Puya -v- Coranton Pty Ltd [2000] NSWADT 161

CITATION: Puya -v- Coranton Pty Ltd [2000] NSWADT 161 DIVISION: Retail Leases Division APPLICANT Majid Sedaghi Puya PARTIES: RESPONDENT Coranton Pty Ltd FILE NUMBER: 005017 HEARING DATES: 16/10/2000, 17/10/2000, 20/10/2000 SUBMISSIONS CLOSED: 10/20/2000 DATE OF DECISION: 11/14/2000

BEFORE: Donald B - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 Blackler -v- Felpure Pty Ltd [1999] NSWSC 958 Leek & Moorlands Buildings Society -v- Clark (1952) 2 All ER CASES CITED: Macdonald -v- Robins (1954) 90 CLR 515 Brennan -v- Kinjella Pty Ltd (1993) 6 BPR 13 Waltons Stores (Interstate) Ltd. -v- Maher (1988) 164 CLR 387 APPLICANT REPRESENTATION: S Burchett, barrister RESPONDENT A Radojev, barrister ORDERS: 1. Application dismissed; 2. Declare that the lease was not validly assigned; 3. Declare that the option to renew was not validly exercised; 4. No order as to costs.

1 This is a Retail Tenancy Claim under s.71 of the Retail Leases Act 1994 in which the Applicant Lessee seeks declarations that he is entitled either himself, or through a company solely owned by him, to continue in possession of a shop in the Castle Plaza, Castle Hill, under a lease from the Respondent Lessor. 2 As the factual issues became very much clearer during the course of the hearing including as a result of the production of certain files of the Applicant Lessee's original lawyer, it is preferable to set out my findings of the facts on the evidence rather than begin with setting out the contending claims in detail. 3 Suffice to say the Lessee brought the Application on the basis that he and his then partners originally entered into possession in advance of any formal lease, not having received a Disclosure Statement or draft Lease and therefore had the benefit of a statutory lease under the Act. Very soon he bought his partners out of the business. He then claims to have validly assigned his lease to "the company", International Ausworld Pty Ltd, which was established to operate the business in the premises and some time later to have validly exercised an option to renew the lease, all of which now entitles him either personally or through the company to continue in occupation. 4 In summary the Respondent Lessor contends simply that: · a valid formal lease was executed at the commencement of the term, in compliance with all the provisions of the Retail Leases Act including as to prior service of a draft lease and Disclosure Statement, · the lease was for a three-year term with a three-year option, · there was no valid assignment of that lease nor a valid exercise of the option and, · accordingly it is now entitled to give notice to the Lessee to vacate. 5 The relative confusion in the mind of the Applicant as to the nature and documentation of the legal relations between the parties arises partly from his stated unfamiliarity with English and partly from the legal documents in circumstances where a large number of documents were being passed before him for signature; a number of these did not then subsequently return for his examination for a long time, some not until production of the former lawyer's file at the hearing. In examining the evidence I have endeavoured very carefully to take his English and legal comprehension into account and to evaluate the extent to which he in fact took and relied on legal advice as well as the advice of certain business partners at the outset. Factual Findings (a) During March 1997 the Applicant, Mr Puya looked at this shop for the purpose of operating a computer business and on 12 March 1997 he consulted Mr J.H. Maait, as his lawyer, to advise him. (b) On about 1st April 1997 the lawyers for the original Lessor, Good Sail Pty Ltd, sent a draft Lease to Mr Maait for Mr Puya and two other named persons as Lessees, together with a Disclosure Statement. (c) The Lease was for three years with a three-year option at a rent of $400 per week together with a 6% share of outgoings as itemised in the Lease, and also in the Disclosure Statement together with the amounts of the outgoings. (d) On 4 April 1997 Mr Maait explained the Lease to Mr Puya who took it together with the Disclosure Statement away for discussion with his partners and for the documents to be signed. (e) Negotiations followed as to the security deposit, the exact figure for the rent on an monthly basis and also as to when the partners could have access to the premises with Mr Puya wishing to gain access, in his own terms, a couple of weeks before the commencement date. (f) The Lessor consented to early occupation and handwritten amendments to the Lease expressing the commencement date to be 14 April 1997 were initialled by Mr Puya's partners but probably not by Mr Puya himself. Mr Puya and his partners however took possession of the shop on or about 17 April 1997. (g) In August 1997 Mr Puya and his partners agreed to terminate their partnership and for that purpose they first, through their lawyer, duly recorded the terms of the partnership which was expressed to have commenced from 15 April 1997. This Partnership Agreement was followed on 28 August 1997 with an agreement for the sale of the computer business with Mr Puya as purchaser and the partners as vendors who agreed "to execute all necessary documents to effect the transfer of Lease to the purchaser". This agreement expressly dissolved the partnership. (h) Mr Puya did not receive, either through his lawyer or from the lawyers for the original Lessor, a copy of the duly executed stamped and registered lease until at least October 1998, over a year later, in association with the notification from the lawyers for the original Lessor that the Lessor had sold the premises to the Respondent Lessor. That notification was to the partnership as there was no evidence of any formal assignment of the partners' interest in the Lease to Mr Puya pursuant to the sale of business agreement. (i) Mr Puya had apparently during the first year or so of the Lease not been paying a contribution to outgoings and following the sale to the new Lessor, the continuing managing agent drew this to the attention of the partners requiring that in future the specified sum being 6% of the stated outgoings be added to the monthly Lease payments. In addition by separate letter, a claim was made on behalf of the original Lessor for arrears in rent and outgoings but that claim is not part of these proceedings nor is any failure to have paid it relied upon as any relevant default. (j) On 10 November 1998 Mr Puya's lawyer informed the managing agent of the desire to transfer the Lease into the company name. (k) The lawyers for the Lessor then replied in terms which need to be set out in full as they are the subject of a significant element of claim. "Before any consideration can be given to your request we draw your attention to the following: (i) Your client is in arrears in outgoings together with his partners in the sum of $350.00 for the month of October. (ii) Another outgoing contribution fell due on 14 November 1998 in the same amount of $350.00. Until such time as the arrears and outgoings are brought up to date our client is not in a position to have regard to your client's request bearing in mind the requirements of the Lessor to consent to assignments is on the basis that your client is not in default under the terms of the Lease. On the assumption that your client will rectify the arrears for our client to give further consideration to your client's request we would ask if you could supply us with details of your client's company as follows: (a) Confirmation of your client's company ABN number. (b) Names and addresses of it's directors. (c) Financial Statements of the company including assets and liabilities for the financial years ended 30 June 1996, 1997 and 1998." (l) At no time were these details sent to the Lessor. Nor was any suggestion made to the lawyers for the Lessor that the tenor of the letter was unreasonable to the extent of disentitling the Lessor to the information and giving rise to a deemed consent to the assignment; this would only be claimed in this hearing. (m) A dispute then arose as to the obligation of Mr Puya to pay the contribution to outgoings and his lawyer informed the lawyers for the Lessor that Mr Puya apparently did not have a copy of the stamped Lease. This resulted on 21st December 1998 in an aggressive move by the new owners by way of a "Christmas Eve" Notice of Intention to re-possess the premises for failure to pay $700.00 in outgoings. (n) This Notice was not ultimately enforced and over the ensuing five months, the parties through their lawyers hotly contested their respective rights. Mr Puya apparently by the end of January began to pay the outgoings with the ensuing contest then being over the outstanding legal costs of some $650.00 The Lessor's lawyers claims of entitlement to continue seeking vacant possession on the basis of the now remedied contribution to outgoings was clearly without foundation although strenuously pressed. (Indeed at the hearing it was agreed that there was no outstanding claim for outgoings). At the same time the parties were in dispute over certain claims to signage rights in the rear and front of the Plaza and the belief by the Lessee that the Lessor was seeking vacant possession for the intention of developing a tavern on the site. (o) Attempts to resolve the dispute reached no outcome and nothing occurred after 22 July 1999 until on 10 January 2000 Mr Puya, by a letter dated 20 December 1999 on company letterhead, and written as director of the company, purported to give a notice of exercise of option addressed to the original Lessor, Good Sail Pty Ltd. This letter was in fact delivered to the managing agents for the new owner and they acknowledged on 12 January 2000 that they had passed it to the new owner's (Lessor's) lawyers. (p) On 21 January 2000 the Lessor's lawyers rejected the notice on a number of grounds including that it was from the company which they denied was the current Lessee, asserting the partnership to be the continuing lawful Lessees; they also asserted that it had been addressed to the incorrect Lessor as well as claiming continuing breaches excluding a right to the option. (q) On 24 January 2000 Mr Puya then delivered a "without prejudice" notice of exercise of option addressed to the Assignee Lessor in his own name. (r) The parties through their lawyers then disputed the exercise of the option. The lawyers for the Lessor subsequently required vacant possession on 13 April 2000, the date of expiry of the initial term, which resulted in the lawyers for Mr Puya formulating the basis for this claim briefly summarised above. (s) This claim was then lodged under the Act with the Tribunal, with the Lessor in interlocutory proceedings undertaking not to seek the vacant possession of the premises from Mr Puya pending resolution of the dispute by the Tribunal. Compliance with section 16 6 During the course of the hearing, the Tribunal requested the parties to address the issue of whether s.16, on its correct interpretation, applies in circumstances where the initial term of a lease is less than five years with option periods which if added to the initial term, would total more than five years. A certificate under s.16(3) not having been provided under the Lease in this case, if s.16(1) did have that application, then obvious consequences would flow for the benefit of the Lessee. 7 The Lessor's lawyer submitted that the correct construction of s.16(1) is that, if the initial term together with options or agreements for lease for further terms granted within or at the same time as the original lease exceeded five years, then no breach of the section arises. He cited the decision of Bryson J in Blackler -v- Felpure Pty Ltd [1999] NSWSC 958 at par. 22. 8 I accept that the correct construction of s.16(1) is that a lease will not be in breach of the section for having a term of less than five years in circumstances where the initial term together with options or agreements for a lease granted at the same time add up to more than five years. This was the case with the present lease which was a three plus three. Accordingly the absence of a certificate under s.16(3) does not give rise to an implied term of 5 years. Determination 9 Contrary to the claim by the Lessee, I am satisfied that the Lease, Exhibit 1, was duly entered into between the original Lessor and three persons including Mr Puya who were in a partnership. The Lease commenced on 14 April 1997 and was duly supported in accordance with the Act by the prior delivery of the terms of the Lease and the Disclosure Statement , both clearly including an obligation to pay a 6% contribution to outgoings as defined. 10 Mr Puya received specific advice concerning this lease from his lawyer and although for various reasons he did not have access to a copy of the Lease until over a year later, he and his partners were clearly bound by it as from 14 April 1997, entering into possession of the premises on or about 14-17 April 1997. 11 Following the purchase by Mr Puya of his partners' interests in the business and the dissolution of their partnership, no steps were taken for the assignment of their interests in the Lease to Mr Puya. 12 I am satisfied that there was no assignment of the lease to the company. The request of 18 November 1998 by the lawyers for the new Lessor seeking financial and corporate information as to the company to whom Mr Puya proposed to assign his rights under the Lease, was a proper request for information under clause 10 of the Lease and the regime for consent to assignment under Part 5 of the Retail Leases Act. It was not vitiated, as asserted on behalf of the Lessee, by the demand in the same letter for payment of outstanding outgoings and the assertion that until they were paid the Lessor would not be in a position to consider the request of the transfer. A Lessee would not be entitled to assert that, in face of such a statement, it was entitled simply to decline to provide the requested financial and corporate information and thereafter rely on the deemed transfer provisions in the Lease and the Act. 13 Accordingly, in my opinion there is no assignment or deemed assignment of the Lease to Mr Puya's company. 14 The next issue, and the crucial one, is whether the Notice of Exercise of Option delivered on 10 January 2000 (dated 20 December 1999) and passed on to the lawyers for the Lessor, was a valid Notice of Exercise of Option, notwithstanding that it was signed only by Mr Puya, and as director of the company, not purporting to be given either in his personal capacity or as a member of a partnership. 15 Despite the Notice being expressed to be to the original lessor, it was in fact delivered to the new Lessor and so in my view would not be invalid for that reason. 16 The decisive factor is that it was signed only by Mr Puya himself, not by the three persons who in law the Lessor continued to be entitled to hold to the lease, notwithstanding that as between themselves they may have dissolved the partnership. Mr Puya had not completed the dissolution of the partnership to the point of procuring the assignment of the other partners' interests under the lease to himself (using the provisions of the dissolution agreement and the rights of assignment under the lease). I have held that there was no assignment to the company. 17 Mr Puya did not purport to sign on behalf of himself and the other Lessees pursuant to an authority to bind them (such as no doubt flowed from the original partnership agreement). 18 Since a lessor with three lessees is entitled to rely on the security that they all continue to be liable for the obligations under the lease, it follows that central to the renewal of a lease is that those three parties, in the absence of a lawful assignment binding on the lessor, of the interest of any of them, need to demonstrate their commitment to the lease on renewal by joining in the notice of exercise of option. They can do this by signing the option notice or by authorising one partner who then expressly signs under the established authority. 19 It is not surprising therefore that the decisions on this issue state that all joint lessees should join the notice of exercise of option for it to be validly given: Leek & Moorlands Buildings Society -v- Clark (1952) 2 All ER 492, 495 Somervell LJ; Macdonald -v- Robins (1954) 90 CLR 515;Brennan -v- Kinjella Pty Ltd (1993) 6 BPR 13,168 Young J. The cases acknowledge that in some instances such as the death of a joint tenant, one signature suffices but that is because, in law, the surviving joint tenant acquires the whole interest. 20 The final element to consider in relation to the option notice is whether any common law or equitable estoppel entitles Mr Puya to rely on the form of notice. While this was not argued in the hearing, I have considered the point and have concluded that there was no representation of fact or promise of future conduct on which Mr Puya would have been entitled to rely to give rise to either form of estoppel. Nor was there any relevant reliance by the Lessee on any conduct or communication by the Lessor. See Waltons Stores (Interstate) Ltd. -v- Maher (1988) 164 CLR 387 21 Therefore in my opinion the Notice of Exercise of Option was not a valid notice. Accordingly the Lease has expired as at 13th April 2000, the Lessees hold over as monthly tenants and the Lessor is entitled by one month's written notice to require vacant possession of the premises. 22 That leaves the claims of breach of the covenants of quiet enjoyment and/or non-derogation from grant. These are said to be constituted by the removal of a sign from the rear of the Plaza, omission of Mr Puya's business from a list of shops on the main sign at the front on the street, and the inferred intention of the Lessor to develop a tavern at the site based on an application to Council together with suggestions that the Lessor had told potential employees that the computer shop would not be continuing. 23 In the course of the hearing I stated the opinion that simply to take steps with Council in the hope of gaining vacant possession does not constitute a breach of such covenants. The omission from the front sign in circumstances where the shop in question is nearby on the street and prominent would be unlikely to have caused any damage even if in breach. There is no obligation in the lease for the Lessor to maintain a rear sign which relatively minor in any event. The alleged warning off of an employee was not shown to have had great significance for the business. 24 Therefore in my view those allegations even taken together do not in the circumstances give rise to the basis for a remedy for the Applicant. 25 For these reasons the application is dismissed with no order as to costs. If the Applicant sought to appeal this decision, I would entertain an application to stay a notice to quit.