Ormed Investments Pty Ltd v McCurley [2009] NSWADT 309 (10 December 2009)

Last Updated: 24 December 2009

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL

CITATION:
Ormed Investments Pty Ltd v McCurley [2009] NSWADT 309


DIVISION:
RETAIL LEASES DIVISION

PARTIES:
APPLICANT
Ormed Investments Pty Limited

RESPONDENTS
Emily Elizabeth McCurley
Steven Leslie McCurley



FILE NUMBERS:
085176

HEARING DATES:
On the papers




DATE OF DECISION:
10 December 2009

BEFORE:
Bluth D - Judicial Member





LEGISLATION CITED:
Retail Lease Act 1994

CASES CITED:
Arkbay Investments Pty Ltd v Habib & Ozvic Enterprises Pty Ltd [2003] NSWADT 143
Aspromonte Pty Ltd v Zagari [1999] NSWSC 1045; (1999) 9 BPR 17,247
Boz v Dadoun & Anor [2007] NSWADT 113
Duncan’s Catering Pty Limited v Bankstown City Council [2006] NSWADTAP 1
Prasad & Anor v Fairfield City Council [2000] NSWADT 164
Lin v State Rail Authority of NSW [2005] NSWADT 131

TEXTS CITED:


APPLICATION:
Commencing date of Lease

MATTER FOR DECISION:



REPRESENTATION:
APPLICANT
I Love, solicitor
RESPONDENT
S Campbell, solicitor


ORDERS:
1.The Applicants retail tenancy claim for unpaid rent and loan moneys granted
2. The Applicant submit draft Orders based on the determination of the issues by this decision by 20 January 2010
3. Proceedings 085176 are listed for submission of draft orders based on the determination of the issues of commencement of the Lease and the Loan Agreement on 3 February 2010 at 9:30am.


Reasons for Decision:

REASONS FOR DECISION

Background

1 The Applicant has submitted two affidavits of Mr Makan, being the Director of the Applicant company, sworn 7 November 2008 and 23 April 2009 as well as two affidavits from Mr Love, being the solicitor on behalf of the Applicant, sworn 1 April 2009 and 28 July 2009.

2 The Respondent has provided two affidavits by Emily Elizabeth McCurley, sworn 21 November 2008 and 21 May 2009.

3 Both parties have submitted submissions on the issues at hand.

4 The parties have sought a decision based upon the papers only. It does not appear that the parties have provided or undertaken mediation as required by Section 68 of the Retail Leases Act 1994 (NSW) (RLA) as there is no mention of mediation and no Certificate on file.

5 The Applicant seeks orders as follows:

1.Immediate vacant possession of the Premises.

2.The Respondent pay the applicant the sum of $25,354.62 on account of a written loan agreement dated 29 May 2008 (Loan Agreement).

3.The Respondent pay the sum of $15,635.31 in unpaid rent pursuant to a lease dated 28 June 2008.

4.Interest paid on the unpaid balance of the Loan Agreement.

5.Damages being unpaid rent for the balance of the term of the lease dated 28 June 2008 (2007 Lease).

6.Interest paid at the prescribed rate; and

7.Costs.

6 The Respondent has raised a preliminary issue with regard to jurisdiction of the Tribunal to consider hearing the Applicant’s claims in respect of the Loan Agreement.

Overview of Facts

7 The Respondent entered into an unregistered lease of the Premises from Mr Lhuede (Vendor) commencing 6 July 2002 and terminating 5 July 2005 (2002 Lease) which contained an option to renew for a period of three years.

8 The Applicant purchased the property on 15 December 2005.

9 The Applicant asserts that neither the Vendor nor the Respondent had at any time expressed that the option contained in the 2002 Lease was validly exercised.

10 The Respondent claims it had attempted to exercise the option, however, such exercise was outside the so called ‘window of opportunity’ and thereby failed. Given the Respondent’s submission it is taken that the option was not exercised validly and this is the accepted position of both parties.

11 Both parties agree that various discussions culminated in a Notice to Vacate (Notice) being served by the Applicant to the Respondent by letter dated 31 August 2007 with such notice purporting to give at least one month’s written notice to vacate the Premises on or before 5 October 2007. The Respondent has not made any submission that the Notice is in any way invalid.

12 After service of the Notice the parties entered into further negotiations, culminating in the execution of the Loan Agreement and the 2007 Lease.

13 The Respondent has not provided and has not made any reference to being in receipt of a Section 16 Certificate with respect to either the 2002 Lease or 2007 Lease.

14 Neither party has made any claim or submission as to jurisdiction of the Tribunal over the 2002 Lease or 2007 Lease and it is the accepted position of both parties that both Leases are able to be defined as retail shop leases for the purposes of the RLA.

Observation
Loan Agreement

15 The RLA provides the Tribunal jurisdiction over retail tenancy disputes which are defined under section 63 of the RLA as being:

"... any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to a retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease or former lease relates, and (without limiting the generality of the foregoing) includes a dispute about a security bond, but does not include a dispute of the kind referred to in section 19(1)(b) or 31(1)(b) as to the rent payable under a retail shop lease (where the rent is to be current market rent for the shop)."

16 Pursuant to the Loan Agreement, the Applicant lends the amount of $29,354.62 to the Respondent for the purpose of payment of outstanding arrears of rent under the 2007 Lease.

17 The definition of a retail tenancy dispute is purposefully wide and having regard to the decisions of Arkbay Investments Pty Ltd v Habib & Ozvic Enterprises Pty Ltd [2003] NSWADT 143 and Boz v Dadoun & Anor [2007] NSWADT 113 where the application of the definition was widely applied to mediation proceedings and a settlement agreement regarding a lease dispute respectively. The words used in the definition ‘in connection with the use or occupation’ are purposefully wide and are to be given their usual wide interpretation, Prasad & Anor v Fairfield City Council [2000] NSWADT 164.

18 As the Loan Agreement is connected to the 2007 Lease by virtue of paragraph 7(a) of the Loan Agreement, the Tribunal does have jurisdiction to hear the application concerning the Loan Agreement as it impacts upon and thereby is "in connection with the use or occupation" of the Premises.

19 Jurisdiction being established, I now turn to the claim made under the Loan Agreement by the Applicant. While paragraph 6 of the Loan Agreement seems to contradict itself, the existence of the paragraph does not impact upon the validity of the Agreement as a whole. Despite the concern of the Respondents regarding paragraph 6, even if one were to strike out the clause in its entirety for lack of clarity paragraph 7(a) would suffice in establishing that part of the Applicants claim concerning the enforceability of the Loan Agreement in connection with the 2007 Lease and it is upon this basis that I rely.

20 I now turn to the other provisions of the Operative Part of the Loan Agreement considered at paragraphs 1 to 4. The Loan Agreement states at Recital C that the purpose of the loan of the principal sum of $29,354.625 is towards the repayment of monies payable by the Respondent to the Applicant in relation to rent during the tenancy of May 2007 to April 2008. Paragraph 1 furthers this by stating that the amount is in consideration of all amounts payable as at 31 May 2008. Paragraph 2 requires all repayment amounts to be paid monthly on the 14th of each month and to include payment of interest at the agreed rate of 12% per annum. The Respondent has not made any submission as to whether any payments have been made under the Loan Agreement except so far as the Respondents assertion that they executed the Loan Agreement under protest and at the recommendation of their then solicitor, Mr Terry Perkins. It is accepted that the execution of the Loan Agreement by the Respondent represented their acknowledgment of its terms and conditions and they agreed to be bound by its obligations from that moment on. The Applicant asserts that no payments have been made under the Loan Agreement and I find no submission by the Respondent to suggest otherwise. Accordingly, pursuant to paragraph 7(a) the Respondent is in breach of an essential condition of the Loan Agreement and is in breach of an essential condition of the 2007 Lease. I also note that the Applicant only claims an amount being some $4,000.00 less than the principal sum of the Loan Agreement. This suggests that some payments have been made by the Respondent in part satisfaction of the Loan Agreement. A detailed account of all amounts paid and payable should be provided by the parties to correctly consider the issue of quantification.

21 I now refer specifically to the breach of the 2007 Lease referred above and note that the Applicant has not confirmed that a notice in accordance with section 129 of the Conveyancing Act 1919 (CAct) has been served upon the Respondent in connection with the noted breach and nor is the Applicant afforded any exemption from giving the notice. No such notice being served, the Respondent must be given a reasonable amount of time in order to rectify the breach being the payment of the outstanding amount owing at the time of the decision and in the event of non fulfilment, the Applicant may at that time re-enter and obtain vacant possession of the Premises.

22 As a last point I refer to paragraph 5 of the Loan Agreement and the issue of costs payable by the Respondent in connection with the Loan Agreement. Section 14 of the RLA provides that any payment of lease preparation expenses are prohibited in connection with the granting of a retail lease. The 2007 Lease being deemed a retail lease and the Loan Agreement being considered as being part of the grant of the 2007 Lease, the application of the paragraph is thereby prohibited by the RLA and the Applicant must repay to the Respondent any amount paid by the Respondent in connection with such costs.

2002 Lease
23 There appears no dispute as to the fact the Respondent held a lease for the Premises for a term of 3 years with an option to renew for 3 years commencing 6 July 2002 and terminating 5 July 2005. The parties agree the option was not validly exercised. From the 5 July 2005 to 5 October 2007 the Respondent retained possession of the Premises paying rent and outgoings under the provisions of the 2002 Lease while negotiations where undertaken for entry into a new lease for the Premises.

24 Section 127 of the CAct provides that where a tenant retains possession of premises then any tenancy may only be by way of a month to month tenancy terminable at the will of either upon notice. As it is agreed that the Notice was validly given and not rescinded the appropriate date upon which the 2002 Lease terminates is 5 October 2007 being the date specified in the Notice.

25 Any occupation of the Premises by the Respondent after this date may only be under a new lease on a month to month basis in accordance with section 127 of the CAct see Cathay Developments Pty Ltd v Laser Entertainment Pty Ltd (1998) NSWSC 82 (25 March 1998) and Lin v State Rail Authority of NSW [2004] FCAFC 219 upheld by appeal in Lin v State Rail Authority of NSW [2006] FCAFC 42.

2007 Lease

26 There is considerable dispute and submissions were made by both parties as to the appropriate commencing date of the 2007 Lease. Both parties confirm that negotiations in respect of the 2007 Lease continued until at least 6 May 2008 when final documentation was submitted for execution by the Respondent.

27 I note the Loan Agreement was executed and dated 29 May 2008. While a copy of the 2007 Lease is not included in the papers, it is agreed by the parties that the 2007 Lease was also duly executed and dated the same day as the Loan Agreement.

28 Pursuant to Section 8 of the RLA a retail lease is considered to have been entered into when a person enters into possession of the premises or begins to pay rent as Lessee under the lease (whichever happens first). The clause also provides that if both parties execute a lease prior to the lessee entering into possession or begins to pay rent, the lease is considered to have been entered into as soon as both parties have executed the lease.

29 When considering the appropriate commencing date the following must be taken into account:

1.The 2002 Lease was validly terminated on 5 October 2007.

2. The 2007 Lease is dated 29 May 2008.

3. The 2007 Lease specifies a commencing date of 1 May 2007.

30 There then appears to be an overlap of the two respective leases between the termination of the 2002 Lease and the commencement of the 2007 Lease. The 2002 Lease was validly terminated on 5 October 2007, therefore the 2007 Lease could not commence until at least this date as the Applicant did not hold, at the relevant time, the legal capacity to provide possession of the Premises to the Respondent. The Respondent claims that the earliest date upon which the 2007 Lease may commence is the date the Respondent executed the 2007 Lease being 1 May 2008.

31 There has been much consideration by the Tribunal and various Courts in relation to the application of section 8 of the RLA and section 54A of the CAct. It was held in El Cheikh & Anor v Gratsis & Anor (unreported, 4/7/1997, NSWSC, Hamilton J, No. 2371 of 1997) that the purpose of section 8 of the RLA is to create an exception to s54A of the CAct provided the requirements set out in section 8 of the RLA are met. Further consideration was provided in Aspromonte Pty Ltd v Zagari [1999] NSWSC 1045; (1999) 9 BPR 17,247 where it was held that for section 8 to operate there must be a consensus as to the terms of the lease to be entered into. What constitutes such consensus has been debated at length and there are a number of seemingly contradictory decisions. In Randi Wixs Pty Limited v Pokana Pty Limited (No. 2) [2003] NSWADT 4 it was held that there need not be consensus as to every term of the lease or for a executed document to be entered into as the section operates to ‘fill in the blanks’ of an agreement. It was held that once it is accepted that an agreement can theoretically be implied and oral then there exists a lease commencing upon the date in accordance with section 8 of the RLA. Perhauz & Anor v SAF Properties Pty Ltd & Ors [2007] NSWADT 122 provided further guidance by considering that section 8 of the RLA simply acts as an aid to any formal lease being entered into and does not create two separate leases, one being a statutory lease and the second a contractual lease. The section provides guidance for the parties to apply with certainty when a lease may be considered as being entered into provided there is consensus as to the balance of the terms of the lease.

32 I note that there was some negotiation between the parties up to at least 6 May 2008 when the Applicants solicitor provided documentation in the agreed final form for execution by the Respondent. Various aspects of the negotiation extended to the amount of rent payable as well as other general lease terms and obligations. The fact that the amount of rent payable (along with other general terms) was under negotiation up to the date of submission and execution of the 2007 Lease provides sufficient evidence that there was not consensus as to the terms of the Lease, the amount of rent being an essential component. This is also supported by the strict position asserted by the Applicant through its solicitor on numerous occasions which stated that unless agreement was reached the Applicant would require immediate vacant possession of the Premises. There being no consensus as to such an essential aspect of the lease, section 8 does not apply to assist the Applicant in this regard as the Applicant has not established that an enforceable agreement for lease has been agreed. Accordingly, the earliest that the 2007 Lease may be considered as being entered into for the purposes of the RLA and the CAct is the date of consensus of the 2007 Lease being 1 May 2009 being the date accepted by the Respondent by its submission that their existed certainty that the parties reached agreement as to the essential conditions of the 2007 Lease.

33 I note that the term that the Respondent retained possession of the Premises while the parties were engaged in negotiations was six months and twenty-four days. However, throughout the period of negotiation the Respondent held, at best, a monthly tenancy of the Premises determinable by either party upon notice under section 127 of the CAct. When considering the application of the decisions of Rolet v Baron [2002] NSWADT 136, Lin v State Rail Authority of NSW [2003] NSWADT 131 and Duncan’s Catering Pty Limited v Bankstown City Council [2005] NSWADT 158 (upheld on appeal: Duncan’s Catering Pty Limited v Bankstown City Council [2006] NSWADTAP 1), it is determined that the occupation of the Premises by the Respondent during this period does not extend to the application of the RLA and thereby the Tribunal does not hold jurisdiction to hear the Applicants claim in relation to the tenancy during this period.

Consideration of Section 16

34 The Respondent in its submissions also raises the application of Section 16 of the RLA, being the requirement of a minimum 5 year term unless a certificate in accordance with Section 16 is provided. No such certificate has been submitted to the Tribunal and the Respondent claims no such certificate was ever provided to the Applicant. The Applicant not making any submission on the issue and taking into account the 2007 Lease being for term less than the minimum five years, the 2007 Lease must thereby be extend to the minimum of five year term provided by section 16 of the RLA.

Further Issues Raised

35 The Respondent has also raised the following issues within its submissions and Affidavits which are relevant to the matters at hand and which the Tribunal should have regard and provide orders in relation to the same.

Payment of Outgoings

36 The Respondent has sought a statement in accordance with section 27 and 28 of the RLA. The Respondent has written to the Applicant and requested the applicable outgoings estimate considered by section 27 and 28 of the RLA and the Respondent claims no such estimate is yet to be provided. The Applicant asserts that it has provided such an estimate as provided by the schedule of outgoings contained in the Applicants affidavit of Mr Makan sworn 23 April 2009. I note that the estimates referred to do not accord with the requirements of section 28 of the RLA, in particular sections 28(1)(c), (e), (f) or (h). As such, the Applicant has not complied with the requirements of section 28, in particular 28(1)(d) and must submit a correct estimate in the appropriate form. Until such time and in accordance with the provisions of section 28A of the RLA, the Lessee is entitled to withhold payment of outgoings until the applicable estimate has been provided by the Applicant.

37 As considered most recently in Kiwi Munchies Pty Ltd v Ragi Pty Ltd [2007] NSWADT 108, the applicable sections do not consider that failure to comply with the provisions precludes the Applicant from recovering outgoings, however, the provisions of section 28A provide that the Respondent need not provide payment until such time as the estimate is provided in correct form. However, it was further considered in Makhoul v Petria Pty Ltd [2004] NSWADT 51 that if a lessor fails to provide proofs of the basis of annual outgoings in accordance with section 27 and 28 within a reasonable time then the lessor loses the right to claim those payments and the lessee is entitled to seek a refund of any monies paid. It is important to note that it is the responsibility of the lessee to establish the quantification of any damages sought in this regard.

38 As the Applicant is yet to submit such estimates the Tribunal should require that the Applicant provide those estimates in accordance with sections 27 and 28 of the RLA and including sufficient proof of expenditure within a reasonable time of the decision being given. In the event the Applicant fails to provide the same, the Applicant shall lose their right of claim to outgoings sought by the Applicant.



Registration of the Lease

39 By virtue of the parties submissions and affidavits, it can be seen that the Applicant has received the 2007 Lease documentation together with payment on account of registration fees, in accordance with the Respondents then solicitor’s (Terry Perkins) letter dated 27 May 2008, on at least 29 May 2008 being the date of settlement of the 2007 Lease. The Applicant has not made any submission as to whether the Lease has been registered to date nor if there exists an exemption under section 15(1)(c) of the RLA. There being no evidence to the contrary, the Tribunal should make orders to the effect of requiring immediate registration of the Lease by the Applicant and provision of the registered Lease within one month of the date of registration in accordance with section 15.

40 I note that the RLA does not consider a breach in this regard as being an offence or any penalty being payable.

Summary

41 The Applicants retail tenancy claim for unpaid rent and loan moneys granted.

42 The Applicant submit draft Orders based on the determination of the issues by this decision by 20 January 2010.

43 Proceedings 085176 are listed for submission of draft orders based on the determination of the issues of commencement of the Lease and the Loan Agreement on 3 February 2010 at 9:30am.