Westside Investments v Wearn
[2010] SADC 6
•29 January 2010
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
WESTSIDE INVESTMENTS & ORS v WEARN & ANOR
[2010] SADC 6
Judgment of His Honour Judge Muecke
29 January 2010
LANDLORD AND TENANT - COVENANTS - AS TO RESTRICTIONS ON USE TO WHICH PREMISES MAY BE PUT
LANDLORD AND TENANT - RENT - BREACH OF COVENANT TO PAY - ACTIONS TO RECOVER RENT OR DAMAGES - ACTION TO RECOVER RENT
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE
Claim for arrears of rent owed to the plaintiffs under a lease of shop premises to the defendants. Whether a valid lease and guarantee existed.
Held: Valid land enforceable lease existed notwithstanding requirements of the Retail and Comercial Leases Act 1995 not complied with. The plaintiffs were not unreasonable in not allowing the lease to be assigned to a third party which would have changed the permitted use of the lease.
Defendants not prejudiced by plaintiffs' failure to provide a disclosure statement and executed lease.
Judgment for the plaintiffs against the defendants in the sum of $78,889.37.
Retail and Commercial Leases Act 1995 ss 12, 16 and 68, referred to.
WESTSIDE INVESTMENTS & ORS v WEARN & ANOR
[2010] SADC 6
This action concerns an alleged lease in respect of a shop from which Warwick and Kerrie Wearn (“the defendants”) operated a business. The shop was Shop 4 at the Burnside Plaza which is adjacent to the Burnside Village. They comprise a significant shopping complex in eastern metropolitan Adelaide. I shall refer to the shop from which the defendants operated their business as either “Shop 4” or “Toovey & Morris”.
The plaintiffs are the registered owners of the land upon which Shop 4 and other shops were operated in the Burnside Plaza. Shop 4, and other shops, were leased by the plaintiffs to various businesses operated by various people through various entities.
The defendants operated Toovey & Morris from about 1 April 2001 until 30 May 2006.
The plaintiffs sue the defendants for unpaid rent and outgoings, some lost rent, interest, legal costs and other costs associated with reinstating and releasing Shop 4, after the plaintiffs terminated the defendants’ lease on 30 May 2006.
The plaintiffs had leased Shop 4 to persons other than the defendants from 20 March 1997 to 19 March 2002. That lease provided that the “Permitted Use” of Shop 4 was “Retailing & hiring of men’s wear, apparel footwear and associated accessories and gifts”. There was a right of renewal for a further 5 years.
In October 1997 the defendants, through their company Newmilns Pty Ltd (“Newmilns”), took a lease over Shop 3 in the Burnside Plaza. That shop was next door to Shop 4. They took that lease by an “Assignment of Lease” dated 16 October 1997. By the deed of assignment the defendants personally guaranteed the performance of Newmilns of the covenants contained in the lease which was being assigned to Newmilns. The plaintiffs were parties to that lease and its assignment to Newmilns. The lease that was assigned to Newmilns expired on 4 April 2000. By an undated Memorandum of Extension of Lease the plaintiffs granted Newmilns an extension of the lease of Shop 3. The extension commenced on 5 April 2000 and was to expire on 4 April 2005. No lease of Shop 3 was tendered before me, although a copy of the Memorandum of Extension of Lease was. I was told that the defendants’ business at Shop 3 included men’s apparel and women’s apparel.
Before the lease of Shop 4 expired on 19 March 2002 the defendants entered into negotiations to have the lease on that shop assigned to them, or their company. I infer those negotiations were with Ian Lambert. Mr Lambert had become the managing agent for the plaintiffs’ Burnside Plaza premises in 1999. Shop 4 was a larger area than Shop 3.
By letter dated 26 March 2001 Mr Lambert advised the defendants that the owners had approved an assignment of the lease of Shop 4. The defendants were advised that solicitors were preparing the necessary documentation which would be forwarded to them. They were advised that the assignment had been varied, as requested, to incorporate a further 5 year option. The assignment date was nominated as 1 April 2001. Mr Lambert wrote:
We presume you have sighted a copy of the Toovey and Morris lease agreement but in any event we enclose a copy for your retention.
Mr Lambert concluded his letter by referring to the provision of reverse cycle air conditioning in Shop 4 which had been requested by the defendants. Mr Lambert advised the defendants that the owners were prepared to install a new unit, on conditions.
On 25 May 2004 Mr Lambert instructed solicitors by letter to prepare a new lease for Newmilns Pty Ltd. He referred to discussions he had had with the solicitors to the effect that the relevant documentation was not completed at the expiry of the lease. That expiry was on 19 March 2002. He wrote as follows:
c) New Lease Newmills (sic) Pty Ltd
·This is the situation we discussed whereby the relevant documentation was not completed at the expiry of lease.
·Original memorandum of lease attached.
·New lease required 5 + 5 years from 20th March 2002 to reflect exactly the same terms of the original lease.
…
It seems that the solicitors acted promptly and prepared a new lease for Shop 4. A Memorandum of Lease (in triplicate) was forwarded to Mr Lambert by the solicitors with a letter dated 9 June 2004. Mr Lambert was asked to arrange execution by all parties.
What happened then with the lease is not entirely clear. I have no document which indicates when Mr Lambert sent the three copies of the lease to the defendants. It seems that the defendants signed all copies of the document sent to them in two places and returned the three copies of the lease of Shop 4 to Mr Lambert with a letter from them dated 20 July 2005. The defendants asked Mr Lambert to return a copy to them immediately (after execution by the lessor) “along with a copy of the Disclosure Statement as requested”.
I have three copies of what is said by the plaintiffs to be the lease between them and Newmilns over Shop 4, a lease which is said to commence on 20 March 2002 and expire on 19 March 2007. All three documents are in exactly the same terms. They differ only in respect of the signing clauses and the dates where provision is twice made for a date to be inserted. None of the three appear to have been stamped or registered.
Each of the three documents contain provisions relating to a lease of Shop 4 and a guarantee to the lessor of payment of rent and other monies and of the observance and performance of all terms of the lease. By each document the guarantors agree to indemnify the lessor. Each document contains an execution clause by the guarantors (the defendants), an execution clause by Newmilns, and execution clauses by the various entities making up the lessor plaintiffs.
Exhibit D4 is signed by the defendants as guarantors and as directors of the lessee Newmilns. The schedule to the guarantee is not dated although there are marks indicating where a date could be inserted. There is no date on the page where the defendants signed as directors of Newmilns. The execution page for the lessors contains what appears to be two signatures of the same person. That person is a director of Westside Investments Pty Ltd and TJ Carey Nominees Pty Ltd. Someone has written “DO NOT DATE” on that page, adjacent to the printed word “DATED”.
Exhibit P1 contains a lease where the signing page for the guarantors and directors of Newmilns is the same as that appearing on Exhibit D4. The execution page for the lessors appears to be signed by all those constituting the lessor. The handwritten words “DO NOT DATE” remain on the page after the printed word “DATED”.
Finally, Exhibit D3 contains signing pages in respect of the guarantors and Newmilns in identical form to the other two copies. The execution page for the lessor however is different from the same page on the lease in Exhibit P1, both in respect of the date and in respect of two witnesses. The name and address of one witness on Exhibit D3 does not appear on Exhibit P1. Further, on Exhibit D3 a date “26 APRIL 2006” has been written on top of the handwritten words “DO NOT DATE”, adjacent to the printed word “DATED”.
I have set out the above in some detail for at least two reasons. First, the defendants (who appeared and acted on their own behalf representing themselves during the trial) asked whether there was a lease in existence in respect of Shop 4 at relevant times. Secondly, it had been denied on their behalf in a Defence filed on 17 April 2008 (whilst they were legally represented) that they jointly and severally guaranteed to the plaintiffs the payment of any monies under the lease, and that because the plaintiffs failed to give Newmilns a Disclosure Statement pursuant to Section 12 of the Retail and Commercial Leases Act 1995, and failed to provide Newmilns with an executed copy of the stamped lease within one month in breach of Section 16 of that Act, they are entitled to orders pursuant to Section 12(5)(a),(d) and (e) of that Act, and an order pursuant to Section 68(2)(e) of that Act relieving Newmilns and the defendants from the obligation to comply with the lease and the guarantee. As to that pleading the plaintiffs admit that the lease is subject to the Retail and Commercial Leases Act 1995 and admit that the guarantee is a collateral agreement for the purposes of that Act. The plaintiffs admit that they failed to provide a Disclosure Statement to Newmilns but say that Newmilns has not suffered any loss or substantial prejudice as a result of that failure. The plaintiffs deny that the defendants are entitled to any of the orders to which I have just referred.
Exhibit D3 was produced during the trial by the defendants. Mr Wearn told me that the document went to his lawyer when they were consulting one. He did not know how his lawyer obtained it. It was in a pile of documents that his former solicitor handed to him and Mrs Wearn. That was some time later.
The evidence suggests that Exhibit D4 was obtained by the defendants in April 2004 during their negotiations to sell the lease for Shop 4 to Mr Danny Guest.
There is no direct evidence as to when the execution page for the lessor of any of the three leases was signed.
Mr Wearn said in his evidence that he thought he may have had the unsigned lease for a month or two before he sent it back to Mr Lambert. When asked whether it could have been longer than that he replied “I don’t know”. There was a period of about thirteen months between when Mr Lambert received the leases from the plaintiffs’ solicitors and when the defendants returned the executed leases to Mr Lambert.
Mr Wearn gave evidence that he and his wife operated their business at Shop 3 until March 2005. At that time the lease for Shop 3 expired. He said that as at that date they moved ladies wear from Shop 3 into Shop 4, the Toovey & Morris shop they had operated for some time prior to March 2005. Mr Wearn referred to them having taken an assignment of the lease of the Toovey & Morris shop in 2002, whilst the documents suggest that it was in February 2001. I find that it was as from 1 April 2001. Mr Wearn said that they had leased the Toovey & Morris shop “as a men’s wear store”, and in March 2005 they transferred ladies wear to the Toovey & Morris shop and operated from there selling both ladies and men’s wear. He said that they had telephoned Mr Lambert and sought his approval to sell ladies wear from the Toovey & Morris shop. He said that Mr Lambert had given him verbal approval and told him that he would adjust the lease. Presumably, that adjustment would reflect the sale of men’s wear and ladies wear at the Toovey & Morris shop as a permitted use.
The evidence establishes that the defendants sent three signed copies of the lease for Shop 4 to Mr Lambert under cover of their letter dated 20 July 2005. The permitted use in the lease was “Retailing and hiring of menswear, apparel, footwear and associated accessories and gifts”. The defendants’ letter to Mr Lambert dated 20 July 2005 makes no reference to that use.
By July 2005, or at least by the end of July 2005, the defendants were experiencing difficulties in trading at Toovey & Morris. They had asked Mr Lambert if they would be able to pay the rent for July and August 2005 in September, and the rent due for September and October in October. By the end of September 2005 the defendants had told Mr Lambert that their debt would not be totally cleared until November 2005.
By the same month, September 2005, the defendants decided to advertise the business of Toovey & Morris for sale. They had some interest. Some prospective purchasers just wanted to buy the lease, not any of the stock. The defendants continued to trade. They continued to experience difficult times. They traded right through to Christmas. In the new year of 2006 they were still trying to sell the business. By January/February 2006 they were canvassing the possibility of simply selling the lease without selling the business. By the end of March 2006 I find that they had, using my words, passed the point of no return. They started selling down stock at the beginning of April 2006. On 1 April 2006 they started a closing down sale. At that time they no longer had anyone interested in purchasing the lease, let alone purchasing the business. Mr Wearn told me that as at the end of March 2006 they had no signed lease in their possession.
Mr Wearn said in evidence that on 20 April 2006 Mr Danny Guest walked into the Toovey & Morris store. Mr Wearn told me that he sought and obtained a copy of the lease for Mr Guest. When he obtained it, it was only signed by himself and his wife. That is Exhibit D4. He said that he and his wife thought they had a lease but the fact that the copy he had obtained was unsigned made them unsure of that. He had assumed until then that they did have a lease, and he was hoping at that time that they did. They were hoping that Mr Guest would make them an offer to buy the lease. Mr Wearn told me that Mr Guest had told them that he was anxious to get into the Burnside Village proper, but had been told that it would be years before he would have an opportunity to do so. They therefore were hopeful that he would buy their lease at the Burnside Plaza, adjacent to the Burnside Village.
On 21 April 2006 Mr Guest made the defendants an offer for the “purchase of the lease” or “for the current lease” of the Toovey & Morris Shop 4. These were the words of Mr and Mrs Wearn during Mr Wearn’s evidence. The handover date proposed was 1 June 2006 and the purchase price offered was $20,000 inclusive of GST. The rent and outgoings were said to be “As per lease” and the lease term was said to be “As per lease”. The use of premises was said to be “Ladies clothing, homewares and accessories”. There was a special condition. The agreement was said to be “subject to satisfactory agreement being reached with Landlord”.
Mr Wearn told me that he spoke to Mr Guest on 21 April 2006 and said that he could not accept the $20,000 offer. He told Mr Guest that he needed more. (He needed more because at that time he owed the plaintiffs about $30,000 and would owe rent for May of about $9,000 by the beginning of that month.)
On 1 May 2006 Mr Guest submitted a revised offer to the defendants. He did that by email. The revised offer proposed a handover date of 15 June 2006 “or by mutual agreement”, with a purchase price of $30,000 inclusive of GST. Certain payments were to be made as a deposit, and on handover, with the sum of $10,000 being paid “90 days from handover”. The rent and outgoings, lease term, and use of premises were the same as in the offer dated 21 April 2006. A special condition provided that the “agreement is subject to satisfactory agreement being reached with Landlord”. The offer was said to be valid until 5.00pm that day, 1 May 2006.
Mr Wearn told me that the defendants accepted that offer.
On 4 May 2006 Mr Guest emailed Mr Lambert and attached some information regarding his company Blue Illusion. He indicated that he had “negotiated a purchase of the business from Toovey & Morris Clothing”. He sought approval from the landlord for a transfer of the lease. By letter dated 4 May 2006 the defendants wrote to Mr Lambert advising him that “as of June 1st 2006 the lease of Shop 4 Burnside Plaza has been re-assigned to Blue Illusion Australia Pty Ltd”.
By memorandum from Mr Lambert to the defendants dated 5 May 2006, which I find was faxed to the defendants on 11 May 2006, Mr Lambert acknowledged receipt of the defendants’ letter dated 4 May 2006. He asserted that the defendants and their company were in breach of their lease as they were currently $38,980.18 in arrears. He said that they had been significantly in arrears for well over 8 months “despite your assurances to rectify same”. He drew their attention to a clause of the lease whereby it stated that they were unable to assign the lease when they were in breach of any of the provisions of it. He indicated that their request for an assignment of lease was denied. Mr Lambert then noted that the proposed assignee proposes a use which conflicts with an existing tenant of the centre, but more importantly is in conflict with the use permitted under the defendants’ lease. Mr Lambert advised the defendants that unless the arrears were paid in full within 7 days the landlord would take action to recover the arrears and possibly interest, and costs pursuant to the lease.
The defendants replied to Mr Lambert on the same day by letter. They indicated that they were aware that the outstanding amount of $38,980.18 was in arrears but they said that that would be paid in full by 1 June. They advised that Blue Illusion wished to take over the lease and begin trading in June 2006 and they believed that there was no conflict “with other tenants as Blue Illusion products are exclusive to them and offer a different age and price group to any existing tenant”. The defendants stated their belief that all three businesses that had traded as men’s wear alone had struggled, and that was why they made the decision in March 2005 “with your approval to combine Mens and Womens wear at which time we were told the lease would be adjusted appropriately to include Menswear, Womenswear, apparel, footwear and associated accessories and gifts”. They requested the approval of the assignment of the lease “allowing time for signs, shop fit etc minimising disruption to current tenants”.
Mr Terence Webber was part owner of the land upon which the Burnside Plaza sits. He was and would be a signatory to leases and other documents relating to the various shops within the Burnside Plaza. He said that there were a number of signatories for the companies and individuals that comprised the lessor of the various shops. He said it was his experience that it was usually the last person who signed a document who would date it. He said that where a lease for a shop was assigned to a new operator there was always a Memorandum of Assignment prepared and where the lessee or assignee was a proprietary limited company he and his partners always sought personal guarantors.
Mr Webber told me that since July 2005 he was in close contact with his agent Mr Lambert regarding delays in payments of rent by the defendants through their company Newmilns. He referred to several letters in Exhibit P1 which evidenced quite a few requests by the defendants to delay payment of rent. Whenever asked he agreed to allow the defendants time to bring the payment of rent up to date. He thought that there were continual arrears in the payment of rent, for at least 12 months. He said that a number of payment structures were set up for the defendants to extinguish the debt. He said they were never fulfilled.
Mr Webber said that when the defendants did not fulfil their commitment to pay arrears it was then suggested that they sell the business to pay the rental arrears. He said “then they came up with the fact that they would sell their house to extinguish their debt”. He said that it went to auction but did not sell. They left it on the market and it did not sell. He said that he started to think about terminating their lease.
Mr Webber told me that at some time he became aware that Blue Illusion Australia was a potential assignee of the lease. He told me he had two conversations with a person by the name of Danny from Blue Illusion. He could not recall his surname when he gave evidence.
Mr Webber said that he thought the first conversation was on or about 22 May 2006. He said that his general feeling from that discussion was that Danny was not totally committed to paying the key money for the premises ($30,000), and he also got the indication that perhaps the key money that Danny was asked to pay was insufficient to extinguish the Wearns’ debt at that time. He said that he was influenced in concluding that Danny was not committed to the deal because he kept asking him questions about what he, as lessor, would likely do if his (that is Danny’s) agreement with the Wearns did not go ahead. Mr Webber informed him that the most likely thing was that their lease would be terminated.
Mr Webber told me that Danny’s perceived lack of commitment was another disappointment for him which added to the fact that the Wearns had not met previous commitments over a period of something like 12 months, whilst he and the other owners had delayed taking action because of the selling of the business, then the selling of the house, and then the perceived lack of commitment by Danny.
Mr Webber told me that he then made a business decision to advise Ian Lambert to terminate the lease.
Mr Webber told me that a later telephone call from Danny, he thought it was on or about 8 June 2006, more or less confirmed his thoughts about Danny’s commitment because at that time he asked Mr Webber whether Blue Illusion could lease the shop from him. Mr Webber said that by that time the defendants’ lease had been terminated and Danny would, if he could obtain a lease, do so without paying key money of $30,000.
For some reason or other Mr Lambert wrote to the defendants by memorandum on his letterhead dated 24 May 2006. The memorandum was in identical terms to that which he had sent to the defendants on 11 May 2006.
By Notice of Breach of Covenant of Lease dated 26 May 2006 Newmilns was given notice to remedy breaches of the lease by payment of outstanding rent and outgoings of $38,980.18 by 5.00pm Monday 29 May 2006. The notice indicated that if there was a failure to do so the lessor would, amongst other things, exercise a right to re-enter the premises and determine the lease.
A Notice of Termination of Lease to Newmilns was dated 30 May 2006. By that notice Newmilns (and the defendants) were given notice that on Tuesday 30 May 2006 “the Lessor re-entered upon the Premises and took possession thereof and has since remained in possession and the Lease is hereby determined”. Later the plaintiffs issued the proceedings which were the subject of trial.
There was evidence of certain events that were alleged by the defendants to have occurred on 29 May 2006.
Mr Wearn’s evidence was that by 29 May 2006 they had had their closing‑down sale and had actually closed the store. They were, on 29 May 2006, clearing the fixtures out of the store. He said that someone who was helping them offered to pay all the monies owing on the guarantee. He said that when that occurred he rang Mr Lambert “to put that offer to” him. He said that he was told by Mr Lambert “No, we’ll deal with it in court”. Mr Wearn said that he then rang Mr Webber and was told “I can’t go against my manager”. Mr Wearn was asked to summarise what the offer was. He replied that everything owed to the landlord would be paid and the person who was offering to provide some funds would be paid back from the $30,000 they would get from the sale of the lease to Mr Guest. He said that they (the defendants) would have to provide $8,000 themselves.
Mr Wearn was asked by his wife in evidence whether the person who had offered to provide funds was available to give evidence at the trial. He replied that he was on his way back from Melbourne and they had not asked him to be in court that day.
On the next day of trial Mr Graham Wearn, Mr Wearn’s father, attended to give evidence. He said that on 29 May 2006 he was assisting his son and Mrs Wearn cleaning up the shop when he was told that “the re-assignment of the lease would not go ahead due to the outstanding debt”. When told that he asked his son “if I paid the outstanding debt would they (the lessor) then re-assign it”. He told me that his offer was based on the fact that someone was willing to pay for the lease. It was based on him being able to recoup the money from that payment.
Under cross-examination Mr Wearn senior said that he and his son had discussed figures. He said there was a discrepancy between the figure that was owed by his son and Mrs Wearn to the lessor, and the sum that was proposed to be paid for the lease. He said he “was prepared to carry (that) until they (the defendants) were prepared to pay it”. He said that if the money from the third party for the lease was not available to pay him back he probably would not have loaned his son the money. He said that he “would have required some documentation even signing the lease” before he provided the funds. He would only provide the funds if there was a lease in place to the third party. Mr Wearn senior did not refer to any telephone conversation in his presence between his son and Mr Lambert or Mr Webber on that day.
It was put to Mr Webber in cross-examination whether he recalled a conversation with Warwick Wearn on 29 May 2006. He replied that he remembered a telephone conversation on either 28 or 29 May 2006. He was then asked:
QIt was in relation to the full payment on that day of all outstanding debts owed by Newmilns Pty Ltd. Our request was upon payment in full that the lease be reassigned to Blue Illusion; do you recall that.
ANo, I have no recollection of that offer being made.
QI think the offer was made both to you and to Mr Lambert. And it was obvious that that key money they were paying would compensate the person who was willing to provide us with that temporary loan to clear that debt, which would have seen your premises continue leasing. The other gentleman was willing to go in on June the 1st, and we had been working on that for approximately a month, and it was quite detrimental to us to find out on the 29th that this would not happen. Are you aware of all of those conditions.
AI don’t ever recall anything about a temporary loan being mentioned.
QIt wasn’t a temporary loan with you.
AYou just said it was, didn’t you?
QWe were borrowing money to pay that rent, so that it was completely cleared, removing that from your suggestion that the lease could not be reassigned.
AI can assure you if somebody had come along with the full debt at that time I would have considered – I don’t believe that there was anything for me to consider other than the fact if you paid the money you would be reinstated before the 30th.
QThat offer was made, Mr Webber.
AIt certainly wasn’t.
QWe believe it was. We would like a record that the offer was made.
Later Mr Webber was asked this question:
QSo we offered to make full payment of what we believe was the amount owing upon – we requested that you reassign the lease on payment that day; on 29 May we had someone who would write a cheque, clear the debt, but we did request that the lease reassigned to Blue Illusion. With that guarantee we would have given you the money.
AI have no recollection of that offer at all.
Mr Lambert was also questioned about that telephone conversation. In cross-examination he was asked the following:
QMr Lambert do you recall a conversation with Warwick Wearn on 29 May in relation to making full payment of any outstanding debt, upon that it was the wish that the lease be reassigned to Blue Illusion but full payment would be made on the day.
ANo, I don’t.
QI believe when we this request was made you suggested that you could only do what Mr Webber said that you could do, and that you would let the court decide who would win.
AThat is definitely not true. If I was informed of anything from you along those lines I would have been obliged to inform Mr Webber of that.
During his cross-examination Mr Wearn agreed that if “Mr Guest had not come on the scene they would have finished the process of closing down and vacating” the shop. At that time they were committed to doing that. He said that as of 30 April 2006 May’s rent would fall due in the next day or two, and that he and his wife’s business had closed. He said that there was no more income coming from the business and that they owed approximately $50,000 to their suppliers. They had also cancelled all forward orders. He agreed that by 11 May 2006 he knew that not only had no satisfactory agreement been reached between Mr Guest and the landlord but that the landlord had some objections to an assignment to Mr Guest. He agreed that not only had there been no consent by the landlord, the landlord had indicated that they would not consent. He said that they tried to contact Mr Lambert and when they eventually got him he said he would contact the landlord. He was then told that he had to contact the landlord himself. That was probably the contact Mr Webber referred to as having occurred on 29 May.
Mr Wearn agreed that as at 29 May 2006 there was no arrangement in place for a handover on 1 June 2006. He agreed that by 29 May 2006 Mr Guest knew that the landlord was not going to permit his company to go in to Shop 4 as assignee of the lease. He agreed that one of what the cross-examiner referred to as the “moving parts as of 29 May” was Mr Guest’s requirement to strike terms with the landlord satisfactory to him. Mr Wearn said, however: “He (Mr Guest) would have accepted the terms of the unsigned lease of – as long as it was going to be signed (should be assigned)”. It was put to Mr Wearn that one of the provisions of the lease was a personal guarantee by Mr Guest. Mr Wearn said that he did not know if Mr Guest was going to give a personal guarantee.
Findings and conclusions
I find that the Memorandum of Lease commencing at page 114 of Exhibit P1 and in Exhibits D3 and D4 evidences a contractual lease and guarantee between the plaintiffs and Newmilns and between the plaintiffs and the defendants when the defendants entered into the business of Shop 4 at the Burnside Plaza in February 2001. I find that the terms of that lease and guarantee were as in the documents to which I have referred, which I find to be identical to the terms of the then existing lease of the shop of Toovey & Morris which was assigned to the defendants’ company Newmilns. I find that the earlier lease which was assigned to the defendants contained a guarantee by the defendants. The agreement (being lease and guarantee) between the plaintiffs and Newmilns and the defendants incorporated a further five year option after the expiry of the then existing five year term from 20 March 2002.
I find that for some unexplained reason no lease or guarantee for Shop 4, and no assignment of the existing lease and guarantee, was prepared by the plaintiffs’ solicitors at the time that the defendants’ company took an assignment of the lease which existed in March 2001, nor when that lease expired in March 2002. I find that from March 2002 the defendants’ company Newmilns had a lease with the plaintiffs for five years from 20 March 2002 to 19 March 2007 with a right of renewal for five years after that latter date. That lease was in terms of the three documents to which I have previously referred. I find that from 20 March 2002 the defendants guaranteed the obligations of their company Newmilns under the lease and guarantee in terms of the three documents to which I have previously referred, and the guarantee was in the terms of those three documents. I find that the terms of the lease and guarantee were agreed by all parties, including the defendants. All parties conducted themselves from 1 April 2001 until June 2006 in accordance with the terms of the lease and guarantee.
I find that Mr Lambert asked the plaintiffs’ solicitors by letter dated 25 May 2004 to prepare relevant documentation which had not been completed at the expiry of the Toovey & Morris lease in March 2002. I find that a lease incorporating a guarantee was prepared by the plaintiffs’ solicitors in the form of the original lease and in the form of the lease and guarantee document in the exhibits to which I have previously referred. That was in the terms, as instructed by Mr Lambert in his letter to the plaintiffs’ solicitors dated 25 May 2004. Those were the terms agreed to by all parties, including the defendants.
I find that the solicitors prepared a Memorandum of Lease (incorporating a guarantee by the defendants) and forwarded that lease in triplicate to Mr Lambert under cover of letter dated 9 June 2004.
I find that Mr Lambert thereafter either forwarded three copies of the lease to the defendants at Shop 4 or delivered them personally to the defendants at Shop 4. I am satisfied and find that he did one of those things not long after 9 June 2004. I am unable to make a finding as to exactly when that occurred, but I am satisfied and find that he did so within a week after 9 June 2004. I make that finding partly because Mr Lambert said he would have sent the leases to the defendants shortly after he received them, partly because it had already been more than two years since the lease of Shop 4 to the defendants’ company had commenced after March 2002, and partly because Mr Wearn’s evidence as to when he sent signed copies of the documents to Mr Lambert was vague and unreliable.
I find that the defendants executed the three copies of the lease and guarantee for Shop 4 and returned them to Mr Lambert under cover of letter dated 20 July 2005. I am satisfied that the defendants had those copies of the lease and guarantee for about twelve months before then. I am satisfied and find that when they returned signed copies of the lease and guarantee to Mr Lambert on 20 July 2005 they and each of them understood and knew:
(a) that their company had a lease for Shop 4 with the plaintiffs for five years from 20 March 2002, with a right of renewal for a further five years;
(b) that their permitted use for Shop 4 was: “retailing and hiring of menswear, apparel, footwear and associated accessories and gifts”;
(c) that their lease was subject to rent reviews referred to in the lease;
(d) that their company had obligations to pay rent and that the landlord had the right to claim interest for unpaid rent;
(e) that each of them and both of them guaranteed their company’s obligations under the lease.
I find that from February 2001 the defendants operated the business of Toovey & Morris as a men’s wear store.
I find that in March 2005 the defendants ceased to operate their business at Shop 3 in the Burnside Plaza, which shop had the permitted use of “Retailing of Ladies Fashion Knitwear and Apparel”. I find that as at March 2005 the defendants moved some stock which comprised ladieswear into the Toovey & Morris store and sold that stock from Shop 4, being Toovey & Morris. I am satisfied and find that one of the two defendants spoke to Mr Lambert about doing that at the time and that he indicated that they could do so. I am not satisfied, however, that Mr Lambert thereby gave his approval, or his client the landlord’s approval, to varying the then permitted use of the Toovey & Morris store such that it could be used for the retailing of men’s wear and ladieswear. I do not find that Mr Lambert gave his or his client’s approval to that, nor do I find that he said to the defendants that he would adjust the lease to reflect such a change. There are a number of reasons for my not so finding. First, Mr Lambert knew that he had, sometime in the middle of the previous year, sent to the defendants a lease for execution by them where the use permitted was the retailing and hiring of men’s wear, etc. Secondly, Mr Lambert knew that he had not received back from the defendants, as at March 2005, the lease executed by the defendants. That did not occur until late July 2005. Thirdly, I am satisfied and find that when the defendants executed the lease and sent it back to Mr Lambert they knew that the permitted use was as stated in the lease: “Retailing and hiring of menswear, apparel, footwear and associated accessories and gifts”. In those circumstances I consider it highly unlikely that the evidence Mr Wearn gave as to Mr Lambert’s agreeing that they could sell ladieswear from Shop 4 and that he would adjust the lease accordingly, is correct.
I find that from March 2005 the defendants traded at Shop 4 by selling both men’s wear and ladies wear. I find that by July 2005 the defendants’ business at Shop 4 was under stress, the rent could not be paid, and it fell into arrears.
I find that in the latter part of 2005 the defendants determined and sought to sell the business at Shop 4 as a going concern. They did so in order that they could meet their mounting obligations by way of rent and other liabilities.
I find that by early 2006 the defendants realised that they could not and would not sell the business as a going concern. I find that they then looked to sell it for lease value only without the existing business and stock. I find that from 1 April 2006 the defendants commenced to sell existing stock and cancelled forward orders. I find that when Mr Guest visited the shop for the first time on 20 April 2006 he saw a very distressed business with very little stock. I find that Mr Guest was anxious to obtain a lease of a shop in the Burnside Village and because he thought that was unlikely in the short term he wished to explore the possibility of doing so via the purchase of an existing lease in the Burnside Plaza. I find that Mr Guest’s first offer to the defendants for $20,000 was rejected by them because the defendants had concluded that the plaintiffs would not accept an assignment of the lease where they were not paid all outstanding rent and other expenses associated with a new tenant, which might include a different fit-out. I am satisfied and find that Mr Guest was prepared to pay an extra $10,000 if he could obtain an assignment of an existing lease adjacent to the Burnside Village. His offer dated 1 May 2006 to the defendants was made on the basis of the existence of a lease between the plaintiffs and the defendants’ company because the lease was referred to in that letter and in his earlier one dated 21 April 2006. Both of Mr Guest’s offers were conditional upon satisfactory agreement being reached with the landlord and both identified the use of the premises by Mr Guest as: “Ladies clothing, homewares and accessories”.
I am satisfied and find that by 22 May 2006 Mr Guest and Mr Webber had spoken together on the phone. By that time both Mr Webber and Mr Lambert were aware that Blue Illusion was an organisation involved in the retail sale of ladies clothing. The plaintiffs had an existing tenant involved in the retail sale of ladies clothing. I am satisfied and find that by 22 May 2006 Mr Webber had reasonably concluded from a conversation he had with Mr Guest that Mr Guest was not totally committed to paying $30,000 for the premises. I find that Mr Webber had by that date formed a view on reasonable grounds that $30,000 was insufficient to extinguish the defendants’ debt at that time. I am satisfied and find those matters because I accept Mr Webber’s evidence that Mr Guest asked him in a telephone conversation with him prior to 29 May 2006 what would happen in Mr Guest’s offer to the defendants did not proceed. I find that Mr Webber told him that the most likely thing was that the defendants’ lease would be terminated. I find that by the end of their conversation Mr Guest knew that he would not come to an agreement with Mr Webber as to the terms of a lease over Shop 4. I find that at that time Mr Guest had determined to try and obtain a lease of Shop 4 without paying $30,000, or any money, to the defendants.
I find that Mr Webber on 22 May 2006 made a decision to instruct his agents to give notice to the defendants of a breach of the covenant of the lease for outstanding rent and outstanding outgoings, and to give notice of termination of the lease. I find that the notice of breach is dated 26 May 2006, and that by that notice the defendants were advised what would happen if there was a failure by them to remedy the breaches by 5pm Monday 29 May 2006. A Notice of Termination of Lease dated 30 May 2006 was given to the defendants’ company.
As to Mr Wearn’s evidence regarding telephone conversations he had with Mr Lambert and Mr Webber on 29 May 2006 I am satisfied that he probably did have a telephone conversation with both those men on that day. I am satisfied and find that those conversations were subsequent to Mr Wearn’s father offering to make some funds available to his son and Mrs Wearn. I am not satisfied that Mr Wearn Senior had a full and precise appreciation of what he was being asked to do by his son and how much money he was being asked to make available and when. I am not satisfied that either defendant knew exactly what they were asking Mr Wearn Senior to do. I am not prepared to find that the defendants themselves knew as on 29 May 2006 exactly what funds were required. I am satisfied and find that Mr Wearn knew that the landlord had not come to terms with Mr Guest upon an assignment of the lease. In particular, he did not know whether or not Mr Guest would give a personal guarantee to the plaintiffs upon such an assignment. I find that the defendants, as at 29 May 2006, knew that there was no agreement between the plaintiffs and Mr Guest and they knew that that would be unlikely to occur immediately or even in the short term. I find that Mr Wearn’s telephone calls to both Mr Lambert and Mr Webber on 29 May 2006 were last-ditch attempts by the defendants to try and salvage something of their position. I find that they were desperate calls which both knew were futile and would fail.
I find that Mr Wearn did not put any clear or firm offer to Mr Lambert but probably made some reference as to whether or not the possibility of clearing their debt to the plaintiffs might change the plaintiffs’ mind. I am satisfied that whatever was said to Mr Lambert by Mr Wearn produced a reaction by Mr Lambert that any further discussions about the matter could and should only be had with Mr Webber. I am satisfied and find that Mr Wearn then rang Mr Webber but he did not make a firm offer to Mr Webber that all monies then outstanding would be paid immediately and upon an immediate assignment of the lease to Blue Illusion. I am satisfied and find that Mr Webber knew by that time that no agreement had been or could be reached with Mr Guest in respect of an assignment of the lease. I am satisfied and find that by 29 May 2006 Mr Webber, both defendants, and Mr Guest knew that there would be no assignment of the lease of Shop 4 to Mr Guest.
I am satisfied and find that about a week after that telephone conversation Mr Webber had a telephone call from Mr Guest about which Mr Webber gave evidence. The purpose of Mr Guest’s call was to speak with Mr Webber about obtaining a lease of Shop 4. That did not eventuate and the plaintiffs ultimately, and shortly after, signed a lease with an existing tenant of the Burnside Village in a business that was unrelated to the retail sale of men’s wear or womens wear.
I am satisfied and find that the plaintiffs did not unreasonably reject an assignment of Newmilns’ lease over Shop 4 to Mr Guest’s organisation Blue Illusion. I am so satisfied because at all relevant times (which for these purposes was the whole of May) the plaintiffs were owed significant sums by the defendants’ company by way of rent and other outgoings, which the contract offered by Mr Guest to the defendants would not cover. I am satisfied and find that the plaintiffs, through Mr Webber, were not offered clear and unequivocal conditions by Mr Guest which could have been the basis upon which any assignment would proceed. I am satisfied and find that at all times Mr Guest made his offer to the defendants subject to satisfactory agreement being reached between himself and the landlord. I am satisfied and find that Mr Webber reasonably and correctly concluded during and after his conversation with Mr Guest that Mr Guest was not committed to his contract with the defendants. I am satisfied and find that at all relevant times the plaintiffs knew that Mr Guest proposed to use the premises of Shop 4 to sell ladies clothing, home wares and accessories. The permitted use of the plaintiffs’ lease with the defendants was for the retail sale of men’s wear. Whilst I am satisfied and find that the defendants, after March 2005, used the premises of Shop 4 for the retailing of both men’s wear and womens wear, it is quite another thing entirely to change the permitted use under the lease from men’s wear (solely) to women’s wear (solely). Even if the landlord “turned a blind eye”, as it was put to me during the trial, to the defendants retailing some women’s wear within a men’s wear shop it is quite another thing for the plaintiffs to consent to Shop 4 being used solely for the retailing of women’s wear. I consider and find that the plaintiffs at all times acted reasonably in all their dealings with the defendants from about July 2005 until the end of May 2006 when the defendants’ company’s lease with the plaintiffs was lawfully terminated.
As I indicated early in these reasons it was pleaded on behalf of the defendants that because the plaintiffs had failed to give to Newmilns a Disclosure Statement pursuant to s12 of the Retail and Commercial Leases Act 1995 before the lease was entered into or at all, the defendants are entitled to an order avoiding the lease in whole, an order requiring the plaintiffs to pay compensation to the defendants, an order “dealing with incidental or ancillary matters”, and an order relieving Newmilns and the defendants from “the obligation to comply with the Lease and Guarantee”. Whilst a Disclosure Statement was not given as required by the Act I am satisfied and find that neither Newmilns nor the defendants have been substantially prejudiced by that failure. The defendants had conducted business at a shop adjacent to Shop 4 in the Burnside Plaza for several years prior to having assigned to Newmilns the lease of Shop 4, the Toovey & Morris lease. Furthermore, they had conducted the business of Toovey & Morris and that of Shop 3 for a significant period and they had conducted Shop 4 solely for several years. They also had a copy of the then lease for Shop 4 since it was assigned to them in 2001. I am satisfied and find that Mr Lambert enclosed a copy of that lease to Newmilns and the defendants when he wrote to them by letter dated 26 March 2001. I am satisfied and find that the defendants were well aware of what would be contained within a Disclosure Statement when they commenced trading at Toovey & Morris at Shop 4 in the early part of 2001, and thereafter.
Also pleaded on their behalf was that the plaintiffs failed to “provide Newmilns with an executed copy of the stamped lease within one month” in breach of s16 of the said Act. That section provides that a retail shop lease is taken to include a provision to the effect of what is set out in s16(a) and s16(b).
As indicated in these reasons it is not entirely clear when the lease was finally executed. I find that it was probably finally executed by all parties by 26 April 2006. I have found, however, that the lease in written form was not sent to the defendants until years after what I have found to be a lease of Shop 4 commenced. I have also found that the defendants did not return the lease executed by them for up to about a year after they received it. In those circumstances I find that neither Newmilns nor the defendants suffered any prejudice by the breach of either provision imposed statutorily by s16 of the said Act. I am not satisfied that the circumstances are such that I should relieve Newmilns and the defendants from their obligations to comply with provisions of the lease and of the guarantee, which is a collateral agreement for the purposes of the said Act.
Accordingly, I find that the plaintiffs are entitled to damages against the defendants for breach of the guarantee which I find existed in respect to Newmilns’ obligations to the plaintiffs under the lease.
I am satisfied and find that all the heads of damages claimed by the plaintiffs are properly claimed, are reasonable, and are proved.
I am satisfied that the plaintiffs should have judgment against the defendants in the sum of $78,889.37.
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