Botts v Grimme [2001] NSWADT 14 (5 February 2001)

Last Updated: 6 June 2001

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL RETAIL LEASES DIVISION

CITATION: Botts v Grimme [2001] NSWADT 14

PARTIES: APPLICANT

Gertrude Evans Botts

RESPONDENT

Heindrich Wilhelm Torsten Grimme

FILE NUMBERS: 005033

HEARING DATES: 10/10/2000, 11/10/2000, 23/11/2000

SUBMISSIONS CLOSED: 28/11/2000

DECISION DATE: 05/02/2001

BEFORE: Fox R - Judicial Member

LEGISLATION CITED: Retail Leases Act 1994

CASES CITED:

APPLICATION: Claim for relief against forfeiture

MATTER FOR DECISION: Principal matter

APPLICANT REPRESENTATIVE: APPLICANT

R Angyal, Barrister

RESPONDENT REPRESENTATIVE: RESPONDENT

In person

ORDERS: 1. Applicant entitled to Lease of the premises known as 249 Riley Street, being art gallery, coffee shop and residential rooms at rear and above, with common use of the rear courtyard, for a term commencing 1st April 1999 and ending 30 March 2001, with a three year option of renewal, at a monthly rental of $2,200.00, 5% increase on first 1st April 2000, market review on exercise of option, and 5% annual increases thereafter, contribution to outgoing, 50% of water and sewerage rates, all other terms as per the Law Society Lease

2. The Applicant is to, within 28 days of this date, serve on Respondents a notice in writing either exercising the option of renewal or stating that she will vacate no later than 30th March 2001

3. If Applicant exercises option, Lease document, in compliance with these orders, signed by Respondent, to be submitted to Applicant within 21 days of rent being agreed or established by valuation Applicant to sign and return it. Respondent within 28 days of her receipt of it, together with payment of agreed costs of drawing Lease ($800.00) and stamp duty

4. Applicant and Respondent, within 28 days of today to jointly apply to the South Sydney Council, in writing, seeking review of fire compliance order under Section 121B-6, dated 23 December 1999, seeking further formal inspection to establish Council's requirement in view of current use of the premises as art gallery, coffee shop, and private residence

5. Respondent not to proceed with building work which interferes in any way with the commercial or residential use of 249 Riley Street

Reasons for Decision:

1 In these proceedings the Applicant Gertrude Evans Botts seeks, apart from ancillary matters, an order declaring that she validly exercised an option for a further term, and an order relieving her from the effect of a purported termination of Lease by re-entry after notice, and the Respondent Mr Torsten Grimme, apart from ancillary matters, seeks orders terminating the occupancy and directing the payment of arrears.

2 The premises in question are an ancient residential cottage in Riley Street, Surry Hills, consisting originally of perhaps two downstairs rooms with an attic room above and kitchen at rear, giving onto a backyard bounded by Little Riley Street. Possibly in the middle of last century the whole of the backyard had been occupied by a two storey warehouse, a development which left the only open space to be a small enclosed courtyard in the centre of the parcel, into which opened various external doorways and staircases. By the time Ms Botts and her former partner James Boyland came onto the scene in 1992 the upper level of the warehouse had been separated and was let as a separate residence, but the whole of the ground floor of the warehouse, the ground floor of the cottage, the attic rooms of the cottage and the courtyard were proposed for use as art gallery, refreshment rooms and residence.

3 It should be noted that the zoning of the property at that time only allowed for the operation of such businesses if they were owner/occupied, and so on 21st July 1992 a short form of Commercial Lease was entered into between the Respondent and the Applicant and her partner describing the use as "Residence, gallery and refreshment rooms". The Lease was subject to Council approval of the use, and that was eventually given. The Council minute papers, amongst other things, show a proposal of "the retail sale of art with ancillary café and takeaway food operation" but the actual terms of the approval then granted were for the ground floor front room for the sale of paintings and the ancillary sale of refreshments- 7:00am to 11:00pm daily for the first year, and 7:00am to 9:00pm daily thereafter.

4 By 1994 the Applicant was no longer in partnership and on 1st April of that year the Respondent and Applicant entered into a four year Lease with two successive three year options. This was of the premises being "the whole of 249 Riley Street, 16 Little Riley Street and the courtyard between those two buildings". The use was "gallery, studio, lodging and residence" and went on to say (in effect) or any other use approved by the Council, Lessor's consent not to be unreasonably withheld.

5 It is appropriate to observe that in mid 1996, there were several Council inspections, the notes of the last of which were "The operation is generally in accordance with the Development Consent".

6 It became clear early in the hearing that there was a substantial dispute about the level and amount of arrears of rent and so I directed that there be a schedule prepared. That document took the form of an Affidavit by the Respondent's Solicitor James William Russell dated 11 October 2000, noting all payments from April of 1994 to September of 2000. This schedule establishes that right from the beginning of the 1994 Lease, Ms Botts gradually slipped into arrears of rent, there being a $1,200.00 glitch within a month of commencement, this was reduced to arrears of $250.00 by a payment in September of 1994, however by October 1994 the arrears had again come to $1,200.00, and remained so until March of 1995, when they increased to $1,700.00, and by May of 1995, when the whole month was missed, the arrears had increased to $5,085.00, at that time being almost a full two months in arrear. By June 1995 the arrears had been reduced to $1,872.00, but thereafter there was a gradual increase again and by July 1996 the arrears had grown to $10,618.00. August 1996 saw a reduction to $5,679.00, but there were no repayments in either September or October and the arrears had grown to $10,861.00. There were payments thereafter, but never quite enough, and by May 1997 the arrears were $14,951.00. In June 1997 a payment of $15,000.00 reduced the arrears to $3,671.00 but July was missed and by end September 1997 the arrears were over $7,000.00, crept up to $12,413.00 by May 1998, but by August 1998 (when the monthly rent was still $2,856.44) the arrears had again been reduced to approximately $9,500.00.

7 It was Ms Botts evidence that she exercised her option by letter dated 31 October 1997 which she gave to the Respondent personally on 1 November 1999 an assertion which Mr Grimme vehemently denied. I am satisfied that Mr Grimme called at the premises on 1 November 1997 during business hours as a follow up to telephone conversations about rental arrears which had taken place on the previous days. Mr Grimme was about to leave for an overseas business trip and was concerned to ensure that payments would be made while he was away. It was Ms Botts evidence that she had, on that day made a further payment in accordance with a previous undertaking to Mr Grimme, but that only "caught up" the September 1997 payment of $2,720.00 which she had entirely missed; as at the 31 October, there was still $4,753.38 rent outstanding. Miss Botts said, and I accept that she gave Mr Grimme an envelope containing her written notice of exercise, but on realising that she had not kept a copy asked for the return of it, she then made a copy on the gallery fax, and then gave Mr Grimme the original together with the envelope in which she had first given it to him, and he put both the envelope and the letter in his pocket. This should all be seen in the context of the fact that Mr Grimme was to leave for overseas on the following day and Miss Botts coincidentally was also, on that following day, to leave for an overseas trip. There was repartee about meeting at the airport which Mr Grimme acknowledged, but he denied receiving the letter.

8 On balance I am satisfied that the letter was given. However, it seems to me that this achieved no result, because of the substantial arrears which were in existence at that time. The terms of the option as contained in the Lease are quite clear "Provided that the rent is not in arrears, and that the Lessee in not in breach of the covenants and conditions of this Lease at the date of the Notice....." It seems to me that there was no option because Miss Botts had not complied with an essential condition of that particular contractual arrangement.

9 Mr Angyal on Miss Botts behalf argued that Section 133E of the Conveyancing Act operated in Miss Botts favour but I am not satisfied that the clear preliminary condition (that the rent had to paid) is affected by that part of the Act. In any event, the continuing subsequent arrears of rent rendered whatever agreement existed potentially terminable at the lessor's whim.

10 On 3 June 1998 the Respondent forwarded a letter to Miss Botts claiming that she was $12,100.00 in arrear claiming amount not paid of $5,435.00 on 31/03/98, $4,310.00 on 30/04/98 and $2,655.00 in June 1998, and demanded the payment within 2 days or that she vacate. On 30 July 1998 another letter followed claiming that the arrears were $8,935.00 and purported to terminate the Lease forthwith.

11 Nevertheless, Miss Botts continued in occupation, and some time in September 1998 it was agreed that the warehouse area known as 16 Little Riley Street be vacated, and the rent be reduced from $2,856.44 per month to $2,100.00 per month commencing 1 September 1998. In all probability this partial surrender created a new letting, which soon again fell into arrear. By 14th October 1998 Mr Grimme had forwarded yet another notice now alleging arrears of $6,200.00 and purporting to terminate the occupancy on 31 October 1998.

12 On 23 October Mr Grimme met with Miss Botts and Mr David Warrell, her solicitor, at the office of the solicitor and an agreement was reached establishing the arrears to be $5,300.00, which Miss Botts paid by way of bank cheque within the next several days.

13 Thereafter, Mr Grimme appears to have appointed Mr Arkinstall Solicitor to represent him, and there were negotiations between him and Mr Warrell which resulted in a detailed fax of 9 December 1998 by Arkinstall to Warrell & Associates, on the one hand denying the exercise of option, but on the other hand containing the words "Nevertheless... our client is prepared to grant a fresh Lease on the following terms:-

1. Term two years plus three year option, commencing 1 April 1999;

2. Rent $2,200.00 per calendar month plus 50% water and sewerage rates..."

14 There were five other points covering the increase in rent 5% on 1st April 2000, review to market the next year in option exercised and thereafter 5% annually. Lessee to pay all costs, stamp duty, etc Lessor's legal costs to be $800.00, $400.00 to be paid "Prior to the commencement of drafting the Lease", the balance on submission of executed documents, "all activities conducted by your client at the lease premises to have appropriate Council consents", evidence on public liability insurance. Other terms and conditions generally in accordance with the standard Law Society Lease.

15 The letter finished with these words "Given that you client was late with rent payments under the previous Lease, our client is only prepared to offer your client this new Lease if your client maintains the current monthly payments of $2,100.00 until March 1999 without further delinquency". There was follow up correspondence but by 8 January Mr Warrell had accepted the proposal on Miss Botts' behalf and had submitted the $400.00 cheque.

16 Thereafter there was further correspondence relating to side issues, which were not relevant to the issue before me other than to note that the submission of the draft Lease was requested on several occasions. Nothing much had changed by 1st April 1999, the day for commencement for the new Lease, and no draft document had been submitted.

17 I particularly note the terms of the offer that there be no further delinquency and it is clear that, contrary to her previous practice, Miss Botts paid $2,100.00 per month between the 10th and 14th day of each and every month after December 1998.

18 I am satisfied that as a result of these events between December of 1998 and April of 1999, the issue of the exercise of the option had, as a matter of law, become irrelevant although I observe that the terms of the offer of 9th December 1998 were not so different from the Lease which would have arisen from the exercise of the option, being in effect for the same term, and giving the same further option. I find that, a fresh offer having been made, and accepted, a new Lease was brought into effect for the reduced premises, despite the absence of an executed statement of its terms. Section 3 of the Retail Leases Act states:-

"retail shop Lease or Lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation for premises for the purpose of the use of the premises as a retail shop:-

(a) whether or not the right is a right of exclusive occupation and

(b) whether the agreement is express or implied and

(c) whether the agreement is oral or in writing or partly oral or partly in writing".

I am satisfied that Mr Arkinstall's fax on 9th December, and Mr Warrell's letter of 8 January amount to such an agreement.

19 At this point the effect of Section 8 of the Act must be considered:-

"(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

(2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease".

and I am satisfied that, where an existing tenant is in occupation, and there has been no specific reservation in relation to that occupation (for instance preserving it as under licence, or alternatively specifically stating it to continue under the previous holding over) that occupation of itself can be an "entry into possession". That is exactly what happened on 1st April 1999; Miss Botts' continuing occupation on that day was an entry "as Lessee under the Lease" and so I am satisfied that the Lease which now governs Miss Botts' occupation was the 9th December 1998 offer which was, pursuant to Section 8, entered into on 1st April 1999.

20 I note that, even if I am wrong in accepting that Miss Botts entered the premises on 1st April 1999, and it is clear that she did not begin "to pay rent under the Lease" at that time because her payments continued to be in the sum of $2,100.00 per month, and not the new agreed rent of $2,200.00, then that was resolved by payments which she made in May 2000 when she paid, on 12th May 2000, the sum of $2,205.00, and on 17th May 2000 the sum of $1,290.00, thereby catching up the difference between her $2,100.00 monthly payments, and the monthly amount actually due ($2,200.00) and so I am satisfied that, even if she did not "enter" on 1st April 1999, she certainly "commenced to pay rent under the lease" at the very latest by 17th May 2000, and that is when the Retail Shop Lease, commencing 1st April 1999, was entered into.

21 The offer of Lease does not identify the time period for acceptance of the option- and in the absence of specific agreement, the usual- "not earlier than 6 months before the end, and not later than 3 months before the end" would be implied. This raises a difficulty in that that period was "live" during the time of the hearing, submissions, and my consideration. It seems obvious enough that Miss Botts continuing this application amounts to a statement of intention to exercise her option, but I also note the valuation evidence raises the prospect that the market review will render the premises uneconomic from Miss Bott's perspective, and that is why, in the interest in fairness, I give her a further opportunity.

22 I note that, by a notice dated 5 October 2000 Mr Grimme's solicitor purported, to terminate the Lease which I have found, because her payment due 15th July was not made until 19 July. I am not satisfied that such a minor delay amounts to a repudiation of the Lease as alleged by the Respondent, and the Lease remains on foot.

23 Relations between Mr Grimme and Miss Botts have not improved, and, to this day, no Lease has been submitted or executed.

24 There was ample evidence before me to indicate that there have been recent Council inspections of the premises now occupied by Miss Botts as her residence and the art gallery café and that these have resulted in the Council fully approving of the manner of conduct of the business.

25 It has always been clear that these premises are partly residential and partly retail shop (as the 1993 zoning required), and that raises the question whether I have jurisdiction over the whole of the letting. Section 79 reads:-

"If a retail shop lease applies to a retail shop as well as to other separate or adjoining premises that are not a retail shop, this Act applies to the lease only to the extent that the lease is a lease of a retail shop".

26 It was put to me, in various ways, on behalf of both parties that the words "other separate or adjoining premises" in Section 79 can only refer to two separate parcels of land close to or beside one another.

27 That is clearly not so- especially in the context of leasing; the lawyer's use of the word "premises" appears to arise from past conveyancing practice when the parts of the Deed of Conveyance now generally known as "recitals" were commonly described as premises, being the preliminary parts of the deed upon which the conveyance was based, in much the same way as the premises to a proposition in logic. One of those recitals (or premises) in the deed would be an address or description such as "being those buildings known as 37 Smith Street" followed by the operative part of the deed which effected the conveyance and went on to the metes and bounds description. There appears to have been a meaning shift and the premise identifying the thing conveyed came to be used as a noun for that of the building. I am satisfied that any part of any building capable of being separately described and separately let, licensed or conveyed can be "separate premises" within the meaning of Section 79.

28 It was put to me that for there to be separate premises there must be separate access such as by right of way, but that too seems to me to propose too high a requirement- any arrangement effecting lawful access (such as a licence to pass and repass) would be sufficient to create "separate premises".

29 I can see no reason in theory why the residential rooms are not separate premises. However, in view of the evidence of the LandMark White valuation, and in view of the general circumstances of the location (although not the actual square metres of area used) it is clear that the predominant use of the premises is for "trade". It follows that the residential part of the occupancy is excluded from the Residential Tenancies Act by regulation 21 of the Residential Tenancies Regulation which excludes from that Act any agreement for occupancy where the "predominant use of the premises let is for the purposes of a trade profession business or agriculture").

30 Although it does not necessarily follow that Section 79 has no application, because it may be feasible as a matter of law to create a separation between the residential part and the retail part, the Valuer's evidence is that there is no commercial value in the residential part because of the fact that no practical separate access can be achieved. I am satisfied that the property now occupied by Miss Botts, despite its residential rooms, falls entirely within the definition of "retail shop" found in Section 3 of the Act, in that they are used "wholly or predominantly for the carrying on" of a business.

31 The next dispute between the parties arose over the question of Council approval, it seems that Mr Grimme was advised by officers of the South Sydney Council that a building approval application which was a condition of the 1993 approval had never been made by Miss Botts and that this was required before Mr Grimme's further plans for the site could be put into effect. I am satisfied that this cannot be so, if for no other reason that the September 1998 "excision" of the warehouse completely changed the premises, and in any event, the zoning of the land itself has changed quite substantially.

32 I accept from Mr Grimme's evidence that he genuinely believed that Miss Botts was in breach of her agreement with him when she conducted, as part of her business from the premises, a bed and breakfast operation. I do not think that the evidence ever completely uncovered the extent of this operation, but I am satisfied from Miss Bott's responses that she, at one stage, accepted short term occupation of the residential rooms at number 249 Riley Street. It seems to me that this may well have fitted within the "lodging" described in the then relevant Lease as part of the authorised use, and may well, at that time, have not been contrary to the changed zoning of the area, although it certainly was not Council approved. Be that as it may, I am satisfied that, in response to Mr Grimme's demands early in 1999, this particular operation ceased, and Miss Botts took up full time residence within the premises. I gained the impression that Miss Botts may still have been making bed and breakfast arrangements by arranging lodging in other nearby premises, and supplying breakfast at 249; that seems to me not to be objectionable.

33 Mr Grimme objected to the fact that Miss Botts had installed a commercial kitchen in the premises without his consent. I am satisfied that these steps were taken by Miss Botts to comply with Council requirements, arose from the authorised use, and Mr Grimme could not, in the end, withhold his consent had he been asked.

34 I note that Mr Grimme now has Council approval for work to be done to all of the buildings, and note that part of such proposed works would appear to involve the area of the building which is subject to Miss Botts' occupancy. In view of the Lease as found by me, such works cannot be done without Miss Bott's approval.

35 The last issue to be resolved is the South Sydney Council's Fire Safety Order. I am satisfied that the responsibility for compliance with this order is fully addressed by clause 7 of the Lease, although I cannot avoid the impression that the current order arises from the previously alleged bed and breakfast use, or from the further development of the buildings for which Mr Grimm now has approval. Now that the occupancy has been clarified, and in view of the effect that such clarification may have on the Respondent's ability to proceed with the building work, it seems to me that the requirements for fire safety may be different, and consequently a further approach to the Council is indicated, and I have sought to address that in my orders.