CITATION: Hoctor -v- Schieb [2001] NSWADT 141 DIVISION: Retail Leases Division APPLICANTS Joseph Hoctor Patricia Nancy Hoctor PARTIES: RESPONDENTS Scott Schieb Karen Schieb FILE NUMBER: 015035 HEARING DATES: 13/07/01 SUBMISSIONS CLOSED: 07/13/2001 DATE OF DECISION: 08/21/2001 BEFORE: Fox R - Judicial Member APPLICATION: Claim for surrender of possession of premises MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Residential Tenancies Act 1987 Retail Leases Act 1994 CASES CITED: Calleja -v- Malli [2001] NSWADT 20 Botts -v- Grimme [2001] NSWADT 14 APPLICANTS REPRESENTATION: P McCormack, solicitor RESPONDENTS K Holwell, barrister ORDERS: 1. Application dismissed ; 2. Applicant to pay Respondent's costs. 1 These proceedings were the subject of a one-day hearing at the Tweed Heads Local Court on Friday 13th July 2001. Mr McCormack appeared for the Applicant lessor and Mr Holwell Barrister appeared for the Respondent lessee. The hearing commenced at 9.30am, and with an abbreviated break for lunch was able to be concluded by 4.30pm. There was Affidavit evidence from the Applicant Joseph Hoctor and his wife Patricia, expert evidence from P Smith and Son to establish the size and nature of the land and building leased, and a report from Simmons and Besto, experts in the field of corrosion, and there was also Affidavit evidence from the Respondents Scott Schieb and his wife Karen. 2 The Applicant lessor sought to terminate the lease entered into on 31 March 2000 for a period of 5 years with 2 separate 3-year options. The lease is for the Tumblegum Ferryside Store which is a general store, post office and newsagency with residence and garage attached at rear. The shop faces a bank of the Tweed River in the village of Tumblegum and includes a boat hire facility conducted from a wharf and pontoon on a permissive occupancy in the Tweed River, almost immediately opposite. 3 The lease describes the holding as store, residence, and two separately identified licences being L1302469 from the Tweed Shire Council, and 1975-8 being a licence from the Department of Land and Water Conservation (generally known as a permissive occupancy). The store and residence are situated on one side of Riverside Drive, at the corner of Fawcett Street and consists of a typical elderly timber framed fibro and weatherboard cottage with shop attached at front with an ageing corrugated galvanised iron sheet roof, garage attached at rear, and a grassed rear yard. The whole parcel of land contains 605 square metres, and the licensed area on the other side of Riverside Drive, being an area of former highway now vested in the Tweed Shire Council, measures 14 by 10 metres, whilst the permissive occupancy in the Tweed River, in which are situated the timber landing pontoons and jetties, measures 16 metres by 14 metres. This brings the area of the whole purported holding to just under the 1,000 square metre limit of jurisdiction imposed by Section 5(a). 4 However, I note that, although the lease purported to extend to the licensed areas, it could not as a matter of law do so, such licenses granted by the Tweed Shire Council and the Department of Conservation and Land Management, being licenses strictly so called, are incapable of assignment or subletting. The most the lessor could do is grant the lessee the right to apply to the relevant authorities for the licenses to be appurtenant to the land parcel leased. It follows that the licensed areas are not part of the retail shop and are not within my jurisdiction although the rights to be licensee certainly do form an integral part of the property rights encompassed by the lease. 5 The other point of jurisdiction which arose was the application of Section 79 to the buildings which are, as I have earlier described, a typical corner store and attached residence. I have in the past held (Calleja V Malli [2001] NSWADT 20) that such a structure must pursuant to Section 79 be "subdivided" and that the Retail Leases Act only applies to the shop part, even though there be a quite separate store room within the residence, and accessible only through the residence part. 6 In the Ferryside Store the storage areas are all immediately adjacent to the shop and the residence, and (although an integral part of the building) seemed to me to be quite separate and separable by the closing and locking off one or two internal access doorways. This is so despite the fact that there was a room which might be best described as "mixed living and storage". Further, the attached but separately lockable garage was clearly part of the shop operation. The report of PF Smith established that the buildings erected on the land contained a total of 430.5 square metres of which the retailing enterprise contained some 251 square metres and the residence occupied the remaining 179.5 square metres. The report referred to some mixed use areas, which were included in the residence. I am satisfied that properly calculated the residence strictly so called actually contained 100 square metres, and that the remaining 79.5 square metres which were "mixed", are used for retail purposes when one considers the words "wholly or predominantly" used in the definition of "retail shop" in the Retail Leases Act. Thus, approximately 330 square metres are retail, and 100 square metres are residential. 7 Both Mr Holwell and Mr McCormack argued that because Section 3 refers to premises "which are wholly or predominantly" for a retail use, I did not have to apply the "subdivision" directed by Section 79 because the predominant use is retail. Simply considering the areas used for residence and for retail use or retail/storage use, I hold that it can not be said that the retail use so overshadows the residence that the building is "predominantly" a shop. 8 I note Mr McCormack's argument that because the shop is operated 12 hours per day, 7 days per week it could not be conducted by someone who did not live on the premises, and so the residence must form part of the retail holding. I suppose that not to be so different a thesis to that which was put and held by me in the matter of Botts V Grimme [2001] NSWADT 14, but there the zoning of the premises (at some stage) had required that the retail or commercial use could only be by a resident owner occupier, and there was expert evidence to establish that at the time of the hearing (even though the zoning had been somewhat relaxed and did not necessarily require owner residential occupation) the residential rooms, because there were no means of separate access other than through the shop, had no separate commercial lettable value, even in such a densely populated as Darlinghurst, Sydney, where virtually any space at all has some value. In the present circumstances, had there been evidence to establish the actual lettable value of the residence as a separate residence occupied by a non involved tenant, and had that been quite low by comparison to the total actual rental for the whole "package" described by the lease, then that might have enabled a holding of the relevant predominance and so excluding Section 79. But that evidence was not available, and my jurisdiction over the 330 square metres of shop, store and garage. I am satisfied that the residential rooms of the structure are governed by a 5-year Residential Tenancy Agreement in terms prescribed pursuant to the Residential Tenancies Act, with two separate three year options. 9 In any event, in view of my decision in relation to the Applicant's substantive request, it is not necessary for me to decide these particular points. 10 The Applicants' initial complaint alleged malicious damage to the premises by way of a corrosive substance found on the roofing sheets, but at the hearing there were seven distinct issues raised seeking the termination of the lease. These were, perhaps in order of importance:- 1. Damage to the roof 2. The failure to obtain Council approval for the relocation and rebuilding of the commercial kitchen 3. Several failures to make rent payments on time, and payment of increases in rent on time 4. The failure to stipple paint the shop ceiling 5. The failure to secure the pontoons 6. The damage to the external wall sheets 7. The failure to paint the shop signage. 11 It appears that the claim relating to the failure to secure the pontoons arose out of a requirement of the CALM licence- it apparently being the case that sometimes a chain which was required to be padlocked across the entry point to the jetty was found not to be in place, further, I am not satisfied that there was a substantial failure to keep that chain in place. In any event, I am satisfied that one of the other requirements of the licence was that members of the public not be denied access to that particular part of the river, which I assume to have meant that the jetty and the pontoon must at all times be open for public use. In any event, I am not satisfied that I have any jurisdiction in respect of any part of the licensed area. 12 The failure to pay rent on time occurred at the commencement of the lease, and was explained by reference to bank errors and the not unusual initial difficulties in setting up an adequate monthly payment regime. These failures occurred early last year, and were, I am satisfied, in fact waived by the time the application was lodged, and in any event would never be a sufficient basis for a forfeiture of the lease. The further aspect of this complaint, being the failure to pay the 3% rent increase as and when it fell due in March and April of this year was, I am satisfied, made out, but again I am satisfied that the relevant payments have now been made, and, again, would never have been a proper basis on which to base a forfeiture application. 13 The complaint in relation to the signage, on Mr Hoctor's evidence, was the failure to refurbish one of the two signs situated on the highway at the southern and northern entrances of the village, but the requirement in this regard was struck out of the lease, and the Respondent tenant had no obligation at all. 14 I am satisfied that the tenant has an obligation to keep the signage on the front roof parapet of the shop in good and proper order. The photographic evidence before me established that the sign is presently in a reasonable (if not perfect) state of repair, and this aspect of the complaint must also fail. 15 There appears to have been some damage to the exterior of the building in Fawcett Street, possibly caused by a vehicle driving on the footpath and coming into contact with the building. I was not satisfied from the Applicant's evidence that the damage had occurred after the Respondent took occupation, and consequently this part of the claim, too, must fail. 16 The evidence satisfied me that it was a term and condition of the initial letting (no matter what was actually written in the lease) that the lessee was shortly after taking occupation to stipple paint the ceiling of the shop area. I am also satisfied that the Respondent lessee did not do so because of the roof leakage which became evident soon after taking occupation, and I am satisfied that it was reasonable for the Respondent to hold off on that work until the Applicant lessor had fixed the roof. Although it appears that the roof has never been fully or satisfactorily made waterproof, I am satisfied that, after the Applicant lessor had made several attempts, and suggested that the roof had now been fixed, the Respondent tenant did in fact stipple coat the ceiling and so complied. 17 I am satisfied that the galvanised sheeting roof is of some age and that it is nearing the end of its life, it appears to leak quite often. I am also satisfied that the Applicant lessor has either himself repaired, or arranged for the repair of the roof with appropriate promptitude every time he has been notified of a leak. Most recently a number of roof sheets have been replaced (apparently with second hand roofing sheets) and the whole roof has been repainted, and it may well now have been sealed. 18 Incidentally, the evidence of the Respondent lessee (who is a qualified plasterer), was that the ceiling of the shop is of fibrous plaster, scrimmed to the ceiling hanger beams. I understand this method of construction dates back to before middle of last century, and is a ceiling system which is not greatly water tolerant. It appears that the ceiling is still in reasonable condition, and consequently I am satisfied that although there have been leaks, these have not been of a catastrophic kind, and have been properly repaired, and have left the structure still quite fit for use. 19 The Applicant's Affidavit and expert report satisfied me that a corrosive material was found on some of the roofing sheets, and I am satisfied that the Applicant lessor held a genuine belief that there had been an attempt at maliciously damaging the roof. I am also satisfied that there is no evidence of any kind that the corrosive substance was applied by either of the Respondents. 20 Perhaps the most serious matter to be raised at trial was the relocation of the commercial kitchen. Mr Hoctor asserted that this had been done without his written approval, not to the relevant construction standard, and without proper sanction from the Tweed Council and that this was a substantial reason why the tenancy should be terminated being a specific breach of the latter parts of clause 7 of the lease. The oral evidence from Mr Hoctor was that he had been approached by Mr Schieb, and that he had given verbal permission for the work to be done, and had approved of its general order and layout. His complaint was, apparently, that Mr Schieb had not asked for written approval and had not ever given him evidence of the fact that the wall sheeting material used complied with the Australian Standard. 21 Mr Schieb's evidence was that he had relied on the verbal approval given him by Mr Hoctor, that the material used (being left over from a plastering job which he had completed previously) was the appropriate fire rated gyprock sheeting, and that, in any event, he had consulted with the Council's inspector in relation to the upgrade, had been told that he did not need formal written development approval, and had, as the work continued, again consulted with the Council (health and building?) inspector who had then advised him of further steps which had to be taken to complete the work, and he was now in the last stages of resolving three or four minor issues which had arisen from the last inspection. 22 I accept that the work, although it did need the formal approval of the Tweed Shire Council, will in fact have been done to such a standard that, upon the appropriate application being made, a formal Council approval will be given, and that, if there was a breach of the lease in commencing the work without Council approval, it was an entirely innocent one, capable of remedy, and not any basis upon which the lease could be terminated. 23 In my view it was not proper to make an application for forfeiture based upon any of the matters raised, whether separately, or as a body. 24 The application is dismissed. 25 On reconsidering all of the evidence, I am not satisfied that the Applicant lessor had any prospect of any order being made in his favour, and I am satisfied that that observation is sufficient special circumstances in terms of Section 88 of the Administrative Decisions Tribunal Act to entitle the Respondent lessee to an order for costs. The Applicant is to pay the Respondent's costs on a party/party basis, as agreed or assessed, from the date of issue of the certificate of failure of mediation issued by the Registrar of the Retail Tenancies Unit. 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.