Randi Wixs Pty Limited v Pokana Pty Limited (No. 2) [2003] NSWADT 4 (10 January 2003)

Last Updated: 3 March 2003

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL RETAIL LEASES DIVISION

CITATION: Randi Wixs Pty Limited -v- Pokana Pty Limited (No. 2) [2003] NSWADT 4

PARTIES: APPLICANT

Randi Wixs Pty Limited

RESPONDENT

Pokana Pty Limited

FILE NUMBERS: 025026

HEARING DATES: 24/06/2002, 04/07/2002, 26/08/2002, 25/09/2002, 01/11/2002

SUBMISSIONS CLOSED: 25-11-2002

DECISION DATE: 10-01-2003

BEFORE: Molloy GB - Judicial Member

LEGISLATION CITED: Administrative Decisions Tribunal Act 1997

Retail Leases Act 1994

CASES CITED: Trustees Limited v Ergun [2000] NSWSC 872

Whiteway House (No. 199) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521

Aspromonte Pty Limited v Zagari [1999] NSWSC 831

Heysham Properties Pty Limited v. Action Motor Group Pty Limited [1996] NSWSCCA 170

Tricontinental Corporation Ltd v. HDFI Ltd (1990) 21 NSWLR 689

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

Claim for payment of money

MATTER FOR DECISION: Principal matter

APPLICANT REPRESENTATIVE: APPLICANT

E Cohen, barrister

RESPONDENT REPRESENTATIVE: RESPONDENT

S Jacobs, barrister

ORDERS: 1. The parties bring forward Short Minutes of Ordeers consistent with these Reasons

2. Liberty to apply for the purposes of making final declarations and orders and hearing any arguments (if agitated) on the question of costs.

Reasons for Decision:

1 By Application filed 22nd May 2002 the Applicant as Lessee sought firstly, certain interim relief and secondly, various declarations and consequent orders. There was a robust submission made on behalf of the Respondent Lessor to the effect that this Tribunal did not have jurisdiction to deal with the dispute between the parties and I ruled on that submission by Judgment dated 18th October 2002 in which I determined that this Tribunal had jurisdiction to hear and determine the matters in issue between the parties.

2 The matter was then listed for me on 1st November 2002 for hearing on the substantive matters.

3 The primary issue is whether or not there is in fact at law a Lease between the parties and, if so, the terms of that Lease. If there is no Lease then the Applicant is either holding over under the relevant provisions of the previous Lease, alternatively is a trespasser having regard to a purported Notice to Quit served on the Applicant requiring vacant possession to be delivered up to the Respondent. There are secondary issues that have been debated, in particular issues relating to the legal costs claimed by the Respondent and a claim made by the Respondent that the Applicant pay certain moneys in respect of fire safety expenses.

4 It is convenient to deal with the primary issue first.

Nature Of The Occupancy of the Lessee

5 It is necessary to refer to some of the factual matters that are recited in my original decision of 18th October 2002. The Applicant is the occupier of premises 123-125 Avoca Street, Randwick, which premises are owned by the Respondent and the Applicant alleges that it occupies those premises pursuant to a Retail Lease within the meaning of "retail lease" as defined in the Retail Leases Act 1994. The evidence seems to show that the premises were being operated as a restaurant as far back as 1985 and probably as far back as 1972. In 1985 Mr Alex Ostrovsky and his brother purchased the then existing business for about $180,000.00 from interests associated with the Respondent. The Respondent remained the owner of the premises. In about 1992 Mr Ostrovsky, through his company the Applicant, bought out his brother and continued to pay rent to the Respondent. The premises were subject to a registered Lease W745957 from the Respondent as Lessor to Votraint No. 227 Pty Limited (owned by Mr Ostrovsky) as Lessee for a period of ten (10) years commencing 7th October 1986 and terminating 6th October 1996 ("the First Lease") and subject to a further five year option. By further Lease executed by the parties the Respondent leased the premises to the Applicant for a further term of five years commencing 7th October 1996 and terminating 6th October 2001 ("the Second Lease") together with an option to renew for a further term of five years.

6 Certain difficulties arose between the parties. There was a claim by the Respondent for reimbursement of moneys expended for fire safety, there was dispute relating to the exercise or non-exercise of the option for renewal, various negotiations took place and under cover of letter 29th January 2001 the Solicitors for the Respondent submitted to the Solicitors for the Applicant a Lease document. Pausing at this point, it is conceded by counsel for the Applicant that the notice purporting to be a Notice of Exercise of Option was in fact not effective to exercise the option such that in reality the option was not exercised. Absent other extenuating circumstances the law in that case is absolutely clear: a lessee holding over under an expired Lease is not entitled to the benefit of Retail Leases Act Section 8. In other words, the mere fact that a Lessee remains in occupation of the demised premises holding over under an expired Lease does not create a statutory Lease - see Trustees Limited v Ergun [2000] NSWSC 872. I have no difficulty in accepting that Judgment as a correct statement of the law. Were it otherwise then leases would continue on forever because all a Lessee would have to do would be to stay in occupation after the expiry of the lease and thereby create a further lease term of five years under the Act.

7 The question is: Are there other circumstances in this particular matter which negative or outflank the Ergun principle such that there is created in favour of this Applicant in all the circumstances a statutory lease? The Applicant contends that there are such circumstances.

8 The position from the point of view of the Applicant is further exacerbated by the fact that the Respondent, through its solicitors, served upon the Applicant a Notice to Quit on or about 6th November 2001 which by its terms recited that the Second Lease expired on 6th October 2001 and that the Respondent,

"hereby gives notice of termination of the Lease and requires that by 7 December 2001..."

the Applicant remove its goods, make good the premises, hand over the keys and vacate the premises.

9 It was conceded by counsel for the Applicant that the Notice to Quit was a valid notice such that as and from 7 December 2001, absent other circumstances, the Applicant remaining in occupation was in fact in occupation as a trespasser.

10 The Applicant however relies on various subsequent matters, which, it submits, created a position whereby the Applicant is entitled to call in aid Retail Leases Act, Section 8. This Section provides as follows:

"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.

Note. Therefore if the lessee starts to pay rent as lessee or enters into possession as lessee the lease is considered to have been entered into even if neither party has executed the lease at that time. Money paid in advance (purportedly as rent) as a deposit to secure premises for a proposed lease does not constitute rent paid as lessee under the lease."

11 The factual circumstances are not in dispute. By letter dated 28th October 2001 the solicitors for the Respondent asserted that the Second Lease had expired on 6th October 2001, that the option had not been exercised and that the Notice to Quit had been properly served (and was effectively valid). The letter went on to indicate, on a "Without Prejudice" basis, that the Respondent was prepared to enter into a further lease upon certain terms. Those terms were:

(a) All amounts outstanding under the Second Lease were to be paid `immediately', including outstanding rent and water usage, stamp duty, "legal costs incurred in connection with the fault" ($9,892.61);

(b) A cash bond or bank guarantee in an amount equal to six months rent was to be provided; and

(c) The legal costs of preparing the further lease to be paid prior to commencement.

12 The solicitors for the Respondent replied on 5th December 2001, also marked "Without Prejudice", stating that the Respondent would accept the terms of the 28 November 2001 letter:

"provided that the following conditions be incorporated:

1. There be an additional option period of five (5) years so the lease will be for five (5) years with a five (5) year option;

2. The Bank Guarantee be for three (3) months in lieu of six (6) months;

3. Your costs be paid by Mr Ostrovsky over a period of four (4) months."

13 The letter went on to indicate, perhaps optimistically having regard to the lengthy litigation between the parties, that:

"Mr Ostrovsky has a genuine desire to resolve all outstanding matters as between himself and his landlord and commence the new year on a non-contentious and fresh basis."

14 The Respondent's solicitors replied 14th December 2001:

"Our client accepts the conditions set out in your (letter) of 15th December 2001. We will contact you shortly in relation to the new lease."

15 By letter dated 29th January 2002, the Lessor's Solicitors submitted a lease "subject to the final approval of the document by (the Lessor)". This letter required the Lessee to pay stamp duty, the fees of the Lessor's solicitors in connection with the lease, the fees of the Lessor's solicitors with respect to the previous default and a sum of $4,455.00 in relation to the fire control work undertaken on the premises. There were some other requirements which are unremarkable but it is not in issue that the lease as submitted was different in its terms to the Second Lease.

16 The Applicant submits that by the three letters 28th November, 5th December and 14th December 2001, there was created a contract whereby the parties agreed to enter into a lease, alternatively in fact entered into a lease, within the terms of Section 8, such lease being a bare lease, alternatively, a lease within the general terms of the Second Lease subject to the provisions as agreed in the three letters. The Respondent on the other hand submits that there is no lease created by those letters and the Applicant's case fails because of what were described as `textual difficulties'.

The Rental Position

17 Before embarking on an analysis of those varying submissions it is important to understand the rental position. It is conceded that the Notice to Quit was valid and required the Applicant to vacate the demised premises by 7th December 2001. The evidence shows that the Applicant was paying rent to the Respondent (or its Agent) as at 7th December 2001 at the rate of $4,333.00 per month. The evidence also demonstrates that the Agent thought that the Applicant was holding over under the Second Lease (presumably on a monthly basis), she discussed the matter with the owner and without reference to any particular clause in the Second Lease she purported to increase the rent such that the rent for January 2002 was increased to $4,904.80. It is not contested that the Applicant paid that increased rent to the Respondent's Agent.

18 The Respondent relied upon that expression of opinion by the Agent as somehow supporting the proposition that the Applicant was in fact holding over. I do not understand that to be the law. Rather, the question of whether a lessor holds over under an expired lease is a question of law. The Respondent also submitted that the increase had been unilaterally made by the Agent (that is at variance with the evidence anyway because it is plain that the Agent communicated direct with the Respondent and I infer was instructed by the Respondent to so increase the rent) and without reference to any specific clause of the expired Second Lease increased the rent such that the increase could not be said to be referable to any new lease entered into. However, it seems to me that firstly, it is at variance with a mere holding over to seek and receive rent at an increased amount apparently without reference to any enabling provision of the expired lease; secondly, the fact that there was a communication between the parties to the effect that the Respondent was requiring the Applicant to pay an increased rent coupled with the fact that the Applicant has in fact paid that increased rent from January 2002 to date indicates at the very least an agreement between the parties that as a consideration for the Applicant occupying the Respondent's premises the Applicant will pay the rent at the increased rate and it must also be referable to some sort of agreement to occupy. The Second Lease contains provisions relating to holding over. As far as I can see those terms appear in clauses 3.1 and 3.2, 15.4 and 19.7. However, I am unable to find any provision in the Second Lease that permits the Respondent to increase the rent during the term of any holding over. Indeed, Item 4 coupled with the other provisions to which I have made reference, seems to militate against that conclusion, in particular, the provisions relating to the Bank Guarantee which do not require the Bank Guarantee to be increased should the Respondent increase the rent during a holding over. I should say that I was not addressed on this point but it seems to me that the fact that the parties agreed to an increased rent commencing January 2002 is a piece of evidence that goes towards concluding that there was in fact an agreement between them creating a lease which required the Applicant as lessee to pay rent at the increased rate.

Further Contentions

19 The Respondent also submitted that because the Applicant refused to sign a new lease (evidence of the agent, Exhibit 3, paragraph 5) then that was supportive of the submission that there was not in fact a new lease. I confess I do not quite understand that submission having regard to the fact that the lease as ultimately submitted 29th January 2002 (Exhibit IG11) was different in its terms to the terms of the Second Lease and in light of the fact that it has been the contention of the Applicant that there is either a bare lease, alternatively a lease in terms of those of the Second Lease, as a result of the correspondence and conduct of the parties.

20 It was conceded by Counsel for the Applicant that upon the expiration of the Notice to Quit (7th December 2001) the Applicant, by remaining in occupation, was a trespasser. It was the Respondent's submission that as a consequence of that conceded legal situation and as a consequence of the Conveyancing Act Section 127(1) (which provides that `no tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time') and the current payment of rent, the Applicant's occupancy is pursuant to a tenancy at will which at all relevant times has been of less than six months' duration and therefore not governed by the Retail Leases Act. It was submitted that the same conclusion is arrived at if the facts are categorised as a periodic tenancy, as each periodic tenancy was of less than six months' duration (Retail Leases Act Section 6(1)(a)). That submission has considerable force and in my opinion ought to be adopted absent other considerations.

21 The Respondent further submitted that a lessee who has remained in possession and continued to pay rent in circumstances where the Second Lease clearly came to an end and where any future lease was conditional upon meeting a raft of suspensive conditions, could not be described as either a person who `enters into possession' or who `begins to pay rent' within the terms of Section 8. It was submitted that these acts, to the extent that they had occurred, occurred at the entry into of the Second Lease. To the extent that they had occurred again (which the Respondent denied), they can only have occurred pursuant to the periodic lease implied by law by virtue of holding over. The Respondent alternatively submitted that the proposed Lease submitted on 29th January 2002 ("IG11") was to commence in its terms on 24th February 2002 if the pre-conditions were met and because the Applicant had well and truly entered into possession before then and had begun and was paying the increased amount, then the acts of entering into possession and paying the increased amount of rent were in no way referable to the proposed Lease.

22 It is not clear to me how the base rental under the proposed Lease "IG11" is referable to the commercial rent actually paid from January 2002 in $4,904.90. I was not addressed on the terms of "IG11" other than to the effect that its terms were significantly different from the terms of the Second Lease. One significant difference for example was the rent and CPI review dates. However, again this submission depends upon the view that one takes about the exchange of correspondence and the effect of the obvious agreement between the parties to pay increased rent commencing January 2002. If one takes the view that the exchange of correspondence creates a Section 8 lease then I think it is available to me to conclude that there was a notional `entry into possession' consistent with that exchange of correspondence even though factually the Applicant never left the premises. Although I understand that there was some old Landlord and Tenant Law to the effect that in relation to controlled residential tenancies the tenant had to actually vacate the premises and then move back in again under a new uncontrolled lease for there to be the legal effect of de-controlling otherwise controlled residential premises, I do not think that situation is determinative of the way in which Section 8 should be interpreted having regard to the legislative purpose of Section 8 and in the peculiar circumstances of this case.

23 It was further submitted that the Applicant's interpretation is inconsistent with the evident intention that the Retail Leases Act would not apply to short-term leases. That is true only in so far as Section 6 applies.

Section 8

24 Nextly, it was submitted that one cannot have a Section 8 statutory lease unless there is consensus as to the terms of the lease. It was suggested that where a lessee enters into possession or begins paying rent the consensus is given effect to by an executed lease for less than five years. The Respondent relied upon Whiteway House (No. 199) Pty Ltd v Abrocoona Pty Ltd [1998] NSWSC 521 in which the facts were somewhat similar to those in dispute: the lessee was in occupation, subsequently it was offered a lease commencing in the following month for a term of nineteen months, there was some negotiation, the lessee was offered a further lease commencing on a date later than the first offer and ultimately, slightly over 12 months later, the parties entered into a Deed of Variation of Licence. In the meantime however the Retail Leases Act came into operation.

25 Hodgson CJ in Eq said at page 6:

"It would be possible to give a construction to Section 8(1) to the effect that there cannot be entry into possession as lessee unless a lease, or payment of rent as lessee under a lease under the lease is already in existence in the full sense of the word; that is, unless there had already been a formally executed lease or at least a concluded agreement. However in my opinion that construction of Section 8(1) should be rejected, particularly having regard to the terms of Section 8(2). Section 8(2) deals with a situation where both parties execute the lease before the lessee enters into possession under the lease, or begins to pay rent under the lease. Those words, in my opinion, clearly contemplate the possibility that the lease may not be executed by both parties until and after the lessee has entered into possession under the lease, or has begun to pay rent under the lease. That means in my opinion that the word `under the lease' in both sub-sections should not be given a narrow and restrict (sic) construction, but rather should be considered to be satisfied where there is entry into possession or payment of rent pursuant to a consensus as to terms which is subsequently given effect by an executed lease. That is a situation which happens very commonly, and in my opinion, that is the situation which the section is intended to deal with."

26 If that quoted paragraph is relied upon to support the proposition that where there is no subsequently executed lease then Section 8 does not apply, then in my opinion that submission should be rejected. What His Honour was referring to was the facts as put before him in that case, facts that are not unusual and where a lessee is allowed into possession by a lessor prior to the entry into of an executed lease. There is no question that in those circumstances Section 8 applies (although it did not apply in that case because the lease in fact commenced prior to the commencement of the Act) and where it applies (and is not otherwise the subject of exclusion) then the lease is subject to a minimum term of five years (Section 16). In my opinion the submission goes against the definition of "lease" in Section 3 of the Act where it is defined as meaning:

"any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop ...."

27 It is important to realise that it is quite specifically provided that in those circumstances a lease is deemed to exist `whether the agreement is express or implied, and whether the agreement is oral or in writing, or partly oral or partly in writing'. Once it is accepted that an "agreement" can be theoretically implied and oral and such will constitute a `lease' within the meaning of the Act, then it cannot be a pre-condition that there be an executed lease to call in aid Section 8. Such a proposition in my opinion flies in the face of the definition of `lease' and Section 8(1). The decision in Whiteway House is limited to an interpretation of Section 8(2). Support for that interpretation is obtained from another decision of Hodgson CJ in Eq in Aspromonte Pty Limited v Zagari [1999] NSWSC 831 where His Honour (at [51]) quoted from his previous decision in Whiteway House and then went on to say (at [52]):

"I remain of the view that Section 8(1) discloses an intention that there can be entry into a retail shop as lessee and payment of rent as lessee under a lease, where these events occur at a time when there is consensus as to the terms of such a lease but not yet any written lease entered into."

28 So, it seems to me, there is no requirement for the operation of Section 8 that there be at some stage or other after the lessee has entered into possession and paid rent the execution of a lease document.

Hodgson CJ in Eq in Aspromonte appears to be of the view that there must be `consensus as to the terms of such a lease'. This must be the case because the definition of `lease' means `any agreement', whether express or implied, oral or in writing or partly oral and partly in writing. It is predicated on there being an "agreement" - once it is established that there is an agreement and otherwise the terms of Section 8(1) are satisfied then there is created a statutory lease for the minimum term under section 16. The real question is always:

"Is there an agreement; if so what are the terms of the agreement; and has the lessee entered into possession of the retail shop as lessee under the agreement or has the lessee began to pay rent as lessee under the agreement (whichever happens first)?"

29 Hodgson CJ in Eq in Aspromote expressed the view that there must be "consensus as to the terms" of the lease. I am not entirely sure precisely what is meant by the use of the word "consensus". If it is intended to mean that there must be, as a pre-condition to the operation of Section 8, an agreement by the parties to each and every term of the lease, then I would respectfully differ from His Honour's view. The whole purpose of Section 8 is to create a statutory lease if the circumstances fall within the terms of the Section. After all, the terms of the Section are really quite simple and in my view there is a clear legislative intent that there will be created a statutory lease where a person enters into possession of a retail shop as lessee, or begins to pay rent as lessee, in circumstances where there is an agreement between that person and the person having the right to grant possession or receive rent whereby that person grants or agrees to grant to the other person for value a right of occupation of the premises for the purposes of the use of the premises as a retail shop.

30 There is nothing in the combination of Sections 3 and 8 that requires the person granting or agreeing to grant the right of occupation to agree with the occupier or proposed occupier to all the terms of the right of occupation. The definition of "lease" in Section 3 (set out in paragraph 26 above) is in very simple terms and the legislative intent of Section 8 is to create a statutory lease in the particular circumstances such that the occupant is protected by a statutory lease. Once that interpretation is accepted then there is no requirement for there to be "consensus" as to the terms of, or each and every term of, the right of occupancy simply because the statute creates the lease (Section 3). Once the statutory lease is created then the only question is: what are the terms of that lease? In order to answer that question one needs to look at the extrinsic evidence that is available in order to establish the other terms of the agreement between the parties.

31 It is not my understanding that the law requires there to be a concluded agreement between the parties before Section 8 applies. Mr Jacobs for the Respondent has strongly urged that proposition and for the reasons that I set out later in this Judgment I am of the view that the combination of Section 8 and the definition of "lease" in Section 3 is supportive of a different legislative regime designed to protect persons who enter into occupation or pay rent of defined premises such that the section "fills in the blanks" (so to speak) of contract law which would deny a concluded contract in circumstances where the evidence showed that there had not been agreement as to all the terms and in those circumstances would deny the occupant of retail shop premises the protection offered by Section 8.

32 In my opinion, the terms of the letters 28th October 2001, 5th December 2001 and 14th December 2001, coupled with the payment of rent at the increased rate commencing January 2002, constituted a commercial agreement between the parties to enter into a formal lease in the terms of the Second Lease subject to the variations as negotiated and specified in those three letters.

33 I am of this opinion for the following reasons:

(a) The lawyers for the parties must have meant what they wrote in those three letters. They would not have been framing their letters in such a fashion had they not intended, and the parties not intended, that they be bound by the content of their communications. Otherwise, if they are not intended to mean something, why write the letters?

(b) Secondly, the terms of the first letter 28th November 2001 make it absolutely plain that the Respondent `is prepared to enter into a further lease on the terms set out in the option provision". Those words in my opinion make it plain that the terms of the Second Lease are the terms that are to apply to the further lease which was effectively accepted by the next two letters. There was not the slightest suggestion in any of the correspondence that the terms of the further lease would be anything other than those of the Second Lease. The terms of the lease as ultimately submitted on 29th January 2002 ("IG11") are not the terms of the Second Lease consistent with the terms set out in the option provision of the Second Lease. It was not suggested that Clause 3.2 of the Second Lease, or any other clause of that Lease, entitled the Respondent to vary the terms of any further lease entered into pursuant to the granted option and it therefore cannot follow that any further lease offered in the Respondent's Solicitor's letter dated 28th November 2001 should contain any different terms.

(c) In my view the terms of the Respondent's Solicitor's letter 29th January 2002 are post agreement and cannot impose additional conditions upon the grant of a formal lease save as otherwise implied by the factual situation. For example, the stamp duty in the letter 28th November 2001 is stated as being $948.30 yet the stamp duty in the letter 29th January 2002 is $1,104.95. It will be remembered that in the meantime the parties had in fact agreed to an additional amount of rent such that any formal lease would have to reflect that subsequent agreement and as a consequence additional stamp duty would be payable. I would have no difficulty in finding that as a result of the re-negotiated increased rent then the parties impliedly agreed that the Applicant would pay additional stamp duty on the subsequently entered into formal lease.

(d) Although it is true that as at 7th December 2001 the Applicant was in occupation as a trespasser, the Notice to Quit being valid, in my opinion the parties one week later (14th December 2001) agreed to enter into a Lease in accordance with the terms of the three letters. At that point of time the Respondent must have been aware of the status of the Applicant's occupation (although the Respondent's agent seemed to think that the Applicant was holding over) and in any event the status has been conceded as being that of a trespasser, in my view notionally, or in fact, the Respondent permitted the Applicant to `enter into possession ... as lessee' under the agreement between the parties for the purposes of Section 8, alternatively permitted and accepted rent to be paid by the Applicant pursuant to that agreement. In my view in the peculiar circumstances of this case there is no requirement for the Applicant to actually vacate the premises to artificially require it to `enter into possession' by some form of re-entry. In my opinion the correspondence and the payment of rent, when viewed correctly, permits Section 8 to be so satisfied. This Division of this Tribunal is a Division which deals with the commercial reality of the leasing of retail shops. Commercial reality does not require the artificiality of a lessee vacating demised premises and re-entering in order to satisfy Section 8. Such artificiality would put a lessee into an untenable commercial position requiring it to properly vacate, remove its fixtures and fittings and so on and then re-enter and re-install its fixtures and fittings and so on and commercial reality militates against such a conclusion. That was clearly not the intention of the parties, could not reasonably be thought to be their intention and in any event it is plain that in January 2002 the Respondent demanded and the Applicant agreed to pay rent at an increased rate.

34 Having regard to the above findings, in my opinion, as at 14th December 2001 the parties had agreed to enter into a new lease upon the same terms as the Second Lease (Exhibits "IG2" and "IG3") subject to the following alterations:

(i) Date of commencement: 14th December 2001

(ii) Term: 5 years commencing 14th December 2001 and terminating 13th December 2006; with an option for 5 years commencing 14th December 2006 and ending 13th December 2011.

(iii) Basic rent and review dates: In accordance with this Judgment and varied consistent with the date of commencement being 14th December 2001.

(iv) The Lease to include a clause requiring the Applicant to provide a Banker's Guarantee for three months' rent. (I note that this is a requirement in addition to the personal guarantee of Mr Ostrovsky, Item 11).

35 Mr Jacobs of Counsel for the Respondent requested that I not make any final declarations and orders but rather than I publish my reasons and then invite the parties to come back to me with final declarations and orders in a form that can be adopted consistent with the published reasons. I am content with that proposition and suggest that the parties should in fact enter into a formal fully executed Lease, duly stamped and registered, consistent with the terms of my reasons.

36 In addition to the above, the Applicant should pay the appropriate stamp duty consistent with the lease to be entered into pursuant to these reasons.

Alternative Approach

37 My attention was directed by Mr Jacobs for the Respondent to Heysham Properties Pty Limited v. Action Motor Group Pty Limited [1996] NSW SC CA 170]. This decision was said to be supportive of the submission as at 14 December 2001, or indeed at any other time, there was in fact no concluded agreement between the parties. In Heysham there was in existence a document styled "Heads of Agreement" and the Court of Appeal found on the evidence that the parties were not content to be bound immediately and exclusively to the terms of the Heads of Agreement which they had signed. The Heads related to the grant of a commercial lease for five years, with an option, with substantial proposed rent, contribution to outgoings, personal guarantees and other matters which it was submitted were consistent with the indicia present in the case before me. Powell JA listed 12 matters which led him to the view that the Heads did not represent a concluded agreement. There is no need for me to go through each of those 12 matters. Suffice it to say that the Court had regard "to extrinsic evidence of surrounding circumstances for the purposes of determining objectively whether there was an intention that there should be a concluded agreement" and the Court found that extrinsic evidence demonstrated that there was no concluded agreement. One of the points enumerated by Powell J A was that "the conditions of the exercise of .... option were not defined" - that is a circumstance which is not present in this case for the reasons set out earlier in this Judgment. His Honour also found that personal guarantees were to be provided - but it is plain from the Second Lease that there was already in existence a personal guarantee from Mr Oustrovsky the terms of which had been agreed to many years ago. Furthermore, His Honour found that the signature of the proposed lessee to the Heads was a signature of an agent of the proposed lessee and not in the capacity of a director giving a personal guarantee, a circumstance not present in this case.

It seems to me that the circumstances in Heysham are totally different to the circumstances in this case where I have found that there was in fact a concluded agreement having regard to the terms of the correspondence, the surrounding circumstances and the provisions of the Retail Leases Act.

The Respondent also relied upon a passage in Contract Law in Australia 4th Edition, Carter and Harland, 2002, paragraph 741. It was submitted that the provisions of bank guarantees and the payment of sums of money were conditions precedent such that the "failure of the event to occur means there is no contract". But at the end of this paragraph it is said: "Thus it is important to distinguish events which must occur for the formation of a binding contract from events which merely condition a party's obligation to perform. Where there is no contract until the event in question occurs either party may resile prior to the occurrence of the event without being held liable in damages for breach of contract .... By contrast, where the event merely makes a party's obligation to perform contingent neither party is entitled to withdraw from the contract until it is clear that the event will not occur, in the case of a condition precedent, or the event is actually occurred in the case of a condition subsequent." Reliance was placed on various observations of Samuels JA in Tricontinental Corporation Ltd v. HDFI Ltd (1990) 21 NSWLR 689 at 704 and 705 where His Honour observed that: "a condition precedent is strictly construed. So where a provision lays down an act by one party as a condition precedent to the exercise of an obligation on the part of the other party, condition precedent will not be fulfilled until the former party does an act that strictly matches that described in the contract", and at 705: "it seems to me .... that it is meaningless to speak of the standard performance of a condition precedent. Either it has been performed, or it has not, if it has not, the obligation does not arise." It was submitted that the requirements of the Respondent were conditions precedent which had not been performed and then consequently there was no lease contract binding upon the Respondent. That argument is also contrary to the findings that I have made as to the binding nature of the agreement entered into 14 December 2001 coupled with the surrounding circumstances and the terms of the Retail Leases Act.

The Respondent also submitted that if I found there was an agreement to lease in any event the Applicant repudiated it by failing to execute the lease as submitted on 29 January 2002 (paragraph 15 above). I reject that submission for the simple reason that the lease as so submitted was not a lease incorporating the terms as agreed (paragraphs 19, 22 and 34) and the Applicant cannot be blamed for not signing a lease which I have found did not contain the terms as the parties agreed.

38 There is perhaps an alternative argument available to the Applicant, although not agitated before me. In the definition of "lease" the legislature has seen fit to use the word "agreement" in contradistinction to the word "contract". Although not expressing a final view on this aspect, it may well be that the use of the word "agreement" imports something less than a full-blown contract but is rather directed to the parties reaching an agreement such that the Lessor permits the lessee into occupation of the lessor's premises ( a rather dramatic event in reality) or accepts rent for those premises and in either case thereby creates a lease under Section 8.

It seems to me that the legislature has deliberately used the general word "agreement" and avoided the more legal word "contract". There is good reason for this. The Retail Leases Act is, in many of its provisions, purposive and protective. It is directed, in this aspect, to the commercial reality of Lessors and Lessees "agreeing", as distinct from "contracting", such that upon "agreement" plus entry into possession or payment of rent the Act creates a statutory lease and a statutory regime for captured leased premises. It is protective because it creates a statutory minimum term and regime to protect the parties, in particular the lessee.

Indeed, I would venture that generally, but not exclusively, the overall purpose of the Act is protective, within its terms, of lessees. Regard may be had, for example, to the concept and content of disclosure statements and the "penalties" that flow from non-disclosure, penalties that seem to affect lessors rather than lessees. Lessors need to be very careful before they permit persons into occupation of their premises or accept rent relating to those premises, because without prior contractual documentation the premises are more than likely to be caught by the statute.

Persons in their ordinary activities can reach "agreement" about numerous matters without being contractually bound by that agreement. In simplistic terms (for example) a person can agree to take another to the theatre but will not be contractually bound to carry out that promise. However, what the Retail Leases Act does is effectively create (in my view) a statutory contract where the circumstances envisaged by Section 8 apply. Section 8 itself refers to "the lease" (twice) and "the lease" is the lease defined in Section 3. There is nothing (it seems to me) in the Section 3 definition that requires agreement to be reached between the parties on all terms. And, for the reasons set out in paragraph 27 above, the manner in which the parties actually reach agreement can be varied and the terms of the agreement can even be (theoretically) can be implied and oral and (in my view) it is not necessary for the terms to be all inclusive.

39 Even if I am wrong about the effect of the three letters, in my view there was by those letters an "agreement" within the terms of the definition of "lease".

Subsidiary Issues

40 There were a number of other matters that were agitated by the parties and which require determination.

41 The Respondent claims that it is entitled to its legal costs in connection with the default of the Applicant, assessed by the Respondent's Solicitors at $9,892.61. In the course of evidence, Mr Ostrovsky said that he did not wish to pay those costs because he had no break up of the costs on the basis (presumably) the costs had not been itemised. However, the terms of the said three letters make it absolutely plain that the Applicant agreed to pay those costs as assessed in $9,892.61 - there was no argument advanced that they were unreasonable and in any event the parties agreed - the only counter offer was that they be paid over four months. In my opinion the costs are properly payable consistent with the agreement and were payable in full at latest by 14th April 2002.

42 The Respondent also submits that it is entitled to its legal costs of preparing the further Lease. The Applicant relies on Section 13(1) Retail Leases Act which states that if a lessee is to be so liable then the lessor must provide it with a copy of any account presented to the lessor in respect of legal and other expenses `and the lessee is not required to make any such payment until the lessor has complied with this requirement.'. Having regard to my findings above, I am of the opinion that the Applicant has agreed to pay the legal costs of the Respondent in preparing the further Lease commencing 14th December 2001. It is my further opinion that in the circumstances, including in particular the Respondent solicitor's letter dated 29th January 2002, Section 13 does not operate as an absolute prohibition to a lessor recovering its legal and other expenses in the absence of a copy of an account presented to the lessor being provided to the lessee. What the section says is simply that the lessee `is not required to make any such payment until the lessor has complied with this requirement' and in my opinion there is nothing to stop the solicitors for the Respondent in complying with the terms of Section 13(1) prior to the date when this matter comes back before me for final determination. There was no argument advanced, nor could there be any argument advanced, that the amount requested on account of legal costs and expenses in the letter 29th January 2002 is not a reasonable amount and in my opinion it certainly complies with Section 13(3). The Act in its terms does not make the provision of the account prior to the entry into the Lease as a pre-condition for its payment, rather all it requires is compliance with its terms and upon such compliance the amount is payable.

43 In any event, although the account from the Respondent's solicitors to the Respondent was not in evidence as part of "IG11", it is (curiously) annexed to and forms part of the Application for Urgent Interim Orders, being an account from the Respondent's solicitors to Mr Malcolm Turnbull 29th January 2002 in the amount as claimed in the Respondent's solicitor's letter 29th January 2002. Mr Turnbull is, as I understand it, the owner of the Respondent. In commercial circumstances it cannot be seriously contended that there has not been compliance with Section 13(1) - after all how else could a copy of the account to Mr Turnbull form part of the Applicant's Application? Consequently, in my view, the Respondent has in fact complied with Section 13(1) such that the amount of $1,259.90 is properly payable.

44 The Applicant further submitted that it should not pay for the legal costs because it is said, the account 29 January 2001 was said not to be an account rendered for the preparation of a lease or served in relation to lease preparation costs, rather the account simply says "our fee for the period 3 January 2002 to completion" and it not referring to the preparation of a lease is therefore not claimable under Section 13. I reject that proposition. The account is clearly an account for the preparation of the further lease to be entered into as a consequence of the agreement reached between the parties 14 December 2001. The fact that the further lease does not reflect the terms of that agreement does not change the quality of the legal account such that in my opinion the account is properly rendered provided that the Respondent prepares a lease in accordance with the reasons in this Judgment.

45 The Respondent also seeks an order that the Applicant pay to it $4,455.00 said to be costs and expenses of complying with appropriate fire safety requirements. Such a payment was not required as part of the agreement (as I have found) that existed between the parties in relation to the further lease as at 14th December 2001. The evidence discloses that Randwick City Council by letter dated 12th November 2001 and addressed to the Respondent required the Respondent to provide an annual fire safety statement pursuant to the Environmental Planning and Assessment Act. Such a Statement was required by 14th January 2001. An appropriate Statement was provided to the Respondent by a Fire and Safety Audit on 25th November 2001 and that demonstrated that certain fire safety measures were required to be carried out in order to comply with the statutory requirements. The Respondent complied with the requirements of the fire safety Audit which required, inter alia, the replacement of seven exit lights, eight emergency lights and the total cost of the whole exercise including the fire safety audit was in the amount claimed (inclusive of GST).

46 It is plain to me that the Respondent's claim is based upon the terms of the Second Lease. The requirements of the Applicant to reimburse the Respondent are to be found in clauses 7.2 and 7.9, the first of which relates to the replacement of electric light bulbs, tubes and globes and the second of which requires the Applicant as lessee to, `comply at its own costs', with the relevant laws and regulations `relating to fires and the provisions of any and every statute, regulation and ordinance'. In reply, the Applicant submitted that the money was not due because there was no disclosure statement given in connection with the Second Lease such that in its absence there was no requirement to pay the amount because of the provisions of Section 12. This Section provides:

"A provision in a retail shop lease that requires the lessee to pay or contribute towards the costs of any finishes, fixtures, fittings, equipment or services, is void unless the liability to make the payment or contribution was disclosed in a disclosure statement given to the lessee in accordance with this Part."

47 In the statutory form of disclosure statement there is a stated outgoing being `Fire Protection', another being `Repairs and Maintenance', and another general item described as `Additional Outgoings to be borne by lessee' and provision is made next to each of those stated items for an estimate to be inserted by way of a dollar amount per annum.

48 In relation to the Second Lease there was in fact a disclosure statement - annexed to affidavit of Mr Ostrovsky 20 June 2002 (Exhibit "D"). This document and its terms were the subject of some argument on 26 August 2002 when I delivered a short ex-tempore Judgment on an application by the Applicant for an adjournment. It is plain from that disclosure statement that there is absolutely nothing entered against the items "Fire Protection", "Repairs and Maintenance" and "Others". Indeed, the only reference to "Outgoings" is to water sewerage and drainage rates. It must have been to the knowledge of the parties that there were significant fire requirements to be complied with as a matter of law - see for example letter from Randwick City Council to the Applicant 4 December 1995, annexure "A" to Mr Ostrovsky's affidavit 6 June 2002 Exhibit "C". Both these litigants have been in business for many, many years and they must have both been aware of continuing requirements relating to fire safety as regularly required in relation to these premises for the use to which the premises were being put. There was therefore an absolute obligation (in my view) on the Respondent, if it wished to recover from the Applicant the cost of fire protection, repairs and maintenance type services, to have provided an appropriate estimate in the disclosure statement to the Second Lease.

49 These premises are a `retail shop' within the meaning of the Act and the Second Lease was a lease the provision of which should have complied with the terms of that Act which required (Section 11(1)) the provision of a Disclosure Statement `at least seven days before a retail shop lease is entered into'. That sub-section makes it absolutely clear that any Disclosure Statement must contain `the information, and be accompanied by the material, that is contained in or required to complete or accompany the form of Disclosure Statement' set out in Schedule 2 of the Act. There is good reason for the existence of a Disclosure Statement - it is a statutory method of consumer protection. If a Lessor fails to provide a disclosure statement, alternatively fails to include appropriate statutory information/disclosures, then the Lessor leaves itself open, not only to breaches of the Act but also to the consequence that the Lessee may justly refuse to contribute in the circumstances set out in Section 12. It seems to me that, absent appropriate disclosure in accordance with the clear requirements of the Act, the nature and content of the fire safety audit falls within the provision of `equipment or services' within Section 12 such that, absent disclosure, the cost thereof is to be borne solely by the Respondent as Lessor.

Generally

50 Consistent with the request by Mr Jacobs and the accession thereto by Ms Cohen for the Applicant, after consideration of these reasons I invite the parties to bring forward consent Short Minutes such that I can make orders and declarations consistent with the above reasons.

51 I think it appropriate for the parties to actually draft and enter into a formal lease in accordance with these reasons, such to be stamped and registered in due course.

52 Both parties wish to be heard on the question of costs. As the parties will be aware, costs do not automatically follow the event in this Tribunal and before agitating any argument in favour of a Costs Order, I would invite the parties to consider the terms of the Administrative Decisions Tribunal Act 1997, Section 88 and a number of recent decisions of this Tribunal applying that Section to matters within this Division.

53 I grant leave to the parties to approach the Registrar with a view to re-listing these proceedings at a convenient time for the purposes of making final declarations and orders and any argument (if agitated) on the question of costs.