CITATION: JHC Sydney Pty Ltd v Everson & Fauchon; Everson v JHC Sydney Pty Ltd [2003] NSWADT 100 DIVISION: Retail Leases Division APPLICANT 1 JHC Sydney Pty Limited APPLICANT 2 PARTIES: Neil & Michelle Everson RESPONDENT 1 Neil & Michelle Everson & Karen & Mark Fauchon RESPONDENT 2 JHC Sydney Pty Limited FILE NUMBER: 025046; 025107 HEARING DATES: 27th February 2003 SUBMISSIONS CLOSED: 02/27/2003 DATE OF DECISION: 05/13/2003 BEFORE: Fox R - Judicial Member APPLICATION: Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: APPLICANT 1 S Cairns, Barrister APPLICANT 2 REPRESENTATION: In Person RESPONDENT 1 In person. No appearance of Fauchon RESPONDENT 2 S Cairns, Barrister ORDERS: In Matter of 025046; 1. Pursuant to Section 72 (1) Karen and Mark Fauchon are to pay, at the expiration of 28 days from the date hereof, the sum of $9,034.49 to JHC Pty Limited; 2. Pursuant to Section 72 (1) Neil and Michelle Everson are to pay, at the expiration of 28 days from the day hereof, the sum of $9,034.49 to JHC Pty Limited; 3. No order for costs; In Matter of 025107; 1. Application dismissed; 2. No order for costs. REASONS FOR AWARD 1 In these proceedings Mr Cairns appeared for the Applicant Landlord JHC Pty Limited in matter 020546 and Mr Everson appeared for himself and his wife, two of the four Respondents. The other Respondents Mr and Mrs Fauchon did not appear. I am satisfied that Mrs Fauchon knew of the hearing date. 2 The application was for arrears of rent, and subsequent to a lockout, damages for rent lost. The amount claimed was $73,276.59 for the period 1 November 1999 to 30 May 2002, being the whole of the rent due under the three year lease after allowing for an initial rent free period. 3 In matter 025107 Mr and Mrs Everson sought a Declaration that they are only liable for one half of the claim made by JHC, and a Declaration that their liability ceased on 13 April 2000 when (after the lockout on 6 March 2000) another interested party made an offer of lease, and further that the value of certain tenants' goods and fittings kept by JHC be taken into account as credit. 4 I heard both matters together, and it progressed as if the Eversons had simply filed a Defence and Cross Action. I had affidavit evidence from Mr Moen Choe, the son of one of the directors of JHC, and from Mr Everson, and I heard oral evidence from both of those parties. 5 The Lease in evidence before me was signed before the commencement of the tenancy in June of 1999. It was between the Eversons and the Fauchons as tenants and Caldwell Banker Pty Limited as Lessor. The document clearly provided, over the initials and signatures of the Lessor's directors, that the Lessees held as joint tenants as between Fauchon and Fauchon, and as between Everson and Everson, the two pairs holding as tenants in common. Mr Cairns was not able to point me to any words in the Lease document which sought to override these shares and the manner of holding them by purporting to create a joint and several liability despite the plain meaning and effect of the words used, and so I find that Mr Everson's primary application to limit his and his wife's liability to one half, must succeed. 6 It transpired that the sale of the freehold was already in the wind at the commencement of the Lease, and that that conveyance had been settled on 13 September 1999, some six weeks before the Lessees' first payment was due. It was the Lessor's claim that no rent had been paid, but Mr Everson by his affidavit of 5 September 2002 annexed a copy of a rent receipt establishing a payment of $2,291.66 on 1 November 1999. It was conceded that no other rent had been paid, and so the validity of the March 2000 lockout, although questioned by Mr Everson, could not be denied. 7 I accept that the partnership of the Fauchons and Eversons had broken down and that Mr and Mrs Everson were trading alone, but not covering costs, and not able to pay rent. Mr Everson was negotiating with a new partner when the lockout occurred. He knew the rental managing agent, (a Mr Tawyer) personally from other previous business connections. He was able to persuade Mr Tawyer to allow him temporary entry to take food stocks and a small freezer to keep them in, but nothing else. Mr Everson then drew attention to Clause 30 of the Lease which listed virtually the whole of the fit - out and equipment of the shop (a restaurant and take away establishment). The Clause is headed:- "Landlord's plant and equipment" and starts:- " the following items are agreed by the parties to be the property of the landlord". After the list it continued:- "the parties agree that upon any sale of the Land by the Landlord that the above items will remain the property of Caldwell Banker Pty Limited in which event the tenant will have the use of the items without cost until expiry of the initial term of the Lease. The parties will upon the expiry of the initial term of this lease, or may at any time prior to the expiry of the initial term, negotiate in good faith in respect of the sale of the items comprised in this Clause to the tenant". 8 Mr Everson averred that before settlement of the sale conveyance he had purchased the listed items from Caldwell Banker for $5,000.00 in money, and a release of a claim for compensation arising from an RTA resumption which reduced the size of the shopfront car park. It was his evidence that he had told this to the agent during the bargaining at the time of the lockout, but the agent refused to accept that the items were Eversons', asserted that they belonged to JHC and did not allow entry to remove. All of the goods, being the full equipment for a commercial food preparation establishment, remained within the premises until March of 2002, when a new tenancy commenced. The new tenant kept part of the items in question including plumbing and electrical wiring, as well as a walk-in commercial freezer and cool room, stainless steel benches and sinks, a commercial dishwasher, and an ice making machine. The rest of the items such as tables, chairs and the other paraphernalia were taken by the Lessor and are still held by it. 9 It is plain from the Lease that the rent for the tenancy was set on a "fully equipped" basis, because all the fit-out and equipment was the Lessor's. 10 After the lockout, the premises were advertised for lease by the managing agent, and I accept the Agent's summary in that regard as accurate. "06/03/2000 - Property re-listed for lease of $30,000.00 per annum plus GST if applicable (the listing price of $30,00.00 per annum left room for negotiations). 06/03/2000 – In house Lease Report completed. 17/03/2000 – Property advertised for lease in the Central Coast Express Advocate in Sydney Coast Realty's Advertising Module. 10/04/2000 – Property details given to L Zhang 12/04/2000 – L Zhang offered $20,000.00 per annum to use as Chinese Restaurant. 12/04/2000 – Offer rejected by Lessor as considered below current market as current tenant was paying $27,500.00 per annum with a rent increase due 1 June 3% which equates to a new rental of $28,325.00 per annum. 13/04/2000 – L Zhang increased offer to $24,000.00 per annum, offer rejected on above grounds". 11 The evidence is that the agent, (who was not called) undertook these negotiations with Mr Zhang without reference to Mr Choe, and also did not consult Everson. Properly analysed, the Lessor's duty to mitigate meant that the Eversons and the Fauchons, who were suffering the liability, should have been given the choice to join in the negotiations, and be given the opportunity to elect to pay whatever eventual difference (if any) transpired between what Mr Zhang was prepared to pay and what was previously committed in the Lease. On that basis, as I indicated at the hearing, the Lessor's claim, after mid April 2000 is in effect reduced to $3,500.00 per annum. 12 The Lessor having failed to take the appropriate steps, and not having let the premises, I am left to speculate what might eventually have been negotiated with Mr Zhang for annual increases etc. Section 78 of the Retail Leases Act allows me to have regard to accepted that industry practice, and I am satisfied that a 3% per annum fixed rent increase falls within current industry practice and expectations, and I propose to calculate the matter upon the basis of Zhang having been willing to commit to a lease at $24,000.00 per annum, suffering 3% increases, the first of such increases to be on 1 June 2000, exactly in tandem with that which was the Eversons' and Fauchons' obligation. 13 As I indicated at the hearing, the advertised rental, and the rejections were inappropriate. The Lessor's duty was to mitigate it's loss once there had been a lockout, and the premises should have been offered for exactly the same rental as that claimed against the defaulting tenants, ie. $27,500.00 per annum increasing to $28,325.00 on 1 June 2000. The actual difference between the rent due and the advertised rent of $30,000.00 per annum calculates to approximately $48.00 per week in excess of the "proper" rental of $528.00 per week. In view of what transpired, that difference turned out not to be critical because Mr Zhang made his offer within a month of the lockout. Had there not been any offers at all for some months, Mr Everson might well have argued that the loss was caused by the "over" rent claim in support of a claim for complete relief from liability. 14 In relation to Mr Everson's claim for compensation for the value of the major items which remain within the premises, and the value of the other items which are still in JHC's possession, I observe that Mr Everson cannot claim both the return of the value of the goods on the one hand (even if he had been able to establish their value) and the benefit of them remaining within the premises on the other hand. The only finding I can make on the evidence before me is that Mr Zhang offered the rental for the premises in their fully fitted out condition. If Mr Everson seeks to take advantage of the Zhang's offer, then, as a matter of necessary implication, he must be taken to abandon any claim upon the goods which were on the site in mid April 2000. 15 At the hearing a distinction was drawn between the goods which remained on the site after the letting in March of 2002 and those which were taken by JHC and remain in storage. On reflection, I am satisfied that they all fall within the same category, they were all in the premises when Zhang took the offer. The Eversons have no claim of property in the items still within the premises nor those now in JHC's possession. 16 I further observe, in any event, as far as the Fauchons are concerned, if they have any separate property in these items at all, they certainly fall within Clause 13.2 of the Lease and, pursuant to that, in effect gave property in the goods to JHC. 17 The tenants having paid one month's rent only, and there being no bond, the Lessor's claim commences on 1 December 1999 and so is entitled to four and a half months rent (up to 15 April 2000) at $2,291.66 per month, a total of $10,312.47. 18 For the period 15 April 2000 to 30 May 2000, the difference between Mr Zhang's offer and the full rent is $291.66 per month, which I calculate out to be $437.50. 19 For the year commencing 1 June 2000, I calculate that Mr Zhang would have paid $24,720.00 and for the year commencing 1 June 2001 I calculate that Mr Zhang would have paid $25,461.00. The respective differences are $3,605.00 and $3,714.00. It follows that the total claimed in rent and damages calculates as follows:- $10, 312.47 $437.50 $3,605.00 $3,714.00 Total Liabilities - $18,068.97 Everson's Half - $9,034.49 20 In view of all the circumstances I do not think it is appropriate to award the Lessor interest. 21 Mr Cairns, very properly, did not claim costs. In view of the conduct of the matter generally, there could not be a claim for special circumstances. 22 Although Fauchons did not appear, by necessary implication whatever came to Eversons' benefit, must also come to their benefit, and consequently the proper orders are as follows:- In matter 020546 23 Pursuant to Section 72(1) Karen and Mark Fauchon are to pay, at the expiration of 28 days from the date hereof, the sum of $9,034.49 to JHC Pty Limited. 24 Pursuant to Section 72(1) Neil and Michelle Everson are to pay, at the expiration of 28 days from the date hereof, the sum of $9,034.49 to JHC Pty Limited. 25 No Order for costs. In matter 025107 26 Application dismissed 27 No order for costs. 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.