payments by the Federal government but this was insufficient to support her client’s family and other ongoing business costs including rental payments. The letter then says this:

He would be very grateful if you would consider the business situation and accept his proposal of 50% rent reduction commencing March 2020 and 50% deferral to be paid over 12 months. We hope that those reasons outlined above are taken into consideration for your decision over the rental reduction.

55. The letter from the tenant’s accountant appears to have been sent by Mr Nguyen to Mr Marinos sometime prior to 2:28 PM on 14 May 2020. That is when Mr Marinos sent an email to Mr Nguyen which reads:

Please call me to discuss.

The rental proposal is not agreeable to.(sic)

Jim Marinos.

56. Mr Nguyen replied at 2:47 PM. Relevantly he said this:

We do not want to communicate via phone because we have never trust (sic) your verbal agreement anymore.

We remain committed to the terms of the lease and looking forward to our ongoing relationship.

57. Mr Marinos replied by email sent at 2:50 PM as follows:

Alex wants to terminate the lease immediately. He does not agree with your offer.

We (sic) wants you to pay the rent immediately.

58. Next is a letter dated 21 May 2020 from Rennie Lawyers, now acting for the landlord, to the tenant. The letter makes no mention of rental payments and terms. Instead it refers to what the tenant must do when vacating the premises and also in permitting the landlord to have access to the premises for the purposes of inspections by prospective tenants or purchasers. In relation to the former the letter says this:

You will note that the Lease Option period expires on 21 July 2020.

As such, you are required to vacate the subject premises on or before 21 July 2020. On vacating the subject premises, you are to leave the property in accordance with clause 10.2 and 10.3 of the subject Lease.

59. The landlord then sent a letter to Mr Nguyen. It is not dated but there is a handwritten note at the top which reads “received 21 May 2020”. He says he has engaged a solicitor to represent him and the solicitor has “independently mailed a letter to” Mr Nguyen which is said to be enclosed. I take that to be a reference to the letter dated 21 May 2020 from Rennie Lawyers. Amongst other things, the landlord goes on to say that LJ Hooker no longer represents him and that he is in receipt of the letter from the tenant’s accountant. He then says this:

In response to this letter I confirm that I can accept for you to pay half the rent per month and for the other half to be paid over the next 12 months and completely paid by 31 May 2021.

To be clear you have only paid for half rent for the period 22nd March 2020 to 21st May 2020. I ask that you now pay half the rent for the period 22^nd April to 21st May 2020 and also the half rent for the period 22nd May 2020 to 21st June 2020. The final half rent would be for the period 22 June 2020 to 21 July 2020 and this is due in June.

Please understand that I rely on the rent as my only income and I have had no income since your last payment in March. I have commitments to meet and I would ask that you meet your commitments to me.

60. The next letter that has been provided by the parties is dated 3 June 2020 from Rennie Lawyers to Mr M Russoniello. It refers to Mr Russoniello’s correspondence of 28 May 2020. That correspondence is not in evidence. Relevantly Rennie Lawyers letter says this about the rent negotiations including the missing 28 May 2020 correspondence:

Please be advised that our client is willing to accept the proposal made by your client with respect to the payment of rent i.e. that your client pay 50% reduced rent from 21 March 2020 to 21 July 2020 and the other 50% rent deferred over a period of 12 months from 21 September 2020. However such proposal is accepted subject to your client paying all rental arrears and rates by 5 PM on Wednesday, 10 June 2020.

Your client has only paid $5331.45 rent for the period 22 March 2020 to 21 April 2020. Therefore, your client is required to pay by 5 PM on Wednesday, 10 June 2020:

50% rent for the period 22 April 2020 to 21 May 2020; and

50% rent for the period 22 May 2020 to 21 June 2020; and

all outstanding rates as noted in the enclosed tenant status report as at 19 May 2020.

Should your client failed to make the above payments by 5 PM on Wednesday, 10 June 2020, we should be making an Application for Mediation and seek additional information including financial records.

61. Mr Russoniello replied by letter dated 11 June 2020. In relation to the rent relief negotiations he said this:

Your client had already indicated the 50% reduction and 50% deferral. Unfortunately my client is not in a position to pay the arrears as requested by your client. It will do its best under difficult circumstances.

62. GA Lawyers then entered the picture on behalf of the landlord. They wrote to Mr Russoniello on the 14 July 2020. In their letter they referred to a letter dated 22 July 2020 from Mr Russoniello. That letter is not in evidence. They demanded that the tenant pay the sum of $38,402.27 for rent and outgoings arrears and threatened recovery proceedings if payment was not received by 17 July 2020. The amount claimed was described in the letter to be made up as follows:

Rental period    Amount paid   Amount outstanding

22.4. to 21.4.20    $5331.45      $4929.78

22.4 to 21.5.20    $0         $10,261.23

22.5 to 21.6.20    $0         $10,261.23

22.6 to 21.7.20    $0         $10,261.23

Total rent arrears            $35,713.47

Outgoing       Amount paid   Amount outstanding

4th council rates    $0         $1021

instalment due 31

May 2020

Water rates, water     $0         $1667.80

usage and water

trade waste 1.4 to

30.6 20

Total outgoing arrears         $2688.80

63. I note that the rental amounts in GA Lawyers letter do not include GST.

64. Apparently Mr Russoniello replied by letter dated 22 July 2020. It is not in evidence. In referring to that letter, GA Lawyers in a letter dated 31 July 2020 to Mr Russoniello relevantly said this:

We are instructed that our client is not agreeable to your client’s proposal for the total amount of $18,050.65 to be paid over a period of 12 months and for the return of the bank guarantee to your client prior to the arrears being paid to it given that the conditions in which a 50% rent reduction and 50% rent deferral was to be provided were not met by your client and thus any previous offer or agreement is withdrawn.

65. Also in their letter, GA Lawyers draw Mr Russoniello’s attention to the tenant’s accountants letter of 14 May 2020, Rennie lawyers letter of 3 June 2020 and to their letter of 11 June 2020. They then said that since their client’s offer of a 50% rent reduction and 50% rent deferral was provided on the basis that arrears would be paid by 5.00pm on 10 June 2020 and that condition had not been met, “such rent reduction and deferral is not applicable”.

66. The 31 July 2020 letter also refers to enclosed photographs said to show the condition of the premises taken on 23 July 2020 and John O’Neill’s quotation of 27 July 2020. The lawyers said that the quoted works are to be paid by the tenant and their client seeks an amount of $43,301.11 for rental arrears ($35,713.51), outgoing arrears ($2688.80), rectification cleaning and make good work ($3198.80) and legal fees of $1700 (inclusive of GST). They also said that their client is not agreeable to payment being made over 12 months and requires the $43,301.11 to be paid by the cashing of the bank guarantee with the balance to be paid into their trust account. GA Lawyers then conclude their letter with the following:

Should payment not be received by 5 PM, Wednesday, 5 August 2020 we confirm that our client will be applying for mediation and in addition to the above will be seeking recovery of the unpaid rent, outgoings, make good, interest and its legal costs with respect to any debt recovery proceedings.

67. Mr Russoniello replied by letter dated 3 August 2020. He points out that his client’s offer has already been conveyed to GA Lawyers who have put their clients position but it is not accepted by the tenant who reserves its rights. Having noted that the landlord intends to apply for mediation, Mr Russoniello said this:

So far as my client is concerned the quicker the better.

In the meantime, your client is reminded to abide by the Retail and Other Commercial Leases (COVID-19) Regulation 2020.

68. On the issue as to whether the parties in April 2020 or later entered into a rent relief agreement, the conclusion I have come to, having regard to the correspondence to which I referred, and despite some gaps in the correspondence, is that I am comfortably satisfied no agreement was reached by the parties for rent relief at any time.

69. Mr Nguyen’s offer made on 24 April 2020 was rejected by VS George lawyers on 28 April 2020. The offer conveyed by Mr Marinos on 11 May 2020 was never accepted and the offer Ms Tran says in her 14 May 2020 letter was made by the tenant was rejected the same day by Mr Marinos. There is also no evidence that the landlord’s offer made on 21 May 2020 was ever accepted and the offer conveyed by Rennie Lawyers in their 3 June 2020 letter was not accepted by the landlord with Mr Russoniello pointing out in his 11 June 2020 letter that his client was not in a position to pay any arrears of rent as requested by the landlord. Finally, the offer apparently made by Mr Russoniello on 22 July 2020 (in a letter that is not in evidence) was rejected by GA Lawyers on 31 July 2020 and confirmed by Mr Russoniello on 3 August 2020.

70. In my view, none of the correspondence to which I have referred contains anything that it is capable of being construed as an acceptance by one party of the other party’s offer, nor is there any evidence that would satisfy me that either party acted on the basis that an offer had been accepted. Accordingly I find that that at no time during the course of those negotiations recorded in correspondence from 24 April to 3 August 2020 did the landlord and tenant enter into a rent relief agreement whereby rent and outgoings payable by the tenant were waived and/or deferred.

Was the landlord by reason of the Regulation precluded from presenting the tenant’s $19,067 bank guarantee on 5 August 2020 and applying that amount against any money owed to it by the tenant?

71. I turn now to the second issue which is the tenant’s assertion that by reason of the Regulation, the landlord was precluded from presenting the tenant’s $19,067 bank guarantee on 5 August 2020 and applying that amount against any money owed to him by the tenant.

72. In April 2020, the Federal Government announced the National Cabinets Code of Conduct for commercial tenancies (Code). For the purposes of giving effect to the Code, the New South Wales government promulgated three successive Regulations that prohibited certain conduct and prescribed the requirements for the exercise of certain rights of lessors under retail leases during the COVID 19 pandemic period.

73. The first Regulation was the Retail and Other Commercial Leases (COVID-19) Regulation 2020. It he commenced on 24 April 2020 (First Repealed Regulation). Next was the Retail and Other Commercial Leases (COVID-19) Regulation (No. 2) 2020 which repealed and remade, with amendments, the earlier Regulation. It commenced on 24 October 2020 (Second Repealed Regulation). This was then followed by the Retail and other Commercial Leases (COVID-19) Regulation (No 3) 2020 which commenced on 1 January 2021. This is the “Regulation” to which I have previously referred. It repealed and remade, with amendments, the Second Repealed Regulation.

71. The Regulation contains saving and transitional provisions which have the effect of preserving rights and obligations under the second repealed Regulation.

72. Clause 3(1) of the Regulation contains definitions. Relevantly, “impacted lease” means a commercial lease to which an impacted lessee is a party while “impacted lessee” is defined by reference to what is contained in clause 4. “Prescribed action” is defined to include “recovery of the whole or part of a security bond under the commercial lease” and “prescribed period” means the period beginning on the commencement of the First Repealed Regulation and ending at the end of 28 March 2021.

73. In relevant part clause 4 reads as follows:

4 Meaning of “impacted lessee”

(1) A lessee is an impacted lessee if—

(a) the lessee qualifies for the jobkeeper scheme under sections 7, 8, 8A and 8B of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and

(b) the following turnover in the 2018–2019 financial year was less than $5 million—

(i) …..

(ii) …..

(iii) in any other case—the turnover of the business conducted by the lessee

77. Clause 7 of the Regulation prohibits a lessor from taking “prescribed action” against an “impacted lessee” on the grounds of a breach of an impacted lease that occurs during the “prescribed period” that consists of a failure to pay rent or outgoings unless the lessor has complied with any obligations imposed upon the less or by both clause 7 and clause 8.

78. In addition to the prohibition on taking prescribed action, clause 7 sets out a regime for renegotiating the rent payable or any other terms of an impacted lease. Relevantly, subclauses (4) and (6) provide as follows:

(4) A party to an impacted lease must, if requested under this clause-

(a) renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and

(b) commence negotiations within-

(i) 14 days of receiving the request, or

(ii) another period agreed to by the parties.

(5) An impacted lessee must give the lessor the following in respect of the impacted lease--

(a) a statement to the effect that the lessee is an impacted lessee,

(b) evidence that the lessee is an impacted lessee.

(6) The parties are to renegotiate the rent payable under, and other terms of, the impacted lease having regard to—

(a) the economic impacts of the COVID-19 pandemic, and

(b) the leasing principles set out in the National Code of Conduct.

Note. See leasing principles No. 3–5, 7–10 and 12 in the National Code of Conduct. In particular, leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees’ reductions in turnover

79. Clause 8 of the Regulation deals with dispute resolution and it extends Part 8 (dispute resolution) of the Retail Leases Act 1993 to an impacted commercial lease dispute as if it were a retail tenancy dispute within the meaning of that Part. The clause then goes on to define “impacted commercial lease dispute” as follows:

(A) dispute concerning the liabilities or obligations, including any obligation to pay money, under an impacted lease, being liabilities or obligations which arose under the impacted lease concerning circumstances occurring during the prescribed period and includes a dispute regarding a renegotiation, or a failure to take part in a renegotiation, of rent payable under the impacted lease under clause 7.

80. The conclusion I have come to is that the presentation of the bank guarantee by the landlord on 5 August 2020 was prohibited it being a prescribed action within the meaning of clause 7 of the Regulation and therefore not permitted. These are my reasons:

1. The tenant’s accountant, Ms Tran, stated in her 14 May 2020 letter that that the tenant had applied for and had been granted Jobkeeper payments. The correspondence between the parties and their respective representatives to which I have previously referred does not indicate that what Ms Tran stated in her letter was disputed by the landlord. Some threats were made by the landlord and his lawyers that the tenant would be required to provide more financial information, but they appear to have been hollow threats and did not affect the negotiations for rent relief that took place. Moreover, the landlord has not adduced any evidence or raised any issue in his statements to suggest that the tenant did not qualify for Jobkeeper. I am therefore comfortably satisfied that having been granted or qualified for Jobkeeper, the tenant was an “impacted lessee” and, as a commercial lease to which an impacted lessee is a party, the lease was an “impacted lease” as defined by the Regulation.

2. Clause 7(4) of the Regulation requires a party to an impacted lease, if requested under that clause, to renegotiate in good faith the rent payable under the impacted lease. In their 31 July 2020 letter, the landlord’s solicitors, GA Lawyers, informed the tenant’s solicitor that if payment of the amounts said to be owing were not received by 5 PM on Wednesday, 5 August 2020, the landlord will be “applying for mediation and in addition to the above will be seeking recovery of the unpaid rent, outgoings, make good, interest and its legal costs with respect to any debt recovery proceedings.” The tenant’s solicitors response to that letter was, in relation to mediation, “the quicker the better”. He also reminded the landlord solicitor that his client needed to abide by the Regulation.

3. Clause 7(4) provides that a party to an impacted lease must, if requested under that clause, renegotiate in good faith the rent payable under the impacted lease. The Regulation does not prescribe what form that request must take. In my view that request need not be one that requires any particular formality or specific reference to clause 7 as long as it is capable of being interpreted as a request to renegotiate for the purposes of the clause.

4. Mr Russoniello’s “the quicker the better” response to GA Lawyers statement that the landlord would be applying to mediate if the amount claimed was not paid, coupled with his reminder to abide by the Regulation was sufficient to constitute, in my view, a request under clause 7(4) to renegotiate in good faith the rent payable under the lease. The landlord was therefore prohibited from calling up the bank guarantee until that renegotiation or mediation took place. It does not matter, again in my view, that for some time the parties had endeavoured to reach agreement as recorded in the correspondence to which I have referred. Nor does it matter that a mediation was held some weeks later since by that stage the bank guarantee had been presented for payment.

5. The express purpose for the Code is to impose a set of good faith leasing principles for application to commercial tenancies including a retail tenancies where the tenant an eligible business for the purposes of the Jobkeeper programme. The Code also states that these principles will apply to negotiating amendments in good faith to existing leasing arrangements. In addition the Code states that where the parties cannot reach agreement on leasing arrangements as a direct result of the pandemic, then the matter should be referred and subjected to applicable state retail leasing dispute resolution processes for binding mediation.

6. Clause 7(6) requires the parties to an impacted lease to renegotiate the rent payable under the lease having regard not only to the economic impacts of the pandemic but also the leasing principles set out in the Code. In my view, the representation made by GA Lawyers in a letter of 31 July 2020 that the landlord would apply for a mediation if the amount claimed was not paid without mentioning that the landlord intended to present the bank guarantee a few days later, was wholly inconsistent with the express condition in clause 7(6) to have regard to the leasing principles set out in the Code requiring the renegotiation of rent payable to be undertaken in good faith. Stating that the landlord would apply for mediation and then, without warning, calling up the bank guarantee was not, by any measure. acting in good faith. By reason of the lessor’s failure to comply with clause 7(6), it was not permitted to take the prescribed action of presenting the bank guarantee.

81. Although the issue was not raised by the landlord, for completeness I should add that in my view the fact that the bank guarantee was presented after the lease had ended does not alter the fact that the landlord was nevertheless bound to comply with the requirements of the Regulation. This is because the principal dispute between the parties concerning the tenant’s liability for rent and outgoings arose in respect of an impacted lease during the prescribed period. The lease coming to an end did not, again in my view, altar the status of the lease or for that matter the tenant.

What consequences flow from the determination of issues (1) and (2)?

82. The next issue for determination is what consequences flow from my findings in relation to the first two issues.

83. Having found on the first issue that there was no agreement for the repayment of outstanding rent and outgoings, it follows that at the end of the lease on 21 July 2020, the tenant did have a liability to the landlord for unpaid rent and outgoings.

84. As set out in the landlord’s statement, he says the rent owed to him by the tenant is $39,284.80 when the lease came to an end on 21 July 2020. This amount represents four months rent inclusive of GST less the payment less the tenant’s last payment of $5864.60. I do not understand the tenant to be disputing the monthly rent payable for the final four months of the lease and it has not adduced any evidence of rent payments being made subsequent to the payment of $5864.60 on 21 March 2020.

85. GA Lawyers in their letters to the tenant’s solicitor stated that outgoings in the amount of $2688.80 were owing by the tenant. In the landlord’s statement the amount claimed in respect of outstanding outgoings was reduced to $2220.84. The calculation of that amount is set out in the landlord’s statement. Those calculations were not challenged by the tenant

86. Initially the tenant did not dispute that it was indebted for outgoings in the amount of $2688.80. In its application the tenant acknowledged that amount as $2,688.80 but said it was repayable in 12 months on the basis of the rent relief agreement said to have been reached on 24 April 2020. It did likewise in the tenant’s summary and response which Mr Nguyen verified by statutory declaration as being true and correct. However, in the tenant’s second response, it no longer conceded that the outgoings are owing. Instead it said that by virtue of leasing principle 8 in the Code, the landlord should have waived the outgoings.

87. I do not accept the tenant’s assertion. The Code does not compel the landlord to do anything including waive outgoings. Neither for that matter does the Regulation. Rather they set out the framework by which parties to a retail lease should endeavour to reach agreement over the terms for payment of rent and outgoings during a pandemic period. If they are unable to reach agreement, then the matter may then be referred to the Tribunal.

88. It is significant to also note that in none of the correspondence passing between the parties and their representatives to which I referred earlier, was there any suggestion raised by or on behalf of the tenant that the quantum of the rental and outgoings claims by the landlord were in dispute.

89. I accordingly find that as at 21 July 2020, the tenant was indebted to the landlord for outstanding rent and outgoings in the amount of $41,505.64 being $39,284.80 for rent and $2220.84 for outgoings. The landlord having presented the $19,067 bank guarantee, the amount owing for rent and outgoings is reduced to $22,438.64.

90. Next, it is necessary for me to consider what I should do in relation to my finding that the landlord was precluded from presenting the bank guarantee.

91. By reason of clause 8 of the Regulation I have jurisdiction to make any of the orders set out in Part 8 of the Act. Section 72(1) in Part 8 of the Act in relevant part provides as follows:

(1) In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:

(a) an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person,

(b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings

92. The section gives the Tribunal a discretion as to the orders that may be made in relation to retail tenancy claims such as the present dispute between the parties. Section 72 (a) permits me to order the landlord to pay to the tenant an amount equivalent to the bank guarantee. Although I have found that the landlord was prohibited from presenting the bank guarantee, in the exercise of my discretion I have decided not to order the landlord to repay proceeds of the bank guarantee to the tenant. There are a number of reasons for doing so. First, the landlord has been deprived of the balance of the rent and outgoings for which the tenant has been found liable for the best part of 12 months without a single payment having been made by the tenant. Conversely, the tenant has had the benefit that flows from not having to repay the debt to the landlord during that period. Second, while I accept that we are still living in the shadow of a pandemic, circumstances are much improved compared to restrictions imposed on the population and retailers for the better part of 2020. Third, the tenant is conducting a restaurant business from the next door premises and it has not adduced any evidence that it is still being impacted financially by the pandemic or at all. Fourth, there is the landlord’s evidence, which is not challenge, that rent from the premises is his only source of income and his financial circumstances are poor.

93. Accordingly, the tenant’s application for the return of the bank guarantee proceeds fails.

Is the tenant liable to the landlord for the make good costs?

94. The next issue is the landlord’s make good claim.

95. The make good claim relies upon the provisions of clauses 6 and 10 of the lease. The landlord submits that the tenant was obliged to return the property to the original condition that is, the condition it was in when it took over the lease from Partners 88 Pty Ltd. It says the tenant failed to comply with this obligation and the landlord claims compensation and damages in the amount of $13,285.80 inclusive GST. Of that amount $10,183.80 is the sum total of two quotations from John O’Neill. Mr Sanhueza submitted that the remaining $3002 claimed is his estimate, based on his experience, of the cost of various make good works.

96. Clause 6.1 requires the tenant to properly maintain the interior of the premises and all fixtures and fittings, including any carpets curtains and blinds, in good and substantial repair and condition during the lease having regard to their condition at the commencement of the lease. At the end of the lease, the tenant must deliver up the premises and the landlord’s fixtures and fittings in good repair, order and condition. Clause 6.2 makes this obligation subject to any fair wear and tear having regard to their condition when the tenant first went into occupation of the premises. Clause 6.3 requires the tenant to clean and restore the whole of the interior of the premises and to paint or treat as previously treated the internal surfaces of the premises surfaces at intervals of not more than three years. However, it is only required to clean and restore the premises to the condition they were in at the commencement of the lease.

97. The landlord says that the tenant has not complied with the obligations in clause 6 to clean and maintain the premises. Some of the items in the John O’Neill quotation dated 27 July 2020 are for cleaning work. The landlord has also provided evidence in the form of photographs. They consist of photographs said to be taken in 2015, 2017 and after the tenant vacated on 21 July 2020. I understand these photographs are intended to show not only fixtures and fittings that have been left behind and what the landlord describes in his statement as “the greasy, dirty state the demised premises were left”.

98. The tenant has also provided photographs taken the day it vacated the premises. It maintains that the premises were professionally cleaned and it has provided an invoice from a cleaning company showing a charge of $1700 for what is referred to as “commercial cleaning”. The invoice also shows that the amount charged has been paid.

99. Two things strike me in considering this evidence. The first is that looking objectively at the photographs, the premises appear to have never been in pristine condition from the time the tenant took over the lease in 2015. On the contrary, from what I can discern from the parties’ photographs the premises are old and quite rundown and have remained in that state since the time the tenant commenced occupation in 2015. For example, photographs taken in 2015 the show carpet in extremely poor condition. Fast forward to July 2020 and nothing appears to have changed. The carpet is still in a poor condition.

100. Second, the tenant has adduced evidence that the landlord in of December 2020 advertised the premises for lease. They are described in the advertisement as a “shop & residence” with a fully equipped restaurant containing a commercial kitchen, exhaust system, grease trap and cool room amongst other things. The landlord’s complaints about the state in which the tenant left the premises seem difficult to reconcile with the advertising of the premises some five months after the end of the lease, particularly given that there is no evidence that the landlord has undertaken any of the work described in the John O’Neill quotations or any of the additional work for which a claim is made.

101. Based on the cleaning company invoice produced by the tenant and the photographs it has produced, which show the premises as at 21 July 2020 in a clean state, I am comfortably satisfied the tenant complied with its obligations under clause 6 of the lease to return the premises in a clean state having regard to their condition at the commencement of the lease.

102. The obligations found in clause 6.1 also extend to delivering fixtures and fittings of the landlord in good repair order and condition subject to the qualification of fair wear and tear found in clause 2. Of the two John O’Neill quotations, only one item is listed for repair. Item 4 of the 10 August 2020 quotation is “to repair any damage or ceiling or floors and remove items” for an approximate cost of $600 plus GST. I reject this claim as I cannot tell from the evidence, including the photographs, which specific areas within the premises are said to be damaged and therefore cannot be comfortably satisfied that it is an expense for which the tenant bears responsibility by reason of clause 6.1.

103. The John O’Neill quotation of 27 July 2020 also refers to the replacement of one broken blind at a cost of hundred and $80 plus GST. The tenant says the blinds were already in poor condition when they moved into the premises. No evidence has been adduced by the landlord that enables me to identify which blind or blinds are being referred to by the parties and I am therefore not comfortably satisfied that this is also an expense for which the tenant bears responsibility under clause 6.1.

104. The landlord also claims as part of the make good costs the expense of having to remove various items from the premises. These are detailed in the John O’Neill quotations and consist of the removal of:

1. three air-conditioners at a cost of $1230 plus GST;

2. two large exhaust fans at a cost of $1200 plus GST;

3. external steel venting system at a cost of $1400 plus GST;

4. all counter benches in the shop front at a cost of $790 plus GST; and

5. a large shed on top floor of building and tipping fee at a cost of $1500 plus GST.

105. Clauses 10.2 says that the tenant may at or prior to the determination of the lease remove its fixtures and fittings and repair any damage caused in their removal.

106. Clause 10.3 provides what is to happen if the tenant does not remove its fixtures and fittings. In short, the landlord may remove and store the fixtures and fittings not removed or forfeit them. The clause also goes on to provide that if the landlord is required to remove and store the tenant’s fixtures and fittings, then the tenant undertakes to pay on demand all costs and expenses incurred by the landlord in doing so.

107. The tenant disputes liability for these amounts. It says the landlord has been advertising the property with a fully equipped restaurant specifying the items it says he wants removed. It also says that the three large air-conditioning units were damaged as a result of floods in 2017, they are attached to the structure of the building and they were there when the tenant commenced occupation of the premises in 2015. As for the exhaust fans and ventilation system, the tenant also says that they are attached to the building and part of the structure and it is not responsible for their removal. The counter bench in the front of the shop, according to the tenant was there in 2015 and is also part of the building structure.

108. In the absence of any expert evidence to corroborate it, I reject the submission that certain items are now part of the building structure and therefore cannot be removed. Nor do I accept that merely because the landlord is advertising the property of the lease the tenant is absolved from responsibility the consequences of leaving its fixtures and fittings behind.

109. Clause 10.3 of the lease renders the tenant liable for the “costs incurred” by reason of the tenants failure to remove its fixtures and fittings. In my view, on a strict reading of clause 10.3, the landlord’s entitlement to recover costs is conditional upon the costs having been incurred. There is no evidence that the landlord has incurred the costs which are the subject of the John O’Neill quotations or for that matter any of the other costs that have been claimed. Since the costs have not been incurred, the claim for the removal costs specified in the two John O’Neill quotes must fail.

110. I would also add this. At the hearing the landlord agreed to accept and pay for the cost of removing the three air-conditioning units for which John O’Neill had quoted $1230 plus GST.

111. That is not, however, the end of this aspect of the matter. In the landlord’s statement, reference is made to an exchange of emails that took place between the landlords then agent and Mr Nguyen on 22 July 2015. The landlord says that shows that the tenant was aware of the obligation to remove a partition wall in the upstairs bedroom and also an upstairs metal shed. The emails read as follows:

From the landlord’s agent, Mr Zinopoulos, to Mr Nguyen:

Please confirm by return email that you undertake on vacating the premise that you will remove the rear up stairs metal shed and the upstairs front bedroom partition wall all works may require filling up holes and painting.

Note if the landlords agree for these to remain then you will not have to remove

Please advise so we can finalise with the ex-tenant this pending matter

Mr Nguyen’s reply:

Hi Emmanuel,

We agree to keep the rear up stairs metal shed and the partition wall to be stayed until the end of our lease.

Thank you and kind regards,

112. In my opinion the email’s record an agreement between the landlord and tenant that is independent of the obligations contained in the lease and not conditional on the costs having been incurred. There is no evidence that the parties subsequently varied the agreement. Further, the fact that the landlord has sought an order for the premises to be made good that includes the cost of removing the shed (for which John O’Neill has quoted $1500 plus GST) confirms in my mind that the landlord did not agree to the shed remaining in the premises at the end of the lease. Accordingly the landlord is entitled to be paid $1500 for the cost of removing the shed and tipping fees. The amount does not include GST as because GST is not recoverable on damages awarded. No evidence has been adduced by the landlord as to the cost of removing the partition wall so no amount will be awarded in respect of that cost.

Conclusion

113. As consequences of my findings, the tenant must pay to the landlord the sum of $23,938.64 made up as follows:

Rent                       $39,284.80

Outgoings   $2220.84

Removal of shed and tipping fees            $1500

Less proceeds of bank guarantee          $19,067

Balance payable                   $23,938.64

114. For the same reasons I have given in declining to order the landlord pay the bank guarantee proceeds to the tenant, I will not be acceding to the tenant’s application for the amount owed to the landlord to be paid over 12 months.

Orders

115. The following are the Tribunal’s orders:

1. In application COM 20/ 44332 Nguyen International Trading Co Pty Ltd pay Alexander Tsoukalas the sum of $23,938.64 within 28 days.

2. Application COM 20/46994 is dismissed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 05 August 2021