Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd
[2001] QSC 169
•24 May 2001
SUPREME COURT OF QUEENSLAND
CITATION: Vesco Nominees P/L v Stefan Hair Fashions P/L [2001] QSC 169 PARTIES: VESCO NOMINEES PTY LTD
(ACN 072 133 174)
(applicant)
v
STEFAN HAIR FASHIONS PTY LTD
(ACN 009 779 300)
(respondent)FILE NO: 323 of 2001 DIVISION: Supreme Court PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: Thursday 24 May 2001 DELIVERED AT: Brisbane HEARING DATE: 20 April 2001 JUDGE: Muir J ORDER: That the application be dismissed and that the applicant pay the respondent’s costs of and incidental to the application to be assessed.
CATCHWORDS: STATUTES – INTERPRETATION – determination of rent by valuer under s 5 Retail Shop Leases Act 1994 (Qld) - meaning of "effective rent basis" in s 29(a)(iii) – meaning of "lessee's fixtures and fittings" in s 29(b) - whether a separate sub-lease between parties must be taken into account in rent review of adjoining leased premises
LANDLORD AND TENANT - SUBJECT MATTER OF LEASE – whether balcony is a "lessee's or tenant’s fixture"
Retail Shop Leases Act 1994 (Qld), s 5, s 29
Bull v Attorney-General (NSW) (1913) 17 CLR 370, cited
Ex parte Brook; In re Roberts [1878] 10 Ch D 100, referred to
Geita Sebea v The Territory of Papua (1941) 67 CLR 544, referred to
Hellawell v Eastwood (1851) 6 Ex 295, cited
Hobson v Gorringe [1897] 1 Ch 182, cited
Holland v Hodgson (1872) 7 LRCP 328, considered
Kingsland v Haben (1904) 90 LT 449, referred to
Lee v Risdon (1816) 7 Taunt 188, cited
Mackrell v Hall & Parker (1913) 32 NZLR 740, cited
Newton v Federal Commissioner of Taxation (1958) 98 CLR 1, referred toNew Zealand Property Corporation v H M & S Ltd [1982] 1 QB 1145, referred to
Penton v Robart (1801) 102 ER 302, cited
Re Blocksidge [1997] 1 Qd R 234, referred to
Re British Basic Slag Ltd’s Agreements [1963] 2 All ER 807, referred to
Re Dare; ex parte Dare (1992) 110 ALR 659, cited
Spyer v Phillipson [1931] 2 Ch 183, referred to
Tararua Foundation v Liquor Licensing Authority [1995] 2 NZLR 296, cited
Webb v Frank Bevis Ltd [1940] 1 All ER 247, citedCOUNSEL: R W Gotterson QC and Mr M Varitimos for the applicant
P A Keane QC S-G for the respondentSOLICITORS: Hopgood and Ganim for the applicant
Barker Gosling for the respondent
The matter in issue between the parties
The dispute between the parties concerns whether the net benefits, if any, flowing to the respondent from a sub-lease of a verandah of the balcony area of Jo Jo’s restaurant must be taken into account on the review of the rent of the restaurant premises leased by the respondent from the applicant under a separate lease (“the restaurant lease”).
The factual framework
The respondent conducts the business of Jo Jo’s restaurant in part of a building on the corner of Queen and Albert Streets, Brisbane, which it leases from the applicant.
In about 1990 the respondent, with the consent of the applicant’s predecessor in title, Pachez Pty Ltd (“Pachez”), constructed at its own expense a covered balcony in the airspace above Queen and Albert Streets at the first floor level of the demised premises. Since that time, the balcony area has formed a part of the dining area of the restaurant. In February 1996 the applicant became the registered proprietor of the subject land. On 4 April 1996 the Crown leased to Pachez for a term of 30 years commencing on 17 February 1996, the air space within which the balcony is located. At about the same time, Pachez entered into a sub-lease with the respondent of the land the subject of the Crown lease for a term commensurate with the term of the Crown lease. Under the terms of the sub-lease, the respondent is obliged to pay the rental under the Crown lease and to otherwise fulfil its terms and conditions.
By a deed dated 31 January 1996 entered into between Pachez, the applicant and the respondent –
(a) the applicant took an assignment of Pachez’ interest under the restaurant lease;
(b) the applicant agreed with the respondent that it would perform and observe all the covenants in the restaurant lease to be observed by the lessor;
(c) the respondent agreed that the applicant would be entitled to “all rents and receipts of whatever kind payable under the lease”; and
(d) the parties acknowledged that the execution of the restaurant lease by the respondent was on the condition that a sub-lease would be entered into over the balcony area on the terms and conditions already approved by the respondent and that each party would use its best endeavours to ensure that a lease of the balcony area from the Crown was promptly issued.
Also on 31 January 1996 a further deed between the same parties was entered into in respect of the sub-lease on terms and conditions similar to those in the deed entered into in respect of the restaurant lease.
The rent review and valuer’s rental determination
The restaurant lease is “a retail shop lease” for the purposes of the Retail Shop Leases Act 1994 (Qld)(“the Act”). Under the terms of the restaurant lease the rent for the fifth year of the term of the lease was subject to review. The applicant and the respondent were unable to agree on the rent and a valuer (“the valuer”) was nominated by the Registrar of Retail Shop Leases to make a determination of the current market rent to be paid under the restaurant lease for the fifth rental year. The valuer determined the rental for the restaurant area on the first floor (the subject of the restaurant lease) to be $450 per square metre gross and the gross annual rental payable under the restaurant lease at $360,000. In response to a query by the applicant’s solicitors, the valuer stated -
“Regarding the ‘Jo Jo’s’ tenancy and the veranda issue. The veranda is held under a separate sub-lease and does not form part of the demised premises for rental determination purposes. My determination did not include any element of enhancement due to the existence of the sub-lease.” (emphasis supplied)
The applicant contends that the valuer’s determination was not a valid determination pursuant to section 29 of the Act because the valuer, contrary to the requirements of the definition of “effective rent basis”, failed to take into account the advantages and disadvantages flowing from the existence of the balcony and the sub-lease.
The relevant provisions of the Act
“Effective rent basis” is defined in section 5 of the Act in the following terms -
“effective rent basis”, for the determination of rent under a retail shop lease, means the determination of the rent taking into account all associated advantages and disadvantages under arrangements made between the lessor and lessee that reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements.”
Section 29 of the Act, to which reference will shortly be made, provides –
“29. In making a determination of the current market rent, the specialist retail valuer-
(a) must determine the rent-
(i)on the basis of the rent that would be reasonably expected to be paid for the retail shop if it were unoccupied and offered for leasing for the use for which the shop may be used under the lease or a substantially similar use; and
(ii) on the basis of gross rent less lessor's outgoings payable by the lessee under the lease; and
(iii) on an effective rent basis; and
(b)must not have regard to the value of the goodwill of the lessee's business or the lessee's fixtures and fittings in the retail shop; and
(c)must have regard to-
(i) submissions from the lessor and lessee about the market rent of the shop; and
(ii)the other matters prescribed by regulation.” (emphasis supplied)
The respective contentions
Mr Gotterson QC, who led Mr Varitimos for the applicant, argued that –
(a) the sub-lease was an “arrangement” which conferred an “associated advantage” on the respondent;
(b) “arrangement” is a word of broad compass which ordinarily comprehends both legally enforceable agreements and non-legally enforceable contracts or understandings;[1]
[1]Re British Basic Slag Ltd’s Agreements [1963] 2 All ER 807 at 814 and Re Blocksidge [1997] 1 Qd R 234 at 237.
(c) “arrangements” should not be given a restrictive meaning so that it is limited to “incentives” as understood in the commercial leasing industry;
(d) the advantages conferred by the sub-lease on the respondent include-
· a substantial increase in patrons and hence turnover;
· facility for patrons who prefer open air dining;
· exposure to the Queen Street Mall and Albert Street;
· operational efficiencies and economies of scale.
It is also argued that the valuer’s determination was flawed as a result of his conclusion that the balcony area fell within the description of “lessee’s fixtures and fittings” and thus, by virtue of section 29(b) of the Act, could not be taken into account in a rental determination. It was submitted that “lessee’s fixtures and fittings”, not being defined by the Act, have their ordinary legal meaning which does not include fixtures attached by a tenant which it is not entitled to remove. Those are landlord’s fixtures.[2] It is pointed out that clause 12.2.1 of the restaurant lease precludes the respondent from removing “the balconies, associated structures and awnings installed by the Tenant on the Building which shall be the property of the Landlord”. Further it is argued that the exclusion in section 29(b) applies only in respect of fixtures and fittings in the retail shop.
[2]Vol 27 Halsbury’s Laws of England, 4th ed para 142; Woodfall, Landlord and Tenant 28th ed para 1-1546; New Zealand Property Corporation v H M & S Ltd [1982] 1 QB 1145 at 1157.
Mr Keane QC, who appears for the respondent, argues that –
(a) the sub-lease is a separate “retail shop lease” which attracts the provisions of the Act separately from the lease and is not an “associated arrangement” for the purposes of the definition of “effective rent basis”;
(b) if it is concluded that the sub-lease is an arrangement although the parties have deliberately determined a rent under the sub-lease, a rent review of the restaurant lease would result in a determination of “market” rent for the sub-lease. Such a conclusion would not promote the objects of the Act set out in section 3 or the manner of achieving those objects set out in section 4;
(c) section 29 and the definition of “effective rent basis” postulate a lease by lease, premises by premises exercise so as to ascertain the consideration moving from the lessee to the lessor;
(d) the applicant’s approach ignores that part of the definition of “effective rent basis” which “qualifies all associated advantages and disadvantages under the arrangements …” by restricting them to ones which “reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements”;
(e) the applicant’s construction is a surprising one having regard to the legislation’s purpose of affording a “framework which addresses the imbalance in the market power of lessors and small retail lessees … by seeking greater visibility of the obligations to be met by the parties”;[3]
(f) if, contrary to the respondent’s contentions, the sub-lease is capable of being characterised as an “associated arrangement”, the balconies are lessee’s fixtures or fittings. It is submitted that although the definition of the “leased premises” in the lease does not include the exterior face of external walls, the definition of “tenant’s fittings” expressly includes the “balconies, associated structures and awnings constructed or erected by the tenant” and the reservations exclude the walls facing the balconies from the lessor’s entitlements to unrestricted use of the exterior walls.
[3]Second Reading Speech Government Gazette 30 August 1994 at 8972.
It is argued that the purpose of section 29(b), relevantly, is to prevent a lessor from obtaining rent for the enhancement to the value of retail shop premises which has been paid for by the lessee in its “fit out of the premises” or otherwise. To conclude that the balconies are not “lessee’s fixtures and fittings”, it is necessary to conclude that -
(a) they are not “in” the retail shop, because they are attached to the exterior wall of the demised area; and
(b) the agreement of the parties that they are “tenant’s fittings” is of no effect for the purposes of s 29(b).
An alternative argument advanced by the respondent is that –
(a) the “arrangements” were made between the applicant’s predecessor in title and the respondent and there are no relevant advantages or disadvantages to consider;
(b) alternatively, if the interpretation of “lessor” in the definition of “effective rent basis” would extend to predecessors in title, it extends consideration to the whole of the relevant arrangements. Those arrangements included payment by the respondent for the balconies. That was a matter considered by the valuer in arriving at his determination;
(c) the applicant’s approach would involve taking into account any “disadvantage” but would not encompass any corresponding “advantage to the lessor” constituted by the payment by the respondent for the capital cost of constructing the balconies.
The nature of “tenant’s” or “lessee’s” fixtures
It is convenient to first consider whether the balconies, associated structures and awnings (“the balconies”) are “lessee’s fixtures” within the meaning of section 29(b) of the Act. The term “lessee’s fixtures” referred to in section 29 is undefined in the Act. It is an expression which has a technical legal meaning and is interchangeable with the more usual expression “tenant’s fixtures”.[4]
[4]New Zealand Government Property Corporation v H M & S Ltd [1982] 1 QB 1145 at 1157 and Geita Sebea v The Territory of Papua (1941) 67 CLR 544 at 553-554.
Whether or not a chattel affixed to premises is a tenant’s fixture depends on the mode and extent of annexation, whether the chattel can be easily removed without injury to itself or the premises and/or the object and purpose of the annexation. In the latter respect, regard is had to whether the affixation was for the permanent and substantial improvement of the premises or for the more complete enjoyment and use of the chattel.[5]
[5]Vol 27 Halsbury’s Laws of England, 4th ed para 143.
In Spyer v Phillipson[6], Romer LJ expressed the test somewhat differently, accepting the correctness of the following passage in Baron Parke’s judgment in Hellawell v Eastwood[7]-
“I think in fact, that these are not two considerations, but really only one consideration; what was the object and purpose of the annexation?; and that among the matters which have to be considered in coming to a conclusion in answer to the question, what was the object and purpose of the annexation, are first the mode of annexation, and secondly, what would happen if the mode of annexation were severed, and it is sought to take the particular things away.”
[6][1931] 2 Ch 183 at 209.
[7](1851) 6 Ex 295 at 312.
In Geita Sebea v The Territory of Papua, Starke J, referring to buildings constructed on a aerodrome, observed [8]–
“But whether they are or are not trade fixtures is a question of fact depending upon the circumstances of the case. In some cases, the size and permanence and the general character and object of the structures and buildings may lead one to the conclusion that they are not tenant’s fixtures but something permanently annexed to the land (See Pole-Carew v. Western Counties and General Manure Co (1920) 2 Ch. 97; Whitehead v. Bennett (1858) 27 L.J. Ch. 474; for the removal must be capable of being effected without material injury to the land or the destruction of the fixture: Cf. Foa, Landlord and Tenant, 4th ed. (1907), p 697.”
[8]At 553-554.
In New Zealand Government Corporation v H M & S Ltd,[9] Lord Denning MR gave the following definition of “tenant’s fixtures” and “landlord’s fixtures”-
“Before I go any further, I would described the distinction between ‘tenant’s fixtures’ and ‘landlord’s fixtures’. The term ‘tenant’s fixtures,’ for present purposes, means those fixtures which the tenant himself fixed into the premises for the purpose of his trade, that is, for the business of the theatre, but which do not become part of the structure itself. Instances are the seats for the stalls, or auditorium, which are fixed by screws or bolts to the floor, wall-brackets for lights which are screwed on to the wall, electric transformers fixed on to the floor, and so forth. All these the tenant is entitled to remove when his term comes to an end. Whereas ‘landlord’s fixtures’ for present purposes means those fixtures which the tenant himself fixes into the premises so that they become part of the structure itself: see Boswell v. Crucible Steel Co [1925] 1 K.B. 119. Instances are improvements made by the tenant by putting in new doors or windows in place of those that were there before, or a new frontage or a new safety curtain. These improvements become part of the structure itself. The tenant cannot remove them when his term comes to an end.”
[9]At 1157.
The learned authors of Hill and Redman’s Law of Landlord and Tenant 14th ed. state[10] -
“For the purposes of distinction, fixtures which the lessee may not remove are usually referred to as ‘landlord’s fixtures’. This term includes fixtures attached to the premises at the date of the demise, those fixed by the landlord during the term, and also those fixed by the tenant which he is not entitled to remove. Those removable by the tenant are usually referred to as ‘tenant’s fixtures’.”
[10]At para 428.
Halsbury’s Laws of England [11] explains the concepts of landlord’s and tenant’s fixtures in virtually identical terms.
[11]Vol 27 4th ed, at para 142.
It is said in Woodfall’s Law of Landlord and Tenant 28th ed.[12] -
“‘Tenant’s fixtures are personal chattels annexed to the freehold by the tenant during the term, either for the purposes of his trade … or business of agriculture …, or for mere ornament and convenience …, and which he has a right to sever and remove during the term, in the absence of any express stipulation … or local custom to the contrary. Climie v Wood (1869) L.R. 4 Ex. 328; Holland v Hodgson (1872) L.R. 7 C.P. 328, 333.” (emphasis supplied)
[12]At para 1-1546.
In Holland v Hodgson[13] the following definition was ventured -
“Trade and tenant’s fixtures are … accurately defined as ‘things which are annexed to the land for the purposes of trade or of domestic convenience or ornament in so permanent a manner as to become part of the land, and yet the tenant who has erected them is entitled to remove them during his term, or it may be within a reasonable time after its expiration.’”
[13](1872) 7 LRCP 328 at 333.
After stating that a chattel attached to premises only by its own weight will generally not be regarded as a fixture, Halsbury states[14] –
“ On the other hand, if a chattel is to some extent attached to the premises it will be considered to be a fixture unless the circumstances show that it was intended all along to remain a chattel, and in such a case the onus will be on the party asserting that it is still a chattel.”[15]
[14]At para 143.
[15]For a discussion of a distinction between chattels and tenant’s fixtures, see Studies in the Law of Landlord and Tenant edited by G W Hinde.
Quite substantial items have been held to be tenant’s fixtures, notwithstanding a high degree of annexation to the demised premises. In Spyer v Phillipson[16] antique panelling fixed to the walls by wooden plugs and screws was held to be a tenant’s fixture, even though it could not be removed unless part of the wall was cut away. Other substantial items held either not to be fixtures or to be removable as trade fixtures include –
· a temporary army hut bolted to concrete foundations.[17]
· a corrugated iron shed.[18]
· buildings, known as Dutch barns, with brick foundations and tiled roofs supported by uprights fixed in the brickwork.[19]
· a three room wooden structure which had had added to it a verandah affixed to the soil.[20]
[16][1931] 2 Ch 183.
[17][1954] 1 QB 76.
[18]Webb v Frank Bevis Ltd [1940] 1 All ER 247.
[19]Penton v Robart (1801) 4 Esp 33.
[20]Mackrell v Hall & Parker (1913) 32 NZLR 740.
The balconies have one of the basic characteristics of a tenant’s fixture in that they are fixed to or placed upon the demised premises at the cost of the tenant and for the purposes of the conduct of the tenant’s business.
It was not submitted on behalf of the applicant that the balconies were incapable of being tenant’s fixtures for reasons other than the operation of clause 12.2.1. Because of this approach, perhaps, there is little evidence about the construction of the balconies which are “generally … (of) steel framed construction with metal balustrades and canvass awnings”.
The evidence does not suggest that there is anything in the mode of affixation, materials used or method of construction of the balconies which would prevent them from being regarded as tenant’s fixtures within the normal meaning of that expression. The fact that the balconies are suspended over Crown land and are able to be kept in place only by agreement with the Crown also, in a general way, supports their characterisation as tenant’s fixtures. They are not, and are not intended to be, permanent additions to the structure of the demised premises.
Another attribute of a tenant’s fixture is that, notwithstanding that it forms part of the realty, it is able to be severed from the demised premises by the lessee. It is the alleged lack of that attribute which the applicant submits is fatal to the respondent’s argument. The respondent counters that it may rely on the terms of the lease under which the parties agree that the balconies are tenant’s fixtures. It is appropriate to now consider the relevant provisions of the restaurant lease.
The relevant terms of the restaurant lease
Clause 1.1.38 of the restaurant lease provides –
“’Tenant’s fittings’ means all fixtures, fittings, plant, equipment, partitions or other articles and chattels of all kinds which are not owned by the Landlord and are at any time in or attached to the Leased Premises (including the balconies, associated structures and awnings constructed or erected by the Tenant).”
Clause 12 provides –
“12.2 REMOVING OF TENANT’S FITTINGS.
12.2.1The Tenant shall, at or before the Termination Date or sooner determination of this Lease, remove from the Leased Premises all the Tenant’s Fittings except for the balconies, associated structures and awnings installed by the Tenant on the Building which shall be the property of the Landlord.
12.2.2Notwithstanding subclause 12.2.1 the Tenant shall remove the balconies, associated structures and awnings installed by the Tenant on the Building (and shall reinstate the Building to its condition prior to the installation of the balconies, associated structures and awnings ) if any Authority having jurisdiction in relation to the Building requires them to be removed at the Termination Date and the provisions of clause 12.4 shall apply in such cases.”
In clause 12.3 the Tenant covenants not to cause damage to the leased premises or the building in removing tenant’s fittings and to make good any damage which may be caused in breach of the covenant.
Clause 12.4 enables the landlord, if the tenant is in breach of its obligations under clause 12.2, to remove tenant’s fittings at the risk and cost of the tenant. It provides –
“12.4FAILURE BY TENANT TO REMOVE FITTINGS. If the Tenant fails to remove the Tenant’s Fittings as required by Clause 12.2, or in the event of re-entry by the Landlord pursuant to Clause 11.2, the Landlord may, at its option –
12.4.1cause any such Tenant’s Fittings to be removed and stored in such manner as the Landlord, in absolute discretion, deems fit at the risk and at the Cost of the Tenant; or
12.4.2treat the Tenant’s Fittings as if the Tenant had abandoned its interest in them and they had become property of the Landlord, and deal with them in such manner as the Landlord thinks fit without being liable in any way to account to the Tenant for them.
Consideration of the relevant terms of the restaurant lease
Clause 1.1.38 makes the balconies a lessee’s or tenant’s fixture as between lessor and lessee.
Clause 12.2.1, somewhat curiously, states that the balconies are the property of the lessor but is not free from ambiguity. As a general rule, a tenant’s fixture such as the ‘balconies’ would be part of the realty and thus the property of the lessor until lawfully severed.[21] Arguably, to state that the balconies are the property of the lessor is to do no more than state the common law applicable to tenant’s fixtures. The parties, I think, have proceeded on the assumption that the effect of the clause is to provide that the tenant cannot remove the balconies. That assumption may well be correct, but the provisions now under consideration are not entirely clear in meaning or effect. If clause 12.2.1 is to achieve the result that the lessee is prohibited from removing the balconies, it can do so only by implication. Read literally, it imposes an obligation to remove tenant’s fixtures, other than the balconies. It does not expressly prohibit the removal of the balconies.
[21]Hobson v Gorringe [1897] 1 Ch 182; Studies in the Law of Landlord and Tenant edited by G W. Hinde; Lee v Risdon (1816) 7 Taunt 188.
Clause 12.2.1 is not the only provision which legislates in respect of the balconies at the time of termination. If the pre-conditions to the operation of clause 12.2.2 are met, the balconies are required to be removed by the lessee. It is implicit in clause 12.2.2, read in conjunction with clause 12.4, that where the clause operates, the balconies are not to be regarded as the property of the lessor, but can be treated as such if the lessor elects to do so under clause 12.4.2.
Where an “authority” requires the balconies to be removed, or if the lessor re-enters under clause 11.2, it is only if the lessee fails to remove them that the lessor can regard the lessee as having abandoned its interest in them. Clause 12.4 arguably contemplates a right on the part of the lessee to remove all tenant’s fixtures in the event of re-entry. It thus, on one view of it, proceeds on the assumption that the lessee has property in the balconies.
The above provisions thus present some difficulties in construction but it is unnecessary to resolve them in order to determine this application.
Does the fact that the parties to the lease have agreed that items be lessee’s fixtures and fittings make them such for the purposes of section 29(b)?
Parties to a lease may, by agreement, provide for their respective rights and obligations in relation to fixtures. They may vary the position which would otherwise exist at common law as they see fit.
Referring to a clause in a lease requiring the lessee to deliver up the demised premises “together with all fixtures” on the termination of the lease, the learned author of Foa’s General Law of Landlord and Tenant states[22] –
“When this is the case, he loses the right of removing fixtures which otherwise the law would have given him… . And a covenant to deliver up the demised premises and all fixtures belonging thereto presumptively extends to what are usually termed tenant’s fixtures (Leschallas v Woolf, [1908] 1 Ch 641), and therefore probably has the effect of preventing him from removing them even during the term ... . Such renunciation may be by words either of release or of grant in favour of the lessor, and in either case the question is one of construction of the lease (Per Buckley LJ…).” (emphasis supplied)
[22]7th ed, at para 1072
In Leschallas v Woolf, Parker J said [23]-
“… and a lessee’s right to remove fixtures which are trade fixtures or tenant’s fixtures in the contemplation of law may, of course, be limited by express agreement contained in the document under which the tenancy is created.”
[23]At 648-649.
Illustrations are provided in paragraph 154 of Halsbury,[24] of cases in which, by express provision in the lease, the lessee has been prevented from removing trade and tenant’s fixtures. The discussion proceeds on the basis such a provision will prevent the removal by a tenant of a tenant’s fixture, not from the perspective that where removal of an item is prevented under the terms of the lease it ceases to meet the description of a tenant’s fixture. Similar treatment of the topic is to be found in Woodfall’s Law of Landlord and Tenant.[25]
[24]Vol 27 Halsbury’s Laws of England 4th ed.
[25]28th ed, at para 1-1564.
Ex parte Brook; In re Roberts[26] is illustrative of a similar approach. It was said in the judgment of the Court -
“… we are clearly of opinion that the case of a surrender of a lease by a tenant, while tenant’s fixtures remain affixed to the freehold, does not, either upon principle or the authority of decided cases, give any right to the tenant subsequently to remove such fixtures. At the date of the surrender they form part of the freehold, and the law has no right to limit the effect of the surrender by excluding from it that which legally passes by it, and which has not been excluded from it by the bargain of the parties.”
[26][1878] 10 Ch D 100, at 110.
The foregoing discussion shows that the term “tenant’s fixture” is capable of application to an item affixed to the demised premises by the tenant in circumstances in which the right of removal has been lost by express agreement or otherwise. In New Zealand Government Corporation v HM & S Ltd, Denning MR’s discussion of “tenant’s fixtures” treats the right of removal as a consequence of an item being a tenant’s fixture rather than an element of the concept of tenant’s fixture. That approach is consistent with the discussion in paragraphs [39]‑[42] above.
The parties to the restaurant lease were at pains to specify that the balconies are tenant’s fixtures. They are capable of being so regarded. They were erected at the expense of the lessee and are removable or are required to be removed by the lessor in some circumstances. If the lease had provided simply that no fixtures are removable by the lessee during the term or on the expiration of the lease, the lessee would not have been able to remove any fixtures normally regarded as tenant’s fixtures. In those circumstances, however, it would be a normal and appropriate use of language to refer to such fixtures as “tenant’s fixtures”, whether the words are being used in a popular or technical sense.
I can see no reason why a different approach should be taken merely because the lease, instead of expressly prohibiting removal of tenant’s fixtures, implicitly prohibits the removal of the balconies by stating that they “shall be the property of the landlord” and by not requiring the lessee to remove them. Nor, as is apparent from the foregoing, is the wording of a lease irrelevant to a determination whether fixtures are to be regarded as “tenant’s fixture” or “landlord’s fixtures”. The Act does not operate in a vacuum but bears upon the rights and obligations created under leases and other “arrangements”.
The purpose of section 29(b) in excluding “the lessee’s fixtures and fittings” from consideration in the determination of market rent is to prevent perceived unfairness which could flow from the rent being increased to take into account the enhanced value of the demised premises and the benefit to the lessee resulting from the lessee’s own expenditure on items for the improvement of its business.
Acceptance of the applicant’s argument would produce the rather unlikely result that the provision would not apply to an item of the nature of a tenant’s fixture if the lease contained a clause preventing its removal on the expiration of the term. In those circumstances, the lessor would have the benefit of the improvement as capital as well as being able to demand a higher rent.
I see no good reason why the provision should be construed in this way. It is of a remedial nature and no narrow or pedantic approach to its construction should be taken. It should be construed so as to give the relief which the fair meaning of its language will allow.[27] In my view, having regard to the foregoing discussion, there is no difficulty in regarding the balconies as lessee’s fixtures and fittings within the meaning of s29(b). The applicant has not established that the valuer erred in law in failing to have regard to the existence of possible benefits flowing to the respondent as a result of the sub-lease and the existence of the balconies.
[27]Bull v Attorney-General (NSW) (1913) 17 CLR 370 at 384.
It was further argued by Mr Gotterson that the valuer’s approach was erroneous because it focused on the balconies as lessee’s fixtures whereas , “what is of advantage to the respondent are the rights to access and use the entirety of lot 11 under the sub-lease for the purpose of carrying on the restaurant business … (which) rights are quite different in character from fixtures or fittings and cannot be characterised as such”.
Section 29 prevents “regard” being had to lessee’s fixtures. In the context of section 29, which deals with the determination of rent, “regard” is not confined to the mere existence and monetary value of the item under consideration. Acceptance of the applicant’s argument would unjustifiably limit the scope of the words in section 29(b) and ignore the section’s remedial character.
Are the balconies prevented from being lessee’s fixtures by virtue of their external location?
I do not accept that the balconies, if “lessee’s fixtures”, do not fall within section 29(b) because they are not “in the retail shop”. “Retail shop” merely means a “premises” meeting the description in the definition of “retail shop” in section 5 of the Act. Where section 29 speaks of “fixtures and fittings in the retail shop” it can hardly be construed as excluding from consideration those fixtures and fittings attached to the structure of the premises. “In”, like other words in the English language, takes its meaning from its context. Here it is capable of bearing the meaning “on or upon” and is not limited to fixtures and fittings which are in the interior of the premises.[28]
[28]Cf Kingsland v Haben (1904) 90 LT 449 at 450 per Lord Alverstone CJ.
For the above reasons, the application must fail. It is thus unnecessary for me to resolve the various other points which were argued and I will content myself with the following observations.
Is the sub-lease an associated arrangement?
Depending on the context in which it appears, the word “arrangement” may include agreements which are legally binding or it may mean something less. In Newton v Federal Commissioner of Taxation[29], the Privy Council considered the meaning of “arrangement” in section 260 of the Income Tax and Social Services Contribution Assessment Act 1936-1950 which provided –
[29](1958) 98 CLR 1.
“Every contract, agreement, or arrangement … entered into, orally or in writing, … shall so far as it has or purports to have the purpose or effect of … (c) … avoiding any … liability imposed on any person by this Act … be absolutely void as against the Commissioner …”.
It was said [30]–
“Their Lordships are of opinion that the word “arrangement” is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons – a plan arranged between them which may not be enforceable at law.”
The word, though, was used in conjunction with “contract” and “agreement”.
[30]At 7.
In other contexts the word has been described as being “of wide import” and has been held to encompass legally binding agreements.[31] I see no reason why “arrangements” in the definition of “effective rent basis” should be confined to things which fall short of legally binding obligations. No sensible purpose would be served under the Act by taking into account only those “arrangements” which were not legally enforceable.
[31]Re Dare; ex parte Dare (1992) 110 ALR 659 at 662-663; Tararua Foundation v Liquor Licensing Authority [1995] 2 NZLR 296 at 300-301; Re British Slag Ltd’s Agreements [1963] 2 All ER 807.
Once it is accepted that “arrangements” includes legally enforceable agreements, it is difficult to see why an agreement which itself would constitute a retail shop lease within the meaning of the Act must be excluded merely because it is a retail shop lease. In this case, and no doubt in others, a literal construction of the definition gives rise to “surprising consequences” as the respondent suggests. The operation of the Act, if it applies, would produce the unattractive result that the parties’ bargain in respect of the rent payable under the sub-lease would be thwarted.
The same argument, though, would apply to many other arrangements which one would think were caught and were plainly intended to be caught by the definition. For example, a licence to use land owned by the landlord for car parking by the tenant and the tenant’s invitees and licensees for valuable consideration. What would be the point of catching such a transaction if not legally enforceable and disregarding it if legally enforceable?
Conclusion
It is ordered that the application be dismissed and that the applicant pay the respondent’s costs of and incidental to the application to be assessed.
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