CITATION: Zouk v Lyons Road Pty Ltd [2005] NSWADT 143 This decision has been amended. Please see the end of the decision for a list of the amendments. DIVISION: Retail Leases Division APPLICANT/CROSS APPLICANT PARTIES: Emelie Zouk RESPONDENT/CROSS APPLICANT Lyons Road Pty Ltd FILE NUMBER: 055029; 055054 HEARING DATES: 10 June 2005 SUBMISSIONS CLOSED: 06/10/2005 DATE OF DECISION: 06/28/2005 BEFORE: Donald BG - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease - Claim for surrender of possession of premises MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: REPRESENTATION: T Hall, barrister S Philips, barrister ORDERS: 1. Interim orders of 4 March 2005 and 23 March 2005 revoked; 2. The Respondent/Cross Applicant is not entitled to terminate the lease commenced 20 August 2004; 3. There is no continuing breach by the Respondent /Cross Applicant of its obligations in respect of asbestos contamination or water penetration into the premises; 4. As from the date of this decision the Applicant / Cross Respondent's rights and obligations under the Lease continue including the obligation to pay rent subject to the unexpired portion of the rent free period of 1 month; 5. Matter listed at 9.30 am on 8 July 2005 for directions and conclusion if no further matters are raised. REASONS FOR DECISION 1 This is a dispute about asbestos contamination and water penetration in two shops on Lyons Road, Drummoyne, at the corner of Victoria Road. The Lessee leased the premises under a Registered Lease, (Ex A/A) commencing 20 August 2004 for three years plus a three-year option with a three-month rent free period basically to permit the Lessee to obtain development consent and fit-out the premises. 2 The Lease in cl 7.1 sets out the Lessor's responsibility as to the condition of the property. 7.1 The Landlord must – 7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects; 7.1.2 maintain the property in a structurally sound condition;… 3 On about 20 October 2004 in the course of fit-out works, exposed asbestos was discovered on the premises and the fit-out work immediately ceased. The parties then engaged in a protracted process of assessment and remedial work and then fell into an equally protracted dispute as to if and when the asbestos remediation has been successfully completed and who is liable for it. 4 The Lease provided in clause 27.2 for the Lessor to take action in relation to dampness and water penetration and the parties also remain in dispute as to whether that obligation has been satisfied. 5 There were a number of other issues in dispute between the parties including termite damage and lead paint contamination but those issues have been settled at least to the point that the Tribunal is not asked to rule on them. 6 Nor is the Tribunal asked to rule on the position maintained for some time by the Lessor that the asbestos problem was caused by the interference with the fabric of the premises by the fit-out and that therefore the cost of the remediation was not the Lessor's but resides in the Lessee's or the Owner Corporation's responsibility. The issue was not pressed for resolution by the Tribunal but it should be observed that on any view of it, it is my opinion that the cost of such a serious condition within the structure of the premises as potentially lethal uncontained asbestos contamination, was the responsibility of the Lessor. In my opinion it was clearly the liability of the Lessor to ensure that this condition, having been discovered, was satisfactorily corrected. In fact, the Lessor has taken substantial steps to do just this and in the result does not press the Tribunal to make a decision on the proposition that the Lessee is liable. 7 I mention these other matters in dispute because they clearly complicated the dispute between the parties and extended it. So while the Tribunal is only asked now to rule on the two issues of asbestos and damp, it is somewhat artificial to make a ruling as to whether failures by either party in regard to these two matters have justified, on one hand the lessee's refusal to pay rent or on the other, an entitlement to terminate the Lease based solely on those factors. 8 Because of the Lessee's refusal to pay rent while various matters were unremedied, the Lessor advised by letter of 19 January 2005, repeated by letter of 7 February 2005 (Ex 1/ BD 2, BD3) that it would terminate the lease and recover possession if the failure to pay continued. 9 The Lessee then commenced these proceedings on 2 March 2005 by way of an Application and Application for Urgent Interim Order. The Tribunal made interim orders on 4 March 2005, leaving the Lessee in possession but ordering that '[Applicant] is not to undertake work on premises prior to next hearing date.' 10 The lessor on 10 March 2005 issued a formal Notice to Quit, Ex 1/BD 4. 11 Then on 23 March 2005 the Tribunal made Consent Orders for the management of the matter concluding with an Order: 'Prior Orders as to possession and prohibition of works on the premises to continue until further order.' 12 Accordingly neither party has done anything at the premises to further repair or re-instate them. ASBESTOS 13 The Lessee says the Lessor has still not adequately remediated the asbestos problem while the Lessor says it has. The parties being unable to agree, they ask the Tribunal to rule, on the documentary evidence, whether the work undertaken is such that the Lessee should accept that this condition of the premises had been corrected so as not to entitle the Lessee to decline payment and carry on her business in the premises. 14 Following the discovery of the asbestos the procedure involved the Lessor contracting both a removal contractor and a WorkCover approved assessor who would determine whether following the work, the asbestos contamination risk had been removed. WorkCover's role as evidenced in the correspondence was to ensure that people working on the site during the fit out were not exposed to an unsafe work area and to certify for the future on the basis of reports to it whether the area is safe. 15 A range of removal work was carried out by a removal contractor trading as DemcorpNSW and assessed by Airsafe Occupational Health Consultants, a NATA accredited laboratory approved by WorkCover, whose final report of 10 November 2004 (Ex 2/RM 8) based on inspection and monitoring reports (Ex 2/RM6,RM7) recommended the removal of further asbestos material between the wall and the ceiling. That work was carried out by Demcorp on 20 November (Ex 2/RM4). On 23 November 2004 Airsafe resigned as assessor (Ex 2/RM10) and another assessor whose identity is not precisely clear in the evidence was called in who recommended further work including the removal of the backing board to the electrical fuse box and some further vacuuming of sand and dust which might contain material (Ex 2/RM 5). 16 Notwithstanding this work was not yet done, an assessment by AD Envirotech Australia Pty Ltd on 29 November 2004 (Ex 2/RM11) resulted in a report of 23 December 2004 (Ex 2/RM 12) which certified that it had inspected the ceiling space between the beams and the brickwork and the area beneath the electrical backing board, appending a laboratory report that had taken air examples from three separate locations within the shop and concluding that '…the subject area is safe with respect to the asbestos hazard.' 17 On the strength of this report and testing, WorkCover continued as late as 31 March 2005 (Ex 2/RM14) to advise that '…until further information is received [this report] indicates the subject area is safe with respect to asbestos hazard.' 18 However both the AD Envirotech report and the WorkCover clearance, overlook the further work which did remain to be done, at least the replacement of the electrical top box backing board which was carried out on 17 January 2005 by VP Interiors (Ex A/H). And there does not appear to have been further assessment of the condition of the premises following that work until 30 March 2005 when yet another NATA accredited laboratory, New Environment Management and Technology Pty Ltd, carried out an inspection of the area surrounding the electrical backing board that had been replaced in January and inside the ceiling (Ex 2/RM16). That certificate stated 'It is the opinion of the Inspector, that as far as reasonably practicable, all visible and accessible asbestos-containing material has been removed to a satisfactory industry standard….The Area Inspected is safe for normal work to proceed.' 19 The laboratory monitoring reporting of the air monitoring results, (Ex 2/RM15) showed that in fact air samples were taken at four locations, two within each room of the leased shop premises. In all cases they revealed fibre concentration of less than .01 fibre/ml. The locations were described as: - Adjacent entranceway, Room 14. On downpipe in corner, Room 13. On electrical board housing, Room 13. ADJ Street window, Room 14. 20 There is no evidence of a further WorkCover advice being issued. It appears that this April report from New Environment was provided to the Lessee in the course of these proceedings some time in April when these proceedings were well under way. 21 On 31 March a consultant for the Lessee, Hibbs & Associates Pty Ltd, Occupational Health and Safety Consultants, Environmental Management Consultants (the letterhead and report did not disclose any particular accreditation or qualifications) also inspected the premises and reported to the Lessee on 4 April 2005 (Ex A/N): 'Upon entry into the premises it was noted that the floor and other horizontal surfaces had evidence of both fine dust and larger particles accumulated. The area did not appear to have been cleaned recently. …No visible accessible AC material was noted in the ceiling space, however the ceiling space appeared not to have been vacuumed or wet-wiped recently. … However contamination by dust (and therefore asbestos fibre) from the removal of the asbestos cement sheeting cannot be ruled out. Vacuuming and wet-wiping of such dust and debris should form part of standard procedures during asbestos cement removal in accordance with regulatory requirements. If such procedures had been appropriately conducted there should now be little or no evidence of dust/debris within the ceiling space. 22 Hibbs & Associates then recommended a further cleaning process by workers wearing approved respirators. 23 The issue for the determination of the Tribunal is whether on this evidence, the asbestos risk within the premises constituted such a condition for which the Lessor remained responsible that the Lessee was entitled to continue to refuse to pay rent. 24 My assessment of the evidence is that: - The presence of the unsealed asbestos in any premises is a very serious hazard and is recognised as such by the relevant regulatory authorities, in this case by WorkCover which has established procedures and authorised assessors for determining whether it has been removed. Following those procedures there was substantial work done to remove the dangerous asbestos but that the final removal work did not take place until 17 January with the replacement of the electrical board. There was no accredited inspection of the premises following that work which would entitle the Lessor to contend that it had established the premises were now clear of risk to an occupant until the report of 1 April by New Environment, covering their inspection and laboratory analysis of 30 March. The opinion of Hibbs & Associates is not sufficiently strong, in light of the inspection by the accredited consultant, to outweigh the clearance finally provided by New Environment. Hibbs & Associates inspection was speculative and did not take any samples. It only concluded that contamination "cannot be ruled out". Even if it were established that contaminated dust is likely, the removal of residual dust of the type causing concern to Hibbs & Associates is unlikely to constitute work within the obligations of the lessor under cl 7.1. As at 1 April 2005, the premises were no longer unfit for occupation because of the asbestos risk for which the Lessor remained liable, that fact having been communicated to the Lessee in April in the course of these proceedings. WATER PENETRATION 25 The next issue for the Tribunal's determination is whether the Lessee has established that the premises also suffered a condition of water penetration and damp sufficient to leave the premises in a condition that could not be occupied and accordingly in respect to which the Lessee would be entitled to refuse to pay rent until it was remedied. 26 Clause 27.2 of the Special Conditions to the Lease provided 'The Lessor agrees to use its best endeavours to cause the Owners Corporation SP 38722 to repair any damage cause by dampness and water penetration on to the property and to take such action as may be necessary to ensure that no further water penetration on to the property. In the event the cause of the dampness and water penetration is such that it is not the responsibility of the Owners Corporation to repair then the Lessor agrees to attend to that repair at its own cost and expense and in a proper and workmanlike manner.' 27 The Lessee now contends that there is a serious damp problem in the premises which has not been remedied. The evidence in relation to that is as follows. The Lessee contends very presence in the Lease (Ex A/A) of cl 27.2 means the Lessor was placed on notice of a serious water problem. On 6 October 2004 the Strata Manager of the Owners Corporation had placed an order on its plumber, (Ex 3) to carry out the job, "Please assess water entering shop 13 - possible rising damp". On 20 October 2004 (Ex B/H1), the Lessor's agent wrote to the Owners Corporation 'We understand from our client that it has for some time endeavoured to have the Owners Corporation rectify the rising damp/water penetration problem which evidences itself on the rear wall of our client's Lot.' The letter advised that the problem was urgent and could require the Lessor to continue the rent free period. It is reasonable to conclude that the 20 October request by the Lessor's agent for investigation of the water problem was following complaints from the Lessee. On or about 26 October 2004 a plumber attended the premises and carried out the following work: 'Supply and use Plumbing Eel for blocked storm/drains (4) of, clean out/grille traps (2) of, silt and debris.' 28 There is no further evidence that water was an issue for the premises up to the commencement of proceedings before this Tribunal on 2 March 2005 which significantly did not make any reference to the remediation of water penetration or rising damp in the Application. 29 The next mention of water is not until the Lessee's solicitors' letter, (Ex G) of 18 March 2005 to the Lessor's solicitor which states: 'We refer you to Clause 27.2 and note that damp is still present in the wall of the subject premises.' This was repeated in a letter between the same parties on 23 March 2005 which required the premises to be cleared, inter alia, of 'the rising dampness, which you are well aware of, controlled and eliminated.' 30 There was anecdotal evidence for the Lessee at the hearing from a property developer friend, (Ex C) that on 17 May 2005, when he inspected the premises 'the bad smell I had experienced before was still present' and 'certain walls were still showing the presence of dampness and were of mouldy appearance.' 31 There was also the observation in the termite report of 30 March 2005 of 'water pooling against external left wall in petrol station'. 32 There was no building inspector's report placed before the Tribunal as to the existence of damp. Of the photographic evidence before the Tribunal, Exhibit D showed some flaking paint and a stain possibly caused by the moisture on a gyprock ceiling tile. 33 However, there was no clear evidence of rising damp and water penetration into the premises which would entitle the Tribunal to form a conclusion on the balance of probabilities that any water penetration or damp problem which may have existed in the premises was after, October 2004, sufficient to justify a claim by the Lessee that the Lessor had allowed the premises to remain in such a serious condition and in breach of its direct obligation under Clause 27.2, that the Lessee could not occupy the premises and was entitled to refuse to pay rent on that account. 34 As I indicated during the hearing, such a finding does not conclude the factual issue between the parties for the future if at a later time it is established that the condition of the premises continues to be affected by water, that being proved by appropriate evidence. The finding I have made is simply that as at the hearing date, insufficient evidence was provided to the Tribunal to permit such a finding. 35 Accordingly I have determined that by 1 April 2004, the evidence does establish that the premises were then established to be fit for occupation notwithstanding the prior presence of asbestos fibres, this being notified to the Lessee some time in April, and that as at that date there was no water or dampness issues sufficient to justify a refusal to occupy the premises, conclude the fit-out and pay rent (subject to an adjustment for the rent free period). APPROPRIATE DETERMINATION 36 I am satisfied that there is no proper basis for the Lessor to exercise its rights under the Notice to Quit and proceed to terminate the Lease and recover possession. The question then arises whether the Tribunal should declare that the Lessee became obliged to pay rent as from April. The complicating factor in that determination is the order of the Tribunal on 4 March 2005 , continued by consent on 23 March 2005, set out above, prohibiting further work. 37 The effect of the March order is that, notwithstanding the condition of the premises now being determined as at a later date in April to be fit for occupation, the resolution of the dispute between the parties resulted in a Consent Order that no further work take place while the matters were being resolved. In those circumstances I am of the opinion that the only fair and appropriate determination of this Tribunal can be that the continuation of all the rights and obligations under the lease re-commences on the publication of this decision and the lifting of the interim orders. 38 As indicated in the hearing, my opinion is that the rent free period of 3 months was suspended on the discovery of the asbestos on or about 20 October 2004, which means that it has one more month to run. 39 I note that other issues in dispute between the parties including lead paint contamination were not pressed before the Tribunal for determination and so accordingly no determination is made in relation to them and no Orders are made in relation to them. 40 Accordingly, I now revoke the Interim Orders and declare that the Lease continues, the Lessor is not as at this date in breach of any obligations under the lease in respect of asbestos contamination or water penetration and that as from the date of this decision, the Lessee becomes entitled to full occupation and use of the premises while being bound to pay rent subject to the rent free period under the Lease which has one further month to run. 41 Insofar as this hearing was by agreement confined to determination of liability only, and by reference only to the documented evidence, there may be issues which the parties contend remain on foot in the application. Accordingly, the matter is listed at 9.30 am on 8 July 2005 for directions and dismissal if no further matters are raised. 42 Orders: - Declare that: - 1.Interim orders of 4 March 2005 and 23 March 2005 revoked. 2. The Respondent/Cross Applicant is not entitled to terminate the lease commenced 20 August 2004. 3. There is no continuing breach by the Lessor of its obligations in respect of asbestos contamination or water penetration into the premises. 4.As from the date of this decision the Lessee's rights and obligations under the Lease continue including the obligation to pay rent subject to the unexpired portion of the rent free period of 1 month. 5.Matter listed at 9.30 am on 8 July 2005 for directions and dismissal if no further matters are raised. 30/06/2005 - To amend the word Lessee to Lessor at end of second sentence - Paragraph(s) 6 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.