Eddie Azzi Australia Pty Limited v Citadin Pty Ltd; Citadin Pty Ltd v General Pants Co Pty Ltd [2001] NSWADT 79 (18 May 2001)

Last Updated: 6 June 2001

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL RETAIL LEASES DIVISION

CITATION: Eddie Azzi Australia Pty Limited -v- Citadin Pty Ltd; Citadin Pty Ltd -v- General Pants Co Pty Ltd [2001] NSWADT 79

PARTIES: APPLICANTS

Eddie Azzi Australia Pty Limited

Citadin Pty Ltd

RESPONDENTS

Citadin Pty Ltd

General Pants Co Pty Ltd

FILE NUMBERS: 015010

015016

HEARING DATES: 23/04/2001, 24/04/2001, 30/04/01, 09/05/2001

SUBMISSIONS CLOSED: 09/05/2001

DECISION DATE: 18/05/2001

BEFORE: Donald B - Judicial Member

LEGISLATION CITED: Retail Leases Act 1994

CASES CITED: Waltons v. Maher [1988] HCA 7; (1998) 76 ALR 513

New York Boutique Pty Ltd v Lend Lease Property Management Pty Ltd (2001) NSWADT

High Trees case (1947) KB 130

Blackler v. Felpure Pty Ltd (1999) NSWSC 958

Associated Provident Funds v FCT 40 ALJR 265

Sharrment Pty Ltd v The Official Trustee (1988) 82 ALR 530

APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease

MATTER FOR DECISION: Principal matter

APPLICANT REPRESENTATIVE: APPLICANT (Eddie Azzi Australia P/L)

D Robertson, barrister

APPLICANT (Citadin Pty Limited)

C Birch SC and J Loofs, barrister

RESPONDENT REPRESENTATIVE: RESPONDENT (Citadin Pty Limited)

C Birch SC and J Loofs, barrister

RESPONDENT (General Pants Co Pty Ltd)

E K L Raphael and A G Diethelm, barristers

ORDERS: 1. Declare that Citadin Pty Limited is not entitled to terminate the leases of Eddie Azzi Australia Pty Limited (3796213 L) and General Pants Co. Pty Limited (3696200 D) pursuant to Demolition Notice dated 28 November 2000.

Reasons for Decision:

Decision revised on 22 May 2001

Applications

1 Three related applications under the Retail Leases Act 1994 have been heard together, first by Eddie Azzi Australia Pty Ltd ("EA") of 2 February 2001 against Citadin, the second a cross-action in that matter by Citadin of 9 February 2001 and the third an application by Citadin against General Pants ("GP") of 9 February 2001 (015 016).

2 The applications were heard together as they all relate to the validity of notices terminating leases in the Skygarden Shopping Centre, owned by Citadin and delivered on the same day in identical terms save for the details of the parties and the particular leases. The notices purport to terminate the EA and GP leases in Skygarden effective 29 May 2001.

3 The matter was managed in an expedited manner in advance of the expiration of the notices. This was because of the agreed need by all parties for the matter to be urgently determined in light of the fact that Citadin has commenced work on its building in premises across four floors including adjacent to the EA and GP premises. There is obviously potential for commercial impact which requires the Tribunal to have acted speedily.

4 The Tribunal received extensive documentary evidence and heard oral evidence as well as conducting a view of the subject building on the first day of the hearing which was essential properly to understand the dispute. The parties and the Tribunal endeavoured to conduct the proceedings in as constructive a way as possible to enable ready discussion of the material. Two bundles of documents were tendered which will be referred to as GP or EA with the document number eg., 10/EA or 12/GP.

5 Pursuant to s.74 of the Act, I made observations to the parties during the course of the hearing that notwithstanding the initial failure of mediation in the matter, endeavours to settle the matter should be pursued having regard to the development of the proceedings before the Tribunal. In the result I was informed by the lawyers for the parties that such attempts had not been successful and accordingly the matter needed to proceed to a determination.

Facts

6 Skygarden is a landmark building in the Sydney CBD with prime frontages to both the Pitt Street Mall and Castlereagh Street, comprising a high-rise office tower and a retail shopping centre covering 11,000 sq m over seven levels including the basement and roof level. Skygarden was opened in about 1990. It was acquired in 1996 by Citadin, a company formed in April of that year.

7 The businesses now being carried on by EA and GP were well established in Skygarden as at 1996 in their current locations but under different corporate ownership and with different dimensions and descriptions of their premises. GP has a frontage onto the Pitt Street Mall and the EA beauty salon is on Level One, the level above the Castlereagh St. level, and also at the Pitt Street Mall end.

8 There are some 45 retail shops together with an Attic level formerly a food court and now a Roof level including a mezzanine bar, all making up the Retail Complex.

9 In July 1996 Citadin retained the services of Mr. L.J. Collins through his company to represent Citadin in its overall management of Skygarden and in September 1996 Citadin appointed Mr. David Salter through his company to be the specific "Managing Agent" of the building under an agreement with express definition of the managing agent's authority and responsibilities.

10 In late 1996 Mr. Azzi of EA began negotiating with Mr. Salter for expanded premises to add Shop 108 to his current Shop 106A and in due course a new Lease was negotiated for a five year term with a five year option for the combined premises together with a separate agreement between EA and Citadin for the fit-out under which Citadin would contribute about $110,000 towards its cost.

11 GP acquired the chain of General Pants shops in about December 1995, including the General Pants outlet on the Pitt St. Mall at Skygarden, and carried on negotiations for the assignment of its then Lease with Skygarden. This developed into a proposal for a new Lease of the existing Shop P1 plus the addition of the small adjacent segment known as Shop P1A which was to be amalgamated into one tenancy. By June 1997 Mr. Staub of GP and Mr. Salter had negotiated the terms of the lease and a draft lease was submitted in early July by the lawyers for Citadin to GP's lawyers , being a lease for a five-year term, without a renewal option.

12 The EA and GP Leases contained the same terms and conditions and are in a familiar form for a shopping centre lease with a reviewable annual rent, turnover rent, permitted use requirements, bank guarantees and the building rules as an Appendix. In each case the Lease contained clauses found in some but not all commercial leases entitled Demolition and Relocation, in relevant parts as follows:

"24.DEMOLITION

24.1 If the Lessor wants to demolish, substantially repair, renovate or reconstruct the Building or the part of it containing the Premises, the Lessor must give the Lessee:

24.1.1.sufficient details of the proposed works to indicate a genuine proposal to carry them out within a reasonable practicable time after this lease is terminated; and

24.1.2 at least 6 months' notice of termination, unless the term is 12 months or less in which case the notice of termination must be at least 3 months.

24.2. After the Lessor has given a termination notice under cl.24.1, the Lessee may terminate the lease at any time within 6 months before the termination date in the Lessor's notice by giving the Lessor at least 7 days' notice of termination (unless the term is 12 months or less in which case the Lessee may give its notice at any time within 3 months before the termination date in the Lessor's notice).

24.3 If the Lessor's works are not carried out within a reasonable practicable time after the termination date in the Lessor's notice, then unless the Lessor shows that at the time it gave its notice there was a genuine proposal to carry out the works within that time, the Lessor may be liable to pay the Lessee reasonable compensation for damage the Lessee suffered because of the early termination of the Lease.

25.RELOCATION

25.1 If the Lessor wants to refurbish, redevelop, or extend the building and requires the Premises, the Lessor may give the Lessee a relocation notice:

25.1.1. giving the Lessee sufficient details of the proposed works to indicate a genuine proposal to carry them out within a reasonable practicable time after the Lessee's business is relocated and that the works cannot be carried out practicably without vacant possession of the premises; and

25.1.2 requiring the Lessee to surrender this lease and vacate the Premises on a specified surrender date which is at least 3 months after the Lessor gives the Lessee the relocation notice; and

25.1.3 giving details of new premises within the Building to be made available to the Lessee and offering to enter into a new lease of those premises.

...

25.4 The Lessor must pay the reasonable costs of relocating the Lessor's Business, including fitting out the new premises to the same standard as the Premises were in at the date the relocation notice was given, stamp duty, registration fees and reasonable legal costs and disbursements in connection with the Lessee;s execution of the surrender of this Lease and the new lease.

The Lessee must do everything reasonably necessary to ensure that any stamp duty refundable on this Lease is paid to the Lessor."

13 In July or August 1997 Mr. Staub of GP, having been advised by his lawyers of the demolition clause, had a conversation concerning it with Mr. Salter. Their recollections as to the precise words used in the conversation differ. Mr. Staub said words to the effect that he was concerned about the demolition clause and asked if it could be removed before he signed the lease. The two versions of Mr. Salter's reply are:

Mr Staub's recollection: "You don't need to worry about that. You are a very important player. You know the figures you do are outrageous, the dollars you do out of the square meterage are huge. Why would we want you to leave the centre?...Don't worry. We would never knock the centre down while you were here so you don't need to worry about it. This is in all our leases and is just a standard procedure."

Mr Salter's recollection: "You shouldn't be concerned about it because Citadin have spent money on your shop, have expanded your space, have agreed to you paying top rent for the location, you are the anchor tenant and I believe that the odds are a million to one that they would demolish your area of the centre during the term of your lease.

Mr Staub recalls responding "I trust you. I feel very secure taking your word on that." Mr Salter had no recollection of the response.

Nothing further was said between them concerning the demolition clause and the correspondence between the lawyers concluding the lease made no reference to it. The lease was duly concluded and commenced on 1 September 1997 being subsequently stamped and registered.

14 In August 1997 Mr. Azzi having received the EA lease, had a conversation with Mr. Salter in which he asked for the clause to be deleted and on his memory asked "What does it mean?". The two recollections of Mr. Salter's reply were:

Mr. Azzi's recollection: "Don't worry about that clause. It's a new building. There is no way they are going to demolish it. They are spending $110,000 on your shop, why would they then throw you out?"

Mr. Salter's recollection: "It's a new building. The owners have a number of proposals to carry out re construction works in the future on Levels 3 and 4, but I don't believe they'll do any major works and therefore the clause won't apply to you. It's in there because it is a standard term. If anything happened, they would offer you a relocation. Look, they need you. They are spending money on your shop. I don't seem them running around and throwing you out."

15 No further discussion took place between them concerning the clause nor was there any in the correspondence between the lawyers; the lease was duly concluded to commence on 15 August 1997 although it was not signed until 15 December 1997 being subsequently stamped and registered.

16 EA received development consent and building approval for its works from Sydney City Council in late August 1997. There was considerable evidence as to the extent of that fit-out with EA asserting that it was very much more expensive than the $110,000 paid by Citadin and Citadin's evidence being that EA had paid no more than $30,000 in excess of the Citadin contribution. I prefer the Citadin evidence as to the actual costs incurred for the new fit-out (although at this point I make no comment on the evidence as to the costs for an equivalent fit-out to be established anew at another location today). While Mr. Azzi personally may well have spent additional funds on the fit-out, none of those expenses are recorded in any available records or in the books of the company and so I am not able to at this time accept his evidence as to the extent of additional expenditures.

17 The events then move to the beginning of 2000 when on 9 and 10 February, Mr. Collins had conversations with a Mr. McGrath, recorded in letters of 9 February (Collins to McGrath) and 10 February (McGrath to Collins) (documents 12/GP, 1A/EA) recording that McGrath had introduced to Collins the idea of Borders Books, a major American book chain, taking very substantial space in Skygarden. The letters identified the space at that time as the basement together with the Sportsgirl premises on the Pitt Street Mall and Castlereagh levels.

18 On 27 March Citadin retained McGrath's company (Exh. 8) to develop a tenants mix and leasing strategy for the Skygarden complex and McGrath, in about early April, produced a Strategy Report (1/GP) for the whole retail complex. He recommended three new anchor tenants for the centre as "destination retailers that draw people to a shopping centre", one of those being Borders Books. The report included recommendations to combine a number of Pitt Street Mall level shops, now not including the Sportsgirl shop but instead the GP shop, "to create a linked area with the basement" with proposals to "continue the link from Pitt Street Mall basement levels for the icon retailer at the Pitt Street end" up to the Castlereagh Street level into Shop C11 (then the upstairs Sportsgirl). The plan spoke of including lift access with the possibility of two lifts, a small one between basement, Pitt and Castlereagh levels and a "new glass lift travelling and stopping at all levels to L4".

19 Events in April then moved very quickly and by 10 April 2000 the minutes of the management meeting (3/GP) record that Mr. McGrath, with the new centre manager Mr. Ridge, had proposed a relocation to Mr. Staub of GP who responded that he would not agree to a relocation but would be seeking to expand. (There is no other evidence of relocation discussions with GP.)

20 On 18/4/00 Borders confirmed to McGrath (3/EA) that their understanding now was that the Skygarden premises on offer to them would extend from the basement through to Castlereagh level and include the GP tenancy (subject to vacant possession) which was acknowledged may not be "available until August 2002". Borders stated:-

"It is obviously our preference that the entire space is made available at the one time however, you have indicated General Pants (providing the prime Pitt Street Mall frontage) might not be available until August 2002."

21 McGrath then on 26/4/00 sent a memo to Collins (4/EA) setting out a strategy to achieve a total rental increase across the three floors of $400,000 by a Border Books tenancy from the basement through P1 to C11, the bulk of which rental increase, some $280,000, would only be available if the General Pants shop was included. He proposed internal vertical access works including lift, internal stairs and possibly escalators, stating,

"The works mentioned above would, I believe, be required to be done by us as part of any re-location or demolition clauses."

(This note had been in response to the two options in the Borders proposal of 18/4/00 (3/EA) which envisaged the possibility of commencing their occupancy without the GP shop).

22 This is the first mention in the evidence of demolition clauses and by 27 April 2000 Borders next memo to McGrath (5/EA) observed:

"I also understand that you have completed a review of existing leases that confirms the existence of demolition clauses which in turn create a strong possibility for vacant possession of the entire space to be delivered at the same time."

23 Then the minutes of the leasing meeting of 1/5/00 (7/EA) and a memo from McGrath to Collins (6/EA) both stressed the need to obtain the "legal opinion re demolition and re-location causes" with the response of 2/5/00 from Collins to McGrath (8/EA) promising the legal opinion by 4 May and observing :

"The issues are quite involved and his opinion will not necessarily be cut and dried. It appears once his report is to hand it will require extensive consideration with respect to implementing the clauses on some of the lessees."

24 The internal Border memo of 3/5/00 (9/EA) reported that:-

"The definition of demolition for the purposes of the clause needs to be reviewed (...). However, prima facie, vertical access works from the lower level should suffice. When combined with the expansion of more frontage ... I feel we can justify the definition of 'Major Works' for the purposes of the demolition clause . ... We therefore need to develop a plans for vertical access (most likely a three-level lift) to impact on the General Pants ("GP") tenancy. ... This poses a problem because the GP tenancy is at the front of the tenancy while the loading dock is at the back."

25 Then by 11/5/00 McGrath drafted two versions of an indicative letter of intent, one version (10/EA) for the first time including shops 106 to 108 i.e. including the EA shops of 106, 106A and 108 on Level 1; the other version (11/EA) still up to Castlereagh level only. Both these versions had reached Borders by 16/5/00 eliciting a response (12/EA) agreeing to "push for the inclusion of the fourth level of the store" and seeking inclusion of the GP shop from the start, noting that:-

"Preliminary design option indicate the only area over four floors that can accommodate our multi-level lift will be through the GP space. This would appear to give you the fire power to justify works for the purpose of defining the effect of the demolition clause ."

26 Two days later the centre manager Ridge met with Mr. Azzi for a further discussion over Azzi's long-standing concerns about the level of the rent his company was paying. Ridge informed Azzi that Citadin would not reduce the rent but would agree to a surrender of the lease without penalty. Ridge's note of the meeting (12A/EA) confirmed that "Eddie Azzi knows nothing about the icon tenancy". Mr. Azzi then in writing requested a written proposal for the "lease to be broken ... as soon as possible" (Exh. 7) which was sent by Ridge immediately. However, the surrender was not ever agreed, Citadin having declared time of the essence for the offer to surrender and the last letter from Azzi simply observing that he could not reply by the stated date. The Citadin leasing minutes at least at the latest 27/6/00 (13B/EA), suggest an intention for a further follow-up and request for a reply with a continuing hope on the surrender; but no surrender was achieved and there was no further discussion of the surrender between EA and Citadin. Nor did Citadin discuss relocation with EA, Mr Collins evidence being that there was no available space.

27 The indicative letter of intent had by 21/6/00 (13A/EA) become the four-level option only, which included the EA shops but still included express conditions for the delayed delivery of the GP Shop P1/1A not until August 2002.

28 In this 21/6/00 letter of intent (13A/EA), the split between Lessors and Lessees Works for the establishment of the new tenancy was clearly set out in a Master Schedule with a more detailed schedule annexed (but not in evidence). In summary the Lessor's Work was to provide clean spaces with a range of responsibilities for electricals, hydraulics, air-conditioning and other services and in particular to provide "all voids required for vertical access" and "two lifts ...over the four levels of the premises" and all external shop fronts. The Lessee's Works were for the partitions, ceilings and surfaces and all other fit-out. (Without seeing the detailed schedule annexed it is not clear if the Lessee's works included building the stairs but they appear to.)

29 Various plans had been prepared for the new tenancy beginning in late May 2000 by the design architect Mr. Williamson who first became aware on 24 May 2000 that Borders was the proposed icon tenant and that they would require "such structural elements as escalators, stairs and lifts for internal communication between ... four levels." The possibility of escalators was rejected by Mr Williamson early on and resulted in changed locations of various elements. Mr. Williamson's evidence was that, at all times from May through September, he prepared and varied his designs without any knowledge or reference to the demolition clause of which he says he became aware only after these proceedings had been commenced in 2001.

30 Changes in the designs included different locations for the two proposed lifts and the stairs between the basement and Castlereagh level passing through and in the leasing meeting of 27/6/00 (13A/EA) it is noted that the "Demolition/Relocation clauses will be invoked with vacant possession effective on 1 January 2001." The only shop noted for relocation was C12/13, Look of Australia, and as noted above the EA shops were still hoped to be the subject of a surrender.

31 Mr Collins evidence at the hearing would include a table showing that of the thirteen tenancies across the four floor 2,500 sq m area proposed for the Borders shop, ten were on either monthly tenancies or hold-overs, one, Look Australia on Level 1 adjacent to the EA shops was marked for "Relocation" and only two, GP and EA were marked as "Lease Demolition".

32 It should be noted that in his preparation of the plans in the editions right through September, Mr. Williamson described them as "Schematic Drawing for Refurbishment and Redevelopment" of the Skygarden Retail Complex. However, at the request of Citadin, he changed the November edition to describe them as "Schematic Drawing for Renovation and Redevelopment ", this being the version attached to the demolition notices.

33 By September the plans, as noted, had gone through various changes and on 25/9/00 (14/EA) Borders' memo to Mr Lovelock (Borders contractor on fit-out design and supervision whose company was also preparing plans and designs), observed:

"I like the plan but fear it might not be feasible. ... My main concern relates to the minimisation of works in the space currently occupied by General Pants. This could threaten the impact of the demolition clause that we need to secure the space."

And then a month later an internal memo (15/EA) stated

"With the completion of the Skygarden lease the landlord is now preparing to issue notices to quit on the requisite 13 tenancies required to create our space. ... It is imperative that any changes to the vertical access through the store still ensures sufficient works are undertaken for the purposes of exercising the demolition clause under specific existing leases. In particular we must demonstrate sufficient works through the General Pants Tenancy (on Pitt Street Mall) to justify their lease termination ... It is imperative that we have the plan endorsed by the landlord and his solicitor verifying their confirmation that the changes still invoke the exercise of the demolition clause."

34 On 31 August 1999 the Citadin Board had passed a resolution (Exh. 3) appointing Mr. Ng as managing director and resolved to grant him power of attorney which was executed under the company seal that day and subsequently registered. The power of attorney (Exh. 3)included authority to

2.1 Grant and accept the surrender of a lease ...

2.10 Enforce any covenant condition and stipulation in any lease ...

2.11 Exercise any right of re-entry or re-possession.

2.18 Employ any Estate Agent, solicitor, accountant ... to assist the attorney in the performance of the attorney's functions.

2.19 Appoint any agent to do any business ... which can more conveniently be done by an agent.

2.26 Execute all deeds and other documents relating to or incidental to the Property (being Skygarden).

35 In early November 2000 Mr Collins met with Mr. Ng, the Managing Director . In that meeting Mr. Collins asked Mr. Ng whether the Demolition Notices could be issued "to General Pants and Eddie Azzi when Borders' lease is signed?" to which Mr. Ng replied, "Yes, issue them then" and Mr. Collins said to the lawyers "You can issue them when the Borders lease is signed".

36 At that time the only document relevant to the Borders lease was in fact an Agreement for Lease with the Lease form annexed (16/EA). This had been drafted during October and by 27 November had been signed by Borders as a result of which Mr. Collins instructed the lawyers to the effect that "Borders have signed the lease; you are instructed to send the notices". Mr. Collins was cross-examined as to the nature of the document that had actually been signed and revealed some confusion as to whether in fact the Lease itself had been signed, answering that he regarded a lease as a more important document than an agreement for lease.

37 However, I am satisfied that the only document that he can have had in his mind was the Agreement for Lease and that his answers in cross-examination did not so reflect upon his credibility that his evidence as to the fulfillment of pre-conditions for the issue of the Demolition Notices in terms of the company's Managing Director's decision, should not be accepted. It is also the case that a plan forming part of the Agreement for Lease locating the premises geographically within the CBD was not correct and was subsequently changed resulting in a re-execution of the Agreement for Lease sometime in December (Exh. 2) after the notices had issued. However, again I do not consider that it affects the credibility of Mr. Collins evidence or the fulfilment of the relevant pre-conditions for the issue of the notices.

38 Accordingly on 28 November 2000 the Demolition Notices (17/EA) were signed and served, being received by GP and EA on 29 November 2000.

39 The Agreement for Lease (Exh. 2) had an attachment in the form of a document entitled "Attachments 1 and 2"; this was a combined schedule dealing with all of the works for the preparation and basic fitting-out of the combined premises and allocating the various tasks between landlord and tenant, generally following the split attached to the letter of 21/6/00 but in much more detail and, importantly, shifting the obligation to install the lift from landlord to tenant. The obligation in respect of internal stairs was also amended to have all aspects of that function a tenant's function (although as noted above it was not clear whether that had indeed been the position under the letter of 21/6/00 which only listed stairwell voids for the lessor.).

40 Attachment "A5" to the Agreement for Lease was a premises plan in the form of Mr. Williamson's September 2000, Issue E, design which provided for a single lift from basement through the GP shop P1 to Level One, covering all four floors and continued to be described as " Schematic Drawing for Refurbishment and Redevelopment ".

41 There was also a fit-out manual setting out the standards for the tenants fit-out.

42 Given the importance of the demolition notice it is necessary to set it out in full, it being a notice given by Chalmers & Partners referring to themselves as "Solicitors and Agents for Citadin Pty Ltd" and in both cases was as follows, with different headings of course as to the tenant and the defined premises.

"DEMOLITION NOTICE

We act for Citadin Pty Ltd the proprietor of Skygarden Shopping Complex.

By Lease ... ("the Lease") our client leased to you the premises.

By cl. 24 of the Lease if our client wants to demolish, substantially repair, renovate or reconstruct Skygarden Shopping Complex or the part of it containing the premises it may give you a demolition notice which notice must:-

a)give you sufficient details of the proposed works to indicate a genuine proposal to carry them out within a reasonably practicable time after the Lease is terminated; and

b)give you at least six months notice of termination.

As the solicitors and agents for Citadin Pty Ltd, we hereby give you notice that our client intends to demolish, substantially repair, renovate and reconstruct Skygarden Shopping Complex including the part of it containing the premises.

Details of the demolition, substantial repair, renovation and reconstruction of Skygarden Shopping Complex are set out in the attached schematic plans prepared by our client's designers, WAM Design Pty Ltd and will be carried out as soon as practicable after termination of the Lease.

Pursuant to the terms of the Lease you must within seven (7) days prior to the termination of the Lease take, remove and carry away from the premises all fixtures fittings plant equipment or other goods including stock if applicable brought upon the premises by you without damaging the premises and making good any damage caused and remove all rubbish and leave the premises in a clean state and condition.

The Lease will terminate on the date six months after the receipt of this notice by you."

43 The Notice contained no other explanation of the project, its timing or implementation and simply attached "schematic plans" which were Mr. Williamson's November 2000 version, Issue G, titled "Schematic Drawing for Renovation and Redevelopment". For reasons not explained, this version reinstated the two-lift option, one lift being in the GP tenancy and with the stairs also well within it. The other impact on the GP premises was slightly expanding the shop and rebuilding the shop front at Pitt Street Mall, removing its rear wall to incorporate it with the adjoining premises and adjusting another internal wall.

44 The works affecting the EA premises were the insertion of a lift, an internal stairwell to C11, removal of all internal walls and the extension of the shop front within the Mall internal areas.

45 The drawings covered work extending over all seven levels of the Skygarden Retail Complex including the installation of the escalator between the Attic and Roof levels which were also undergoing changes including the installation of a mezzanine floor at Roof level under previous works not detailed in these drawings but associated with the overall alterations of the Complex at this time.

46 Then by late January 2001, the plans had changed again for the Development Application to Sydney City Council, the version before me being undated Borders plans prepared by Mr Lovelock's company Designphase as consultant to Borders.

47 These importantly provide a single lift and relocate the lift proposal to commence in the previous stairwell in the basement, using a void requiring no passage through the space of the GP shop, and proceeding to serve all four levels. This new location of the lift was obviously a simpler and more practical solution. These plans shift the stairs to intrude only into what is currently air and ceiling space of the GP shop but still requiring a 6sq. m. hole to be cut in the ceiling slab of that shop. They also require demolition of the rear wall of the existing GP shop if the stairs are to be accessed at all.

48 The final lift proposal could be built without any impact on the GP space unless of course an opening into that space is required as would obviously be the case if it was part of the whole new tenancy.

49 These new plans involve the same amount of impact on the EA premises even though the location of the final lift void in the floor changes.

50 These final plans only became available to the Lessees in the course of these proceedings and were not served on the Lessees in any formal sense at about the time of or in relation to the demolition notice.

51 It is clear that on any view of the various versions of the plans, even the final plans, implementation of any of them would require vacant possession of both the EA and GP premises. Even if there were no lift entry at Pitt St. level into the GP shop, the whole scheme of the stairs on any of the designs requires demolition of the present GP rear wall and a void in the ceiling.

52 That is not to say that alternative plans to link premises in other ways could not accommodate a four level tenancy without impacting on and requiring vacant possession of both the EA and GP shops. However Citadin and Borders do not propose an alternative. They want to achieve a connected tenancy with four floors above each other with a frontage to the important Pitt St. Mall.

53 What is not clear from any of the plans themselves is the time frame proposed by Citadin or Borders for implementation. They do not contain any information about timing other than no doubt enabling engineers or builders looking at them to form opinions as to the time likely to be taken to implement them from whenever construction started.

54 Much attention was given during the hearing to the variations in the design drawings by the various parties involved in preparation of different version including Mr Williamson's and Mr Lovelock's versions. These were all reviewed in a detailed report by the GP consultant architect Dr. Lesiuk who appeared as an expert, which contained certain material said by the lawyers for GP to be relevant to the issue of the purpose of Citadin in preparing various versions of plans. Dr Lesiuk's report was objected to in so far as it was tendered to prove purpose.

55 However, in his evidence, Mr. Collins for Citadin expressly affirmed that it was a clear purpose of Citadin that the totality of the works to be undertaken in relation to the four floors to achieve an acceptable tenancy for Borders must also be sufficient to entitle it to rely on cl.24 of the Lease, the clause headed "Demolition". On that basis I suggested that it was not necessary to canvass third party evidence relating to Citadin's purpose or intention and hence I have had no regard to any aspect of Dr. Lesiuk's report dealing with purpose. (It should be acknowledged that GP and EA were obviously, in the preparation of the case and the commissioning of Dr Lesiuk's report, dealing with the issue of purpose in the absence of the discovered documents and Mr. Collins' subsequent acknowledgment of Citadin's purpose.)

56 A substantial amount of evidence was also placed before the Tribunal concerning the likely cost of EA both re-establishing a premises fit-out of its current quality in other premises and also renting other premises. I observed during the hearing that as there was no claim for damages by EA, there was no need to review this evidence in great detail. The lawyers for EA confirmed that this evidence was relevant to the issue of reliance to the detriment of EA on the alleged promise of Citadin not to enforce its demolition clause for the purposes of the promissory estoppel argument to be considered below and on that basis the evidence remained before the Tribunal. It would be apparent that whatever the dollar cost to EA in installing the fit-out in the first place over and above the Citadin contribution, re-establishing such a fit-out elsewhere with its granite floors, hand-painted frescoes and other detailed finishes, would not be inexpensive and to that extent would be able to be regarded as a potential detriment to EA in relying on any promise which was not to be kept (if that was the case).

57 The final dimension of the evidence that should be reviewed relates to the description given by various witnesses to the nature of the works undertaken over these four floors. For the purpose of informing myself as the Tribunal and within the powers to do so under the ADT Act, I asked various witnesses who worked as builders, designers, architects and property managers how they would describe the works. I did so because of the range of different words used throughout the legal regime constituted by the Leases and the Act concerning changes made to premises (cls 24, 25 of the Leases and Part 4 of the Act, set out below). As different words chosen for use in legal instruments are presumed to have different meanings or shades of meaning, forming a view on those meanings is crucial in determining this case.

58 S.33 requires notice to be given of "alterations and refurbishment"; s.34 provides for compensation for a ranges of `disturbances' to trading; s.34A regulates lease provisions permitting relocation of a tenant, allowing this for "refurbishment, redevelopment or extension" necessitating vacant possession and requires provision of details, timing and impact of these; s.35 regulates lease terms permitting termination for "demolition", this word being defined in s.35(4) to include any "substantial repair, renovation or reconstruction of the building".

59 I acknowledge that during the hearing it was apparent these words were not terms of art but were words of ordinary meaning. Even so I considered it appropriate and within my authority to seek these views, particularly in light of the overlap in meanings in an admittedly limited survey of dictionary definitions I provided to the parties, with one addition by Citadin's lawyers:-

Alter, Alteration

To make otherwise or different in some respect without changing the thing itself; to modify. (Shorter OED 3rd Ed rep 1969)

To make changes to; a change, modification, adjustment made to something (Encarta/Macmillan 1999)

To make different in some particular, modify (Macquarie- Budget 1985)

Refurbish (no OED listing)

To restore to a cleaner, brighter or more functional state (Encarta)

Renovate (Macquarie)

Redevelop (no OED listing)

To improvean area that has become run down by renovating buildings (Encarta)

Repair

The act of restoring to a sound or unimpaired condition; restoration of some thing or structure by the renewal of decayed or worn out parts (OED)

To restore something broken or damaged to good condition (Encarta)

To restore to a good or sound condition after decay or damage (Macquarie)

Renovate

To renew materially; to repair; to restore by replacing lost or damaged [arts (OED)

To restore to good condition (Encarta)

To make new or as if new again (Macquarie)

Reconstruct

To construct anew (OED)

To put back together from component parts (Encarta)

Structural changes, transformation, renewal, alteration of premises that are not insignificant (Butterworths Australian Legal)

60 It was therefore important to me to determine the understanding of people with long experience in relevant areas as to which of these descriptions they would consider to be apt.

61 It was noteworthy that Mr. Lovelock, a builder of over 30 years experience who was involved in the design advice to Borders, first described the works as alterations but, when the issue was further explained, went on to consider various aspects of the works would attract the meaning of the other words referred to.

62 Dr. Lesiuk similarly generically described the works as "alterations" , adding that the works involved "a series of components which involve refurbishment of the existing structure". He did not think "redevelopment" applies and did not favour "renovation" applying in this case.

63 Mr. Martin, the property manager, preferred to describe a number of important parts of the works as reconstruction.

64 It was obvious from Mr. Williamson's own reports that until requested to change the description, he initially chose "refurbishment and redevelopment" and he acknowledged that the change in description was at the request of Citadin. However he was firm in his professional view that the word "renovation" was correctly used in relation to this project.

Part 4, Retail Leases Act

65 The important provisions of the Act regulating changes to premises, referred to above, are found in Part 4 of the Act which is titled "Alterations and other interference with the shop".

33 Lessee to be given notice of alterations and refurbishment

A retail shop lease is taken to provide that the lessor must not commence to carry out any alteration or refurbishment of the building or retail shopping centre of which the retail shop forms part which is likely to adversely affect the business of the lessee unless:

a) the lessor has notified the lessee in writing of the proposed alteration or refurbishment at least 2 months before it is commenced, or

b) the alteration or refurbishment is necessitated by an emergency and the lessor has given the lessee the maximum period of notice that is reasonably practicable in the circumstances.

34 Lessee to be compensated for disturbance

(1) A retail shop lease is taken to provide that if the lessor:

a) inhibits access of the lessee to the shop in any substantial manner, or

b) takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop, or

c) unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or

d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor's control, or

e) fails to rectify any breakdown of plant or equipment under the lessor's care or maintenance, or

f) in the case of a shop within a retail shopping centre, fails to adequately clean, maintain or repair the retail shopping centre (including common areas),

and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence.

(2) In determining whether a lessor has acted unreasonably for the purposes of subsection (1) (c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices.

(3) A retail shop lease may include a provision preventing or limiting a claim for compensation under the provisions implied by this section in respect of any particular occurrence if the likelihood of the occurrence was specifically drawn to the attention of the lessee in writing before the lease was entered into.

Note. A disclosure statement is an appropriate means of specifically drawing the attention of the lessee to the likelihood of an occurrence.

...

34A Relocation

If a retail shop lease contains provision that enables the business of the lessee to be relocated, the lease is taken to include provision to the following effect:

a)The lessee's business cannot be required to be relocated unless and until the lessor has provided the lessee with details of a proposed refurbishment, redevelopment or extension sufficient to indicate a genuine proposal that is to be carried out within a reasonably practicable time after relocation of the lessee's business and that cannot be carried out practicably without vacant possession of the lessee's shop.

(b) The lessee's business cannot be required to be relocated unless the lessor has given the lessee at least 3 months written notice of relocation and that notice gives details of an alternative shop to be made available to the lessee within the retail shopping centre. Such a notice is referred to as a relocation notice.

(c) The lessee is entitled to be offered a new lease of the alternative shop on the same terms and conditions as the existing lease except that the term of the new lease is to be for the remainder of the term of the existing lease. The rent for the alternative shop is to be the same as the rent for the existing retail shop, adjusted to take into account the difference in the commercial values of the existing retail shop and the alternative shop at the time of relocation.

Note. Paragraph (c) only specifies the minimum entitlements that the lessee can insist on. It does not prevent the lessee from accepting other arrangements offered by the lessor when the details of a relocation are being negotiated.

(d) If a relocation notice is given to the lessee, the lessee may terminate the lease within 1 month after the relocation notice is given by giving written notice of termination to the lessor, in which case the lease is terminated 3 months after the relocation notice was given unless the parties agree that it is to terminate at some other time.

(e) If the lessee does not give a notice of termination as referred to in paragraph (d), the lessee is taken to have accepted the offer of a lease as referred to in paragraph (c), unless the parties have agreed to a lease on some other terms.

(f) The lessee is entitled to payment by the lessor of the lessee's reasonable costs of the relocation, including (but without being limited to) costs incurred by the lessee in dismantling and reinstalling any fixtures and fittings, and legal costs, in connection with the relocation.

Note. This section does not prevent the parties negotiating a new 5 year lease for the purpose of relocating the lessee. Paragraph (f) only specifies the minimum entitlements that the lessee can insist on and the parties can come to some other arrangement for the payment or sharing of the lessee's relocation costs when the details of a relocation are being negotiated.

35 Demolition

(1) If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building of which the retail shop forms part, the lease is taken to include provision to the following effect:

a)The lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal to demolish that building within a reasonably practicable time after the lease is to be terminated.

(b) The lease cannot be terminated by the lessor on that ground without at least 6 months written notice of termination.

(c) If notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than 7 days written notice of termination at any time within 6 months before the termination date notified by the lessor.

(2) If the lease is for a term of 12 months or less, the period of 6 months in subsection (1) (b) and (c) is shortened in each case to 3 months.

(3) If a retail shop lease is terminated on such a ground and demolition of the building is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish the premises within that time.

(3A) (Enacted after and not applicable to these leases) If a retail shop lease is terminated on such a ground, the lessor is liable to pay the lessee compensation for the fitout of the retail shop if the lessee is required under the lease to fit out the retail shop, whether or not the demolition of the building is carried out.

(4) For the purposes of this section, demolition of the building of which a retail shop forms part includes any substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop.

38 Refurbishment and refitting

Provision in a retail shop lease requiring the lessee to refurbish or refit the shop is void unless it gives such details of the required refurbishment or refitting as may be necessary to indicate generally the nature, extent and timing of the required refurbishment or refitting.

66 All sections have effect in relation to leases either adding provisions to leases, s.33, or regulating provisions by either specifying the way in which provisions can operate, s.34A - relocation and s.35 - demolition, or voiding provisions which do not contain sufficient details, s.38. The basis of their operation therefore is as part of the document namely the Lease, evidencing the intention of the Lessor and Lessee.

Summary of parties' contentions

67 The parties are absolutely opposed as to the validity of the Demolition Notice and the legal principles to be applied to the interpretation of the Lease and its enforcement.

68 The Lessor, Citadin, says very simply that:-

(a) the Lease, as affected by the Act, establishes a straightforward right to terminate the GP and EA leases in circumstances where it intends to carry out or procure or permit a range of works to combine the previous 13 tenancies over four floors with inter-connecting access and adjustment to shop fronts for a complete new fit-out by a replacement tenant.

(b) the Demolition Notice is properly authorised in accordance with the proper procedures of the company and complies with cl.24 of the Lease as affected by s.35 of the Act.

(c) there was no promise made by or on behalf of the company when the leases were entered into varying that right or giving rise to any right in equity for the Lessees to prevent its enforcement.

69 The Lessees contend that:-

(a) they entered into the leases and incurred expense and detriment based on Citadin's promise through Mr. Salter that the demolition clause would not apply in a situation such as this.

(b) the Demolition Notice is void for lack of proper corporate authority and for failure in its terms to comply with the lease and the Act.

(c) the purpose for which Citadin seeks the usage namely the introduction of a preferable tenant is not for various reasons permissible under or contemplated by cl. 24 and s.35.

(d) the works proposed did not fall within the definition of demolition in the Act and the Lease.

70 At the heart of adjudicating this dispute, it falls to the Tribunal to determine the proper application of cl.24, read together with s.35, as the lease provision intended between the parties to provide the right of the Lessor in stated circumstances to serve a notice terminating the lease on six months notice without an obligation to compensate the Lessee to any extent. (As noted above, s.35 (3A) post-dates the leases and does not apply in this case to entitle the lessees to compensation).

Promissory estoppel

71 Is Citadin estopped from enforcing the demolition clause? The Lessees say that applying the familiar rules from the High Trees case (1947) KB 130, Citadin has through its contract centre managing agent, Mr. Salter, made a representation or promise as to its future conduct namely that it would not rely on cl.24 and that the Lessees have acted to their detriment by entering into the leases in reliance on that promise, incurring financial and/or commercial burden.

72 In my opinion, accepting either the Lessees' or Mr. Salter's reconstructed versions of what he said to them, and the circumstances in which it was said, this did not constitute promises or representations that Citadin would act in a certain way in the future under the demolition clause . In my view, Mr. Salter was only expressing his prediction as to the likelihood of cl.24 being enforced and the situations in which he considered it might apply. He was not promising that the lessees could be certain the clause would not be used in respect of their leases.

73 There is also considerable doubt that he would reasonably be able to be considered by the Lessees in the circumstances as having the authority to bind the owner to any such promise. While he was the contracted centre manager and the only person on behalf of Citadin with whom the Lessees would deal direct, the basis of his dealings and his correspondence generally noted a reference to the owner for a decision. In addition the language he used expressly referred to circumstances in which the owner might act; they are not readily to be able to interpreted as statements by the owners in that regard.

74 If I were to be considered wrong on those two issues such that Mr Salter's conduct was in the nature of a promise, I am satisfied that both Lessees could be said to have acted in response to those statements by deciding to enter into those Leases and incur the detriment noted and to that extent, the ingredient of reliance within the document of promissory estoppel would be made out in this case.

Equitable Estoppel

75 During the hearing the case was presented by the Lessees on the basis that a promissory estoppel arose at the time of entering into the leases and that has been dealt with above. That was the legal principle responded to by Citadin.

76 In its submission filed at the commencement of the hearing, EA included a claim for relief against the notice on the basis of an equitable estoppel that in the circumstances of the case it would be "unconscionable" for the lessor to invoke cl.24.

77 The doctrines of promissory estoppel and equitable estoppel are of course differing applications of the general law of unconscientiousness or unconscionability, see Waltons v. Maher [1988] HCA 7; (1998) 76 ALR 513. It might be argued that at the time of termination of a lease using a clause such as this, the circumstances can be said to give rise to an equity regulating the conduct of a lessor. Indeed I have had cause to deal with this issue in New York Boutique Pty Ltd v Lend Lease Property Management Pty Ltd (2001) NSWADT . However it was not put to me during the hearing that the equity arose from the circumstances prevailing at the termination of the lease, rather that the equity was simply in the form of a promissory estoppel arising from the circumstances at the commencement of the lease.

78 Accordingly I do not make a determination as to whether the circumstances established by the evidence as surrounding the termination of the lease gave rise to an equitable estoppel because the parties are within a relationship falling within the accepted categories where the rules of equitable estoppel have been held to apply. The need for speed and urgency in concluding a decision in this matter prevents further consideration of this point.

79 I note that PG put its case for unconscionability in terms of promissory estoppel and not on the basis of an equitable estoppel arising otherwise than from the alleged promises made at the beginning of the lease.

Authority to issue notices

80 The Lessees contend that the authority provided to the lawyers to issue the notices was insufficient, first because a notice of such importance should be under the seal of the company pursuant to a specific Board resolution and cannot be issued within the powers of managing director in the ordinary course or under a power of attorney, and secondly that the lawyers were acting under a delegation in respect of the powers that cannot be delegated.

81 I do not accept those contentions. In my opinion the power of attorney was validly granted and contained clear authority to the managing director to take action of this nature including to instruct lawyers to do so. The evidence establishes that the managing director did issue an instruction and that any pre-conditions to the issue of the notice were in practical terms properly fulfilled. I find this despite the document being executed being an Agreement for a Lease rather than the lease itself and despite the subsequent re-execution of that Agreement for Lease because of the error in the plan.

Insufficiency of the notice

82 The Lessees contend that a demolition notice needs to be very strictly construed given the importance of the right asserted. They say its invalidity arises principally from the fact that it merely recites the terms of cl.24 (although as discussed below, not exactly). The arguments as to why the Notice is defective which arise from my reading of the Notice and from the submissions of the Lessees are:-

first the precise manner in which cl.24 is permitted to operate is only as set out in s.35. This does not permit the cl.24 right to arise for a proposal relating only to part of the premises as stated in the notice but only for a "substantial repair, renovation or reconstruction of the building"

secondly because a notice to be valid must specify precisely which of the categories of work are to be carried out rather than simply listing all the possible categories as is done in this notice. This notice leaves it to the Lessee to determine the classes of works against which it is to evaluate the details which were then given namely "demolish, repair, renovate or reconstruct" and to determine whether they were genuine, whether it was correctly claimed they required vacant possession and whether the time aspect was covered.

thirdly, the works detailed in the Notice and expressed by it to be "the proposed works" are not now nor were they then, the precise works then intended to be carried out.

fourthly, a lessor cannot rely on details of its intended works given at a later time than the notice.

83 Certainly within its own specific terms, there is nothing in the details given that indicate one way or another the genuineness of the proposal to carry them out. All that is set out are certain works. As we now know from the detailed evidence at the hearing, the works set out are different in regard to the location of the lift and the first three levels stairwells from those in the Agreement for Lease itself signed before the Notice and different yet again from those which have ultimately been adopted in the 21 January Borders plans.

84 There is nothing in the Notice detailing when and how the works are to be carried out, who is to carry them out, and why the time within which they are to be carried out is a "reasonably practicable time after the Lease is terminated". As noted above the plans themselves do not provide that information except to the extent that experts may be able to form views on that subject which would depend on an unknown range of factors such as starting time. The Notice itself says that it "must... give...details...to indicate a genuine proposal to carry them out within a reasonably practicable time after the Lease is terminated". However all the Notice says is that the works "will be carried out as soon as practicable after termination of the lease"; there is no basis on which to form a view as to whether that would be a "reasonably practicable time". It is hard to see how the Notice satisfies the task it says it must do.

85 Even if that problem may be cured by the effect of s.35 overriding the wording of the Notice and focussing on the details actually given, I have concluded there is nothing in those details given prior to these proceedings being commenced that provides a basis for the necessary evaluation a lessee is entitled to make on those questions.

86 The next attack on the Notice by the Lessees is that works details attached to it are, on any view of the evidence, not the precise works Citadin now or then actually intended to carry out. In my view, in terms of the way the drafter has written this Notice, I do not think that it validly specifies the proposed works. However I do not rely on this factor alone as rendering the Notice invalid.

87 The Act and the Lease, unlike this Notice itself, separate the stipulation for giving of the notice from the stipulation for the giving of the details sufficient to indicate the genuineness proposal, its impact and the reasonably practicable time. So it is open on the language that the details do not need to be in a notice itself and also that if there is a later change in the intended works, this does not invalidate a notice if at the time of its issue there was a genuine intention to carry out works that were actually within s.35.

88 Citadin's lawyers argue that whatever details were given with the notice, during the course of this case the Lessees are now in fact in receipt of a very large amount of information specifying the actual final proposed construction including which of the parties to the proposed new lease is to be responsible for the works, the time within which they are to be carried out under the Agreement for Lease and the fact that most of the other tenancies have in fact begun to be stripped, with tenders for the works having been let.

89 On that basis Citadin contends that the Lessees and this Tribunal are now adequately placed to determine whether all of the details in fact are sufficient to establish the requirements of s.35, including the time within which the works were to be carried out, even though at the time the notice was given, they were not.

90 I have to say that would be a curious result where only by commencing legal proceedings, a tenant is ultimately put in possession of the necessary information to determine whether the legal right asserted against it arises in the first place. Or, further to test the proposition, consider where having been given initial information, a tenant assesses that the information is inadequate to attract the termination right, relies on its assessment to that effect, takes no steps and launches no proceedings other than asserting that decision to the Lessor. Then very shortly before the notice is due to elapse, further details are given which do satisfy the section. A tenant in that position would have lost any opportunity properly to plan its departure from premises.

91 Just as Citadin in this case put submissions based on the need for certainty for a Lessor in its rights to enforce provisions of this nature, so there must be certainty for tenants receiving such notices to know that they can proceed to assess them promptly on the basis of the information set out within or given at or close to the time of the notice. In this case the Lessees did not have the full range of information around the time of receiving the Notice establishing on its face a complete compliance with the factors in s.35.

92 Therefore, although in the result of this case this is not the only argument against the Lessor succeeding, the terms of this Notice and the proper application of s.35 produce the result that in my opinion it is not a valid notice entitling termination of the Leases.

The use of demolition notices for the purpose of replacing existing tenants with commercially preferable tenants

93 One of the most central issues in this case is whether, on the proper construction of this Lease as read in accordance with the Retail Leases Act, the intention of the parties was to permit the Lessor to make a decision at any time to make changes to the building within which the lease premises were located, specifically in order to replace the existing tenant with a commercially preferable tenant who would either take the premises themselves or the premises as amalgamated with other premises within the building.

94 The Lease contains both a demolition and a relocation clause. It operates with the additional provisions of s.33, 34 and 35 of the Act. In my opinion the proper construction of the Lease so read is that these rules and regulations govern the right of a lessor to engage in that conduct having regard to the physical condition of the premises.

95 In my opinion no lease could be construed as being intended by both parties to operate so that, on the day following the granting of a registered proprietary interest to a lessee in premises, for which the lessee had incurred fit-out costs or had an established business with goodwill, the lessor could decide to terminate the lease to connect those premises to adjacent units, re-configure the shop fronts and let them to another lessee who would fit them out and occupy the combined space, thereby providing the lessor with occupation of otherwise vacant premises in its building and a commercially preferable return on its building overall.

96 In my opinion the right under this clause is available in respect of premises where having regard to the condition of the building, including the condition of the leased premises, the lessor genuinely determines to repair, renovate or reconstruct the building to a substantial degree. There would be no such genuine determination where the decision in respect of the leased premises was to incorporate them into a parcel with other premises to achieve a preferable return as opposed to continuing the existing lease and leasing those other premises separately or in combinations not including the leased premises.

97 Leasehold interests are proprietary interests in land, not merely contractual rights and while the exercise of that proprietary interest is determined by the provisions of the lease, and may indeed cease to continue as such a proprietary interest according to those provisions, the operation of any such conditions must be strictly construed.

98 Citadin argues that if I do not give literal effect to cl.24 having no regard to the commercial purpose sought to be achieved by the lessor, this will leave building owners hamstrung in managing shopping centres in the interests of their own investment and of the commercial wellbeing of other shop tenants in the centre generally. Here they say was a building not functioning well which needed revitalisation and the best way to do that was to get in an icon tenant and remove the existing tenants from that space.

99 The tenants of premises on unexpired leases, argues Citadin, would be able to block renovation plans where the preferable commercial outcome for the overall benefit of the centre was the re-configuration of its units to produce a larger premises for a key or so-called icon tenant.

100 In my view that is a matter for the commercial management of the premises and is not of itself, in the absence of a genuine purpose having regard to the condition of the building, a basis for construing lease provisions as intended by both parties to permit termination.

101 Citadin also contended that the effect of such an interpretation of the clause would be that no lessor could plan renovation and repair of buildings, having any regard to likely future tenants because signing up a future tenant for renovated buildings would immediately render invalid the purpose for which the clause is available to be used.

102 I do not agree with this. It will always be a matter for judgment whether, having regard to the physical condition of the premises, works falling within s.35 were indicated and if they were, planning the implementation of such works at the same time as looking to possible future tenants if vacant possession, and the termination of the existing lease, was necessary to enable the works to be carried out.

103 By so construing cl.24 as read with s.35 there is a sensible and meaningful basis upon which an incoming or renewing tenant can assess and take the risk on the application of the clause. The lessee can examine the building, its state of repair and presentation, the nature and extent of their own fit-out required by the lease insofar as that becomes part of the condition of the premises and the building and then determine the real likelihood of a lessor making a genuine determination within the period of the lease about to be commenced that it would repair, renovate or reconstruct the building in a substantial manner in such a way as to require vacant possession of the premises.

104 Indeed that is how I construe what happened as a result of the statements by Mr. Salter which although not sufficient in my view to give rise to a promissory estoppel, were clear assessments taken into account by the prospective lessees of the very factors contemplated by the clause as relevant to its application.

105 In the EA case, both Mr. Salter and Mr. Azzi focussed, appropriately in my view from the perspective of the ordinary application of the clause, on the fact that Citadin had just spent $100,000 or more on his shop. Accordingly when the new fit-out was complete, the state of repair of that particular premises would have remained good at least for the initial five year term of the lease.

106 The construction of the clause contended for by Citadin does not in my opinion accord with accepted commercial practice or expectation in relation to such a clause. Indeed Citadin's lawyers acknowledged that the effect for which they were contending may well operate in a harsh and draconian manner in particular cases such as here where all other of the required 13 tenancies were on holdovers or on a monthly basis and only two tenants retained term rights. That, Citadin argues, is just the unfortunate result of the need for a workable regime to enable proper management of the condition of large shopping centres. The very fact that Parliament has now added s.35 (3A) is further evidence that the Act unamended could have a harsh effect. (Hansard was not shown to me in support of that interpretation.)

107 I cannot agree with this proposition. Commercial leases are entered into and operated in accord with commercially sustainable interpretations of the meaning of their clauses. This would not be such an interpretation. If the legislature has clarified that by inserting (3A), this does not in my view change the analysis of the correct interpretation of cl.24 with s.35 prior to the amendment.

108 Citadin argues that this effectively penalises it in properly optimising its return. I do not accept this argument. The facts of this case indicate that there was a commercial basis upon which Borders Books was willing to negotiate for a tenancy which would only include the GP space upon the expiration of its lease. It was also initially willing to negotiate for a lease which did not extend to the fourth level and incorporate EA's premises. Citadin wished to do better; it is not to be criticised for this but the inability to achieve a better commercial return does not constitute a legal argument.

109 It is reasonable to infer on the evidence that when the possible application of the demolition clause arose as an alternative if the EA dissatisfaction was not resolved by surrender, there was then an opportunity to press Borders to an even larger lease.

Blackler v. Felpure Pty Ltd (1999) NSWSC 958

110 Citadin submits that there is authority against the proposition I have just stated in the Supreme Court decision of Bryson J in the above case. It concerned a two-storey shop in the Caringbah Shopping Centre with the ground floor leased for a fast food bar and the upstairs an office area vacant at the time of the case. The lease contained a demolition clause in virtually the same terms as in the leases in this matter but for other obvious reasons, given the two-unit nature of the premises and the fast-food permitted use, it did not contain a relocation clause as there would have been nowhere to relocate the fast-food tenancy to.

111 The lease was for three years with two three year options and just before the end of the first term it was sold. Six months later the new owner served a notice under the demolition clause advising its intention "to completely gut" the downstairs premises and completely replace the shop front wiring plumbing ceilings and toilets; it also stated that the proposal for a "complete refurbishment of both floors of the building". The evidence established the intention of the new owner to move its real estate business into the premises and to let out the other floor. In commenting on the duty of good faith in the exercise of contractual rights to terminate the lease, which Bryson J ruled should be implied in the lease, he observed that such rights need:-

"... To be undertaken in good faith for the purposes for which the power was conferred and at a more basic level the principle which vitiates fraud were to deprive a notice asserting that there was an intention to demolish premises from any effect if in fact there was no such intention. However those situations did not relate to the present facts, and there is no reason why an intention of the defendant to occupy the premises itself, or even maybe to lease them out to some particular identified person after the works had been carried out, establishes the exercise has not been carried out in good faith. The defendant can exercise its power to terminate the lease with a view to its own advantage; it is for the purposes of that kind of contractual entitlements generally exist."

112 In my view it is only the last sentence which, having regard to the facts of that case, suggest that it establishes a principle contrary to that which I have set out above. In my view the statement that "the defendant can exercise its power to terminate the lease with a view to its own advantage" is not correct as an absolute proposition, was not necessary for the decision in that case and was not supported by any other authority. (Indeed, as astonishing as it may seem the lawyers before me advised that they were quite unable to find any other authority to support that absolute proposition or dealing with the principles governing the circumstances in this case.)

113 I do not consider that the above statement in the context of a single shop of two levels without a relocation clause and in circumstances where the property owner proposed to carry out the works itself and subsequently occupy part of the premises, establishes a principle determinative of the proper application of the terms of different Leases in quite different factual and commercial circumstances.

114 In any event there are further factors which in my view establish that in the circumstances of the present case, cl.24 of these Leases with s.35 does not apply to authorise termination of the lease.

The nature of the works and their implementation

115 If contrary to the view expressed above, the validity of this notice is to be determined by factors going beyond the details provided at or about the same time of its service, I nevertheless consider that it would be artificial to say that the circumstances contemplated by the lease for this right of termination, have arisen.

116 First, the clause speaks of changes to the building which "the Lessor wants to" effect.

117 The evidence clearly establishes that the approach, which is common for shopping centre complexes of this nature, was to apply a clear delineation of lessors' works and lessees' works. The lessor's works are the basic further stripping of premises following the departure of the previous tenant and the removal of all its tenants fixtures, and then the completion of specific categories of changes to the basic building to bring it to a clean state upon which the full fit-out of the re-leased areas would be undertaken by the tenant.

118 The Agreement for Lease here was rather more complex than that simple split because it dealt with an extensive range of works which would obviously precede the installation by the tenant of all of its trading fittings and equipment such as shelving, counters and so forth. In this case the Agreement for Lease allocated to the tenant a number of basic structural and service works such as installation of staircases, ceilings, carpets, tiling and other toilet accessories and in particular any lift or lifts to be installed, which as noted above was amended from their original split of works.

119 While the Agreement for Lease provided a Lessor's contribution to the fit-out works of $500,000, the full range of those works were clearly specified principally by the incoming tenant to establish a new and inter-connected tenancy over four floors within which it would then further be able to set up the particular style of bookshop for which it regarded itself as well-known internationally.

120 I find it impossible to conclude that this usual commercial arrangement for the introduction of a new tenant into amalgamated premises fits appropriately within the description of the "Lessor wants" to effect certain changes to its building by way of a renovation or reconstruction. What Citadin wants to do is make the basic alterations including cutting the voids in the floors and relocating the shop fronts as well as ensuring that either by outgoing tenants or its own work, the shops are stripped so as to admit a new tenant who will then establish its own business by way of the bulk of the surface finishes and fittings that will together constitute the completed premises.

121 Secondly, I note the comments of some of the qualified witnesses with many years experience, describing the lessor's works in the circumstances as "alterations" although agreeing that the totality of the works or elements of them may well be susceptible to being described as renovations.

122 While the drafting of Part 4 of the Act uses words whose shades of meaning overlap and all of which may well be considered as generically "alterations", nevertheless, in providing how retail leases will operate, they set up a varying regime for different types of work. While all alterations or refurbishments are subject to the notice provisions of s.33 (with certain rights for compensation for disturbance under s.34), the effect of s.34A (and its predecessor s.57) is that lease terms permitting relocation of a tenant can only arise for a "refurbishment, redevelopment or extension". Then s.35 provides that the more serious right of termination on 6 months notice without compensation is only available for a "substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop".

123 In addition to my view as to the proper construction of the lease in relation to the mutually intended purpose for which these clauses exist, they also require that as a matter of fact in the case, there must be a substantial renovation or reconstruction of the building.

124 It was conceded by the lawyers for Citadin that this was not a case of repair of the building. Citadin agrees that, unlike cl.24 and admittedly in variation of it pursuant to s.7 of the Act, s.35 does not expressly speak of a "part of the building". However they argue that what is involved here is really a renovation of the building, particularly when the generally contemporaneous changes to the roof levels are also taken into account.

125 In my opinion, while the commercial desire of Citadin is to bring about the commercial rejuvenation of its building, the preferred description on all of the evidence of what it seeks to achieve is a refurbishment and re-fit of the parts of the building which Borders wishes to occupy, being about one-quarter of the shopping complex, including making the necessary alterations to shop fronts, floor slabs and internal walls to enable the tenant to complete that refurbishment and re-fit. The designer Mr Williamson titled his drawings "Schematic Drawing for Refurbishment and Redevelopment" until asked to change to "Renovation' in the November version included in the Notice.

126 I do not think this is a substantial reconstruction of the building. While the works, even allowing the inclusion of the Attic and Roof level works which may be said to outside the scope of this case, may involve some renovation, they are not in my view considered in the context of the whole process a substantial renovation of the building. I find difficulty describing the works to the areas of proposed Borders lease as a renovation as opposed to a refurbishment and re-fit.

127 I am unable to conclude that these facts are appropriately described as "substantial repair, renovation or reconstruction of the building that cannot be carried out practicably without vacant possession of the shop". In my opinion while these facts may give rise to a right of relocation, they do not give rise to a right of termination.

Sham Demolition Notice

128 GP asserted that the issue of the demolition notice was simply a sham and therefore it is void. This was also characterised as "an abuse of process" as well as being said to be within a doctrine of "fraud on the statute". Extensive authority was cited all of which dealt with transactions that were never intended to operate according to their respective tenors but were a façade. The principle said to emerge from these cases was that the service of the notice in this case was a simple ploy for the improper use of s.35 for the purpose of being in a position to grant a lease of the premises to Borders and that the notice masks the real intention. The authorities included Associated Provident Funds v FCT 40 ALJR 265 and the decision of the Full Federal Court in Sharrment Pty Ltd v The Official Trustee (1988) 82 ALR 530.

129 I have not reviewed these authorities in detail in the time available given the urgency of this matter because I am firmly of the view that there was no dishonesty or false intention of Citadin in this case. It had legal advice presumably to the effect that cl.24 and s.35 read together gave it certain rights which it then sought to exercise. There was no question that it intended to carry out a certain quantity of works itself and to authorise other works. While I consider it appropriate to examine the purposes for which the conduct was engaged in with reference to the proper construction of the lease read with the statute, and to have concluded that those purposes went beyond the application of the demolition clause in the circumstances of this case, I do not do so on the basis that there was any sham or pretence involved in the matter.

Decision

130 For these reasons I dismiss the Application by Citadin, uphold the Application by EA and declare that Citadin Pty Ltd is not entitled to terminate the leases of Eddie Azzi Australia Pty Ltd (3796213 L) and General Pants Co. Pty Ltd (3696200 D) pursuant to Demolition Notices dated 28th November 2000.

131 I dismiss the application for costs. In my view there are no special circumstances within s.88 of the ADT Act as applied by this Tribunal warranting an order as to costs.