Civil and Administrative Tribunal New South Wales Medium Neutral Citation: BBL International Pty Ltd v Tsiakos & Kolovos [2023] NSWCATCD 22 Hearing dates: 10 January 2023 Date of orders: 22 February 2023 Decision date: 22 February 2023 Jurisdiction: Consumer and Commercial Division Before: D Goldstein, Senior Member Decision: Jim Tsiakos & John Kolovos must pay BBL International Pty Ltd the sum of $51,333.34 immediately. Catchwords: RETAIL LEASE – Damaged Property – Section 36.1 of the Retail Leases Act Legislation Cited: Retail Leases Act 1994 Retail Leases Regulation 2022 Cases Cited: Honings Bakery Pty Ltd v Cerialis Pty Ltd [2014] NSWCATCD 87 Texts Cited: None cited Category: Principal judgment Parties: BBL International Pty Ltd: applicant Jim Tsiakos & John Kolovos: respondents Representation: The parties were self-represented. File Number(s): COM 22/41524 Publication restriction: Nil REASONS FOR DECISION 1. This application was commenced on 14 September 2022. The applicant claims $68,833.34. The applicant is a lessee and the respondents are the lessors. 2. There is no dispute that the Retail Leases Act 1994 confers jurisdiction on the Tribunal to hear and determine this dispute. 3. These proceedings were heard on 10 January 2023. The lessee's documents were marked as exhibit A. The lessor's documents were marked as exhibit B. I have also had regard to the documents filed with the application by the lessee. 4. The parties entered into a lease for five years which commenced on 2 February 2022. The premises leased were 79 Planthurst Road Carlton. The permitted use was floor covering sales (carpet, timber, vinyl). 5. These proceedings arise as a result of prolonged wet weather in Sydney in 2022 which caused water ingress into the leased premises. There is no dispute that the premises were affected by water ingress in the Sydney wide inclement weather. 6. The lessee's claim is made up as follows: * $38,500.00 in connection with a bond converted by the lessors; * An order that it is not obliged to pay $12,833.34 being 1 months rent; * $1,600.00 being an amount paid to a plumber to check roof and walls for leaks; * $5,665.00 for carpet replacement; and * $16,500.00 paid to build a new display room. 1. The lease allowed the lessee a rent free period of 3 months as from 2 February to 1 May 2023. The lessor states and I accept that there was a second rent free period from 2 May to 15 July 2022. 2. The lease required the lessee to provide a bank guarantee in the sum of $38,500.00 in accordance with clause 16. 3. Clause 21 of the lease stated that the lessor did not warrant that the property would remain fit or suitable or adequate for the purposes for which it was leased and all warranties implied by law as to the fitness, suitability and adequacy of the property were negated. 4. Clause 28.1 of the lease deleted clause 7.1 of an of Annexure B. That clause obliged the lessor to maintain the premises in a state of good condition and serviceable repair, in a structurally sound condition and to maintain essential services. 5. Clause 28.2 of the lease stated that the premises were taken in an 'AS IS' condition and the lessee acknowledged and agreed that the lessor had no liability or obligation to remodel, improve, repair, refurbish or alter the premises and that condition was factored into the rent. 6. Clause 8.2 of the lease and section 36.1 of the Retail Leases Act both stated in substantially the same terms: 'A retail shop lease is taken to provide for the following if the shop or the building of which the shop forms part is damaged— (a) The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage. (b) If the shop is still useable under the lease but its useability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage. (c) If the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee may terminate the lease by giving not less than 7 days notice in writing to the other and no compensation is payable in respect of that termination. (d) If the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor in writing to do so, the lessee may terminate the lease by giving not less than 7 days notice in writing of termination to the lessor. (e) Paragraphs (a)–(d) do not affect any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which those paragraphs apply.' 1. The evidence is that there was water ingress into the leased premises because the besser block walls of the premises were not filled with concrete and became saturated, allowing the water ingress the lessee complained of. A letter dated 24 June 2022 from SPC plumbing Services which is at page 28 of exhibit A explains the position succinctly. It states that the roof sheets, box gutter and flashing were in good condition, but that all walls internally were soaked with water. However the block work (of which the walls were constructed) had no concrete in them and during rain the water would soak through them externally to internally. 2. I find the lessee's rights as regards payment of rent in this situation are contained in clause 8.2 of the lease and section 36.1 of the Retail Leases Act which are in substantially the same terms. Clause 8.2.4 of the lease gives the lessee a right to terminate in the circumstances referred to in that sub-clause. 3. The lessee submitted a number of photographs showing leaking into the rented premises. These photographs are referred to in a chronology which is in exhibit A and by reference to the chronology the date of the photo's may be ascertained. 4. On 6 July 2022 the lessee through its solicitor gave notice to the lessors through their solicitor under clause 8.2.4 of the lease which was in identical terms to s36.1(d) of the Retail Leases Act. The solicitor's letter referred to the property being damaged from water leakage and specifically requested the lessors to repair the damage by waterproofing the walls so that the property could be used within 14 days. The letter put the lessors on notice that if the damage was not repaired within 14 days the lessee would terminate the lease in accordance with clause 8.2 of the lease. 5. The 14 day period in the letter expired on 20 July 2022. 6. On 19 July the lessor's agent sent a letter to the lessee claiming rent of $14,723.84 stating that rent was due on the 1st of July and was overdue. The emails of 25 July 1. These emails and the attachments to them were provided to the Tribunal after its directions to the parties dated 13 January and 16 February 2023. 2. By an email dated 25 July to the lessor's agent sent at 12.74 pm, the lessee's solicitor sent to the lessor's agent and their solicitor photographs taken on 5 July 2022. The lessee's solicitor stated, among other things, that it was clear that the damage had not been repaired and the lessee was unable to move in. This email was in response to an email on 22 July from the lessors' agent. 3. In an email on 25 July 2022 at 4.15pm, the agent for the lessors stated to the lessee's solicitor that all rectification works and repairs to any damage including the showroom were completed in a timely manner and prior to 15 July. The agent further stated that a large proportion of the rectification works were external and needed a number of days of clear weather which wasn't available given all the rain. 4. At 6.46pm on 25 July 2022 the lessee's solicitor replied attaching a photograph which she stated was taken on 22 July 2022 which she asserted showed the premises as still being damaged. 5. At 6.58pm on 25 July 2022 by a separate email from the lessee's solicitor a Notice of Termination was sent to the lessors' agent. It stated: TAKE NOTICE that as the above premises was damaged during extreme weather which rendered the premises unusable for the permitted purpose. the Lessee has requested repair of the damage from 13th April 2022, until the date of this notice, the Lesssor has failed to repair the damage. As required by clause 8.2.4, the Lessee is terminating this Lease by giving you 7 days notice i.e. the lease shall be terminated by the 3 August 2022. The Lessee request the return of the original bank guarantee for the amount of $38,500.00 and initial deposit in the amount of 12,833.34.' 1. On 1 August 2022 the lessors' solicitor responded to the lessee's solicitor stating that the Notice of Termination was not valid and amounted to a wrongful repudiation of the lease. The lessor's solicitor stated that the lessors would seek court orders including for damages and rent for the entire term of the lease. Material facts 1. I find that the water ingress commenced in March 2022, a rent free period. 2. I also find that the lessor carried out repair work which was said to be complete in May 2022. Page 20 exhibit A. There is also evidence in exhibit B at page 54 which suggests that on 2 July 2022 a box gutter between the leased premises and adjacent premises had been installed. 3. On 7 June 2022 the lessee stated that there was still water damage and water proofing needed to be redone. Page 25/26 exhibit A. The lessee stated that it did not agree to the rent commencing from 15 July. 4. On 3 July the lessee wrote to the lessor stating that the property was still not repaired properly and completely and was still leaking. Photos were sent showing water ingress. Page 29/21 exhibit A. On 5 July 2022 the lessee again wrote to the lessor's agent complaining of new leaking from the ceiling of level 2. Refer page 33 of documents attached to the Application. 5. In the lessee's solicitors' emails of 25 July, photographs were attached which were stated to have been taken on 22 and 5 July. 6. I find that it is clear that the lessee's 6 July 2022 letter was given pursuant to clause 8.2.4 of the lease. 7. I also find that the lessors did carry out rectification works to the property being waterproofing and gutter work. Refer pages 13/14 documents attached to Application, and pages 53 - 55 exhibit B. 8. I find that at 6 July 2022 the lessee's position was that the leased premises were damaged from water leakage and were unusable. I further find that this position taken by the lessee was despite the fact that the lessor had carried out repair work which was said to be complete. As found the lessee maintained on 7 June, 3 July and 25 July 2022 that water was still leaking into the premises and provided photographs to illustrate its assertions. Determination of lessee's clause 8.2 case 1. Clause 8.2 applied only if the property leased or the building of which it is part is damaged. I find that the premises leased to the lessee were damaged by the water ingress through the besser block walls. Silver Wolf Projects Pty Ltd Engineers and Building Consultants provided a report to the lessee which is in exhibit A and which provides evidence of the damage which I accept. This report at page 4, refers to damp and mould damaged block/concrete wall with evidence of efflorescence emanating throughout the wall, to water staining and mould damage to the ceiling about the eastern wall and to water staining, mould damage and efflorescence emanating on the floor. 2. I find under clause 8.2.4 the relevant time to determine whether the lessor has repaired the damage referred to, is the period of time specified after the lessee issues a request to the lessee to repair the damage complained of. As found, the lessee's notice/request under clause 8.2.4 was its solicitor's letter of 6 July 2022. I find by that letter the lessors were requested to repair the damage from water leakage. 3. It is only if the lessors failed to effect that repair in the 14 days specified in the 6 July 2022 letter, that the lessee will be entitled to terminate the lease by giving 7 days notice. 4. The lessors' evidence was that its rectification work was carried out by the end of May and by 2 July in relation to the gutter. In its email of 25 July 2022 at 4.15pm the lessor's agent stated to the lessee's solicitor that all rectification works and repairs to any damage including the showroom were completed in a timely manner and prior to 15 July. 5. I find that the lessee's evidence of water ingress on 7 June 2022, 3 July 2022, and 5 July 2022 as referred to in the correspondence referred to above, is of no relevance to the issue of whether the lessors repaired the damage referred to in the lessee's 6 July 2022 letter in the period referred to. 6. I find that the only evidence there is from the lessors about whether or not the lessors carried out the repair called for in the lessee's 6 July 2022 letter is the lessors' agents 25 July email in which there is a general assertion of completion of rectification and repairs before 15 July 2022. The specific evidence of the lessors actions taken in connection with rectification and repair is at pages 13/14 of documents attached to Application, and pages 53 - 55 exhibit B which I find all relate to work carried out before the lessee's clause 8.2.4 request of 6 July 2022. 7. The only evidence for the lessee which addresses this issue is it solicitor's email at 6.46pm on 25 July 2022 which attached a number of photographs said to be taken on 22 July 2022 which it was said showed the premises still damaged. 8. I find based on the lessee's solicitor's email at 6.46pm on 25 July 2022 and the photographs attached that the lessors failed to repair the damage referred to in the notice given to them by the lessee on 6 July 2022 and that the lessee was entitled under clause 8.2.4 of the lease to give the lessor not less than 7 days' Notice of Termination, which it did and as a result I find that the lease was terminated on 3 August 2022. The reason for accepting this evidence is that it shows specific evidence of damage in the photographs attached, as opposed to the lessors' generalised statement which cannot be assessed for veracity due to its general nature. 9. In passing I find that the lessors have made no objection to the 'reasonableness' of the 14 day period referred to in the lessee's solicitor's letter of 6 July, no doubt because its assertion was that the rectification and repair work had been carried out before 15 July 2022. A retail shop? 1. In submissions before the Tribunal the lessors' agent referred to the fact that part of the leased premises are of a warehouse nature, the inference being that as a result the leased premises are not shop premises for the purpose of the Retail Leases Act and that as a result the Tribunal lacks the jurisdiction to entertain the lessee's claim. 2. I have had regard to the approach previously taken by the Tribunal in these circumstances as set out in Honings Bakery Pty Ltd v Cerialis Pty Ltd [2014] NSWCATCD 87 ('Honings'). There the Tribunal articulated that the correct approach to be taken in determining whether there is 'retail tenancy dispute' over which it has jurisdiction (s72) was stated at [36-37] as follows: 36. Both Counsel submitted to the Tribunal that the approach to be taken by the Tribunal in determining whether there is a retail tenancy dispute over which it has jurisdiction is well established and is set out in Wood Wilson v Bergman [2003] NSWADT and in Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSW SC1151 approved by the Court of Appeal in (2003) NSW CA376. 37. In summary it is as follows: (a) firstly, one looks at the lease to see what is the permitted or agreed use of the premises; (b) if the agreement clearly defines what the use of the premises is to be, then the question whether or not the premises are a 'retail shop' under s3 of the Act will be determined by whether or not that use appears within Schedule 1; (c) if the permitted or agreed use is not clear or is uncertain, or the use covers a number of different types of businesses some of which are, or may be, within Schedule 1 described businesses, then an analysis is required of the actual use(s) of the premises to determine whether the predominant use(s) fall within one or more of the businesses prescribed in Schedule 1. 1. Applying the principles set out in Honings, the permitted or agreed use of the premises as stated in the lease, was as stated above, Floorcovering sales (carpet, timber, vinyl). Schedule 1 of the Retail Leases Act has been repealed and is now to be found in Schedule 1 of the Retail Leases Regulation 2022. Retail shop business are stated in Schedule 1 to include 'Floor covering shops'. By reference to Schedule 1 of the Retail Leases Regulation 2022, I find that the permitted or agreed use of the premises as stated in the lease accords with description of shop businesses as stated in Schedule 1 of the Retail Leases Regulation. I further find that as a result the leased premises are a retail shop for the purposes of the Retail Leases Act despite the fact that some part of the leased premises are described as warehouse areas by the lessee. The orders sought by the lessee 1. I find that the lessee had no obligation to pay rent in the period 2 February 2022 to 15 July 2022, that being an agreed rent free period. In the period 16 July to 3 August 2022 I find based on the lessee's solicitors letter of 25 July 2022 at 12.17pm that the lessee was unable to move into the premises because of the damage which had not been repaired. This position was re-iterated in the lessee's solicitor's email of the same dated but sent at 6.46 pm where it was stated: 'The Lessor is aware that the Lessee conduct business of timber and carpet, the damage caused by the extreme weather rendered the Lessee unable to continue to complete the renovation approved by the Lessor previously and unable to move their stocks into the premises, thus render the premises incapable of being used for its permitted purpose.' 1. Based on the finding in the previous paragraph I find that under clause 8.2.1 of the lease the lessee was not liable to pay rent n the period 16 July to 3 August 2022. 2. Given that I have found that the lessee was not required to pay rent in the period 2 February to 3 August 2022 I find that the lessors had no right to convert the lessee's bank guarantee in the sum of $38,500.00. The lessors right to do that arose under clause 16.3 of the lease if there were moneys due but unpaid by the lessee to the lessor. I find that there is no basis for the lessors to assert that there was $38,500.00 due by the lessees to them, but unpaid. 3. Next the lessee claims the sum of $12,833.34 being 1 months rent. The lessee's solicitors 25 July 2022 letter sent at 6.46 pm, a copy of which is at page 39 of the documents attached to the Application refers to the sum of $12,833.34 paid to the lessors' agent's trust account on 10 December 2021 as the first months rent. A copy of the payment receipt is at page 45 of exhibit A. Since I have found that the lessors had no entitlement to rent to the 3rd August 2022, it follows in my view that they have no right to hold the $12,833.34 paid on 10 December 2021 on account of the first months rent. 4. I will make an order for the lessors to pay the lessee the sum of $51,333.34 immediately. 5. As for the lessee's other claims: 1. $1,600.00 being an amount paid to a plumber to check roof and walls for leaks; 2. $5,665.00 for carpet replacement; and 3. $16,500.00 paid to build a new display room. 1. I find that clause 8.2 of the lease does not justify or allow the lessee to recover the above amounts. In addition I find that clauses 21, 28.1 and 28.2 of the lease removed the obligation for the lessors to maintain or repair the leased premises which were taken by the lessee on an 'as is' basis with the result that the expenditures referred to above were its risk. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 June 2023