Appeal Panel - Internal CITATION: Tate v Unanderra Heights Pty Limited (RLD) [2005] NSWADTAP 5 APPELLANTS PARTIES: Paula Tate and Derek Tate RESPONDENT Unanderra Heights Pty Limited FILE NUMBER: 049037 HEARING DATES: 10/12/2004 SUBMISSIONS CLOSED: 12/10/2004 DATE OF DECISION: 02/24/2005 Unanderra Heights Pty Limited v Tate, Unreported, 12 July 2004 DECISION UNDER APPEAL: BEFORE: Chesterman M - ADCJ (Deputy President); Higgins S - Judicial Member; O'Neill A - Non Judicial Member CATCHWORDS: statutory interpretation MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 045008 DATE OF DECISION UNDER APPEAL: 07/12/2004 LEGISLATION CITED : Retail Leases Act 1994 Blackler v Felpure Pty Ltd [1999] NSWSC 958 CASES CITED: Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17 Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24 APPELLANTS REPRESENTATION: N Walker, barrister RESPONDENT A Vincent, barrister ORDERS: 1. The appeal is dismissed. ; 2. The Order made by the Tribunal on 12 July 2004 is varied by substituting $18,725 for $29,400 as the amount payable under the Order.; 3. Each party has 28 days in which to file and serve an application for the costs of this appeal, with supporting submissions. Any submissions in response must be filed and served within a further 28 days. Unless a hearing is requested, the matter of costs will be decided on the papers. If no application is filed, there will be no order for costs. REASONS FOR DECISION Introduction 1 In this case, the Appellants, Paula Tate and Derek Tate, occupied premises at Belmont owned by the Respondent, Unanderra Heights Pty Ltd. They conducted a hairdressing business. Paula Tate had signed a licence agreement with the Respondent dated 1 April 2002, in which a 'site fee' of $350 per week plus GST was payable. They moved out of the premises on or about 20 October 2003. 2 The Appellants appeal against a Tribunal decision holding them liable to pay $29,400 to the Respondent, representing instalments of the 'site fee' from 14 November 2003 until 23 June 2005. This decision was given ex tempore by Mr G Molloy, Judicial Member, on 12 July 2004. 3 For the purposes of this appeal, it is sufficient to set out the following grounds on which the decision was based: (a) the licence agreement conferred on the Appellants a right to occupy the premises for the purposes of a retail business for a period of one year, and therefore fell within the definition of a 'retail shop lease' in s 3 of the Retail Leases Act 1994 ('the Act'); (b) under s 16(1) of the Act, the minimum term of a 'retail shop lease' is five years, subject to certain exceptions; (c) none of these exceptions applied in this case; and (d) there was no agreement between the parties for an early termination of the lease. 4 In this appeal, the Appellants claimed that the Tribunal's decision contained five errors of law, any one of which provided a reason why the decision should be set aside. The Appellants also claimed that because one of them, Derek Tate, did not sign the licence agreement, the Tribunal should not have held him liable for rent found to have been due to the Respondent under the agreement. 5 We will discuss each of these matters in turn. Whether the licence agreement was a 'retail shop lease' 6 The Appellants submitted that the licence agreement in fact established a monthly tenancy only, and therefore fell within an exception to the definition of 'retail shop lease' set out in s 6(1)(a) of the Act. 7 The provisions of the Act that are relevant here are as follows:- 3 Definitions … retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop: (a) whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and (c) whether the agreement is oral or in writing, or partly oral and partly in writing. Note. Section 6 limits the retail shop leases to which this Act applies. 6 Leases to which Act does not apply (1) This Act does not apply to any of the following leases of retail shops: (a) Leases for a term of less than 6 months without any right for the lessee to extend the lease (whether by means of an option to extend or renew the lease or otherwise), and for this purpose a provision for holding over by the lessee at the end of the term of the lease is not considered to confer a right on the lessee to extend the lease if it operates effectively at the discretion of the lessor, … 8 By 1 April 2002, when the licence agreement was signed, the Appellants had already occupied the premises for about seven years. They had taken possession under a lease for three years from the Respondent commencing in April 1995. This lease contained an option for renewal for a further three years, which they did not exercise. Instead, they held over on a monthly tenancy. 9 The provisions of the licence agreement bearing upon the duration of the licence appeared to contradict each other. They were as follows:- Schedule, Item 3: Commencement Date – 1st April 2002 Schedule, Item 4: Expiry Date – 30th March 2003 Schedule, Item 5: Term – Monthly Tenancy Schedule, Item 6: Site Fee – $350.00 + GST per week Clause 1.1: The Licensor grants the Licensee a non-exclusive licence to use the Site in the Centre in accordance with this license for the Term commencing on the Commencement Date and terminating on the Expiry Date. Clause 1.3: If the Licensor permits the Licensee to use the Site after the Expiry Date the Licensee does so under a weekly Licence: (a) which either party may terminate on one weeks notice ending on any day; (b) otherwise on the same terms as this licence except for those changes which are necessary to make this a licence from week to week. Clause 12.1: If the Licensor permits the Licensee to use the Site after the Expiry Date the Licensee does so under a licence from month to month. (a) which either party may terminate on one months notice ending on any day; (b) otherwise on the same terms as this Licence except for those changes which are necessary to make this Licence a licence from month to month. 10 Clause 12.1 continues with a short, unfinished sentence which makes no sense standing alone. It would appear to be an unintended interpolation. 11 In arguing that the licence agreement created a monthly tenancy only, Ms Walker, counsel for the Appellants, relied principally on Item 5 of the Schedule. 12 She also referred to three statements in the affidavit evidence submitted to the Tribunal. In an affidavit dated 28 March 2004 sworn by Helen Buvinic, the Respondent's managing agent, she stated: 'The licence agreement included terms and conditions where either party could terminate the licence agreement with one months notice.' In an affidavit dated 28 June 2004, the first Appellant, Paula Tate, said that before the licence agreement was signed, 'possibly in February 2002', Ms Buvinic had shown her a single piece of paper in the form of a photocopy of a letter, describing it as 'a licensing agreement so that the owners can get their bookwork in order'. Ms Tate also said in this affidavit that 'I continued to regard my tenancy as a weekly tenancy'. 13 We agree however with the submission of Mr Vincent, counsel for the Respondent, that there are no grounds on which we could overturn the Tribunal's finding that the licence agreement provided for a term of one year. In so finding, the Tribunal took account of the following statement by Ms Tate, in an affidavit dated 15 June 2004:- We have never signed a lease, but did sign a licencing agreement in 2002 of 12 months duration, rent payable monthly. 14 This affidavit continued: 'By agreement however we continued to pay weekly.' 15 The Tribunal also found that, because the document shown by Ms Buvinic to Ms Tate was a photocopy of a single-page letter, it could not have been the licence agreement, which contained several pages. 16 In support of the Tribunal's conclusion, we would add that the statement by Ms Buvinic regarding termination on one month's notice, when read in context, could well refer only to the period after the expiry of the licence. The preceding sentence of the affidavit states that in April 2002 the Appellants 'signed a "monthly tenancy licence agreement" which was due to expire on 30 March 2003'. 17 There may well have been some misunderstanding on both sides as to the effect of the licence agreement. But as both counsel acknowledged, the parties' understanding as to the legal effect of a written agreement cannot determine this issue if its terms are clear. It is relevant only when some ambiguity is present. 18 We agree with the Tribunal that, on its proper construction, the licence agreement provided for a term of one year. Ambiguity does arise from the contradictions between those parts of it (notably, Items 3 and 4 of the Schedule and Clause 1.1) which suggest a one-year term and those parts (notably Item 5 of the Schedule) which suggest a monthly tenancy. But the references to a commencement date and an expiry date are entirely incomprehensible if the latter interpretation is adopted. Moreover, the clearest indication given by Ms Tate as to how she understood the agreement is her statement in her affidavit of 15 June 2004 that she and Mr Tate 'did sign a licencing agreement in 2002 of 12 months duration…' 19 This conclusion is sufficient to validate the Tribunal's ruling that the licence agreement fell within the definition of 'retail shop lease' in s 3 of the Act, not within the exception contained in s 6(1)(a). 20 We accordingly reject this ground of appeal. The effect of the provision for renewal in the lease of April 1995 21 The second ground of appeal put before us stemmed from the fact that the three-year lease of April 1995 under which the Appellants had first occupied the premises contained an option of renewal for a further three years. They did not exercise the option. They contended however that because this option existed in the lease under which they acquired possession of the premises, the licence agreement fell within an exception, set out in s 16(4) of the Act, to the rule that the minimum term of a retail shop lease is five years. 22 The relevant parts of s 16 are as follows:- 16 Minimum 5 year term (1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into. (4) This section does not apply to a lease that results from the renewal of an earlier lease pursuant to an option conferred on the lessee, so long as there was no break in the entitlement of the lessee to possession of the retail shop and the option was granted by that earlier lease or by an agreement entered into before or at the same time as that earlier lease was entered into. Note.Because of subsection (4), a lease will not be required to be for 5 years if it is a renewal of an earlier lease (because the minimum 5 year term requirement applied to the earlier lease and the availability of the renewal will have been taken into account in determining the term of that earlier lease). 23 The Appellants also relied on s 80 of the Act, which explains the statutory meaning of 'renewal' of a lease as follows:- A reference in this Act to the renewal of a retail shop lease ( the current lease ) is a reference to the lessor and the lessee under the current lease entering into a new retail shop lease for the retail shop to which the current lease relates (whether or not on the same terms as the current lease). 24 Ms Walker framed her argument as follows. The effect of s 80 was to make it possible for the execution of the licence agreement to be regarded as a form of renewal of the lease of April 1995, even though the terms of the two instruments were different. The licence agreement 'resulted from' the earlier lease, within the meaning of s 16(4), because the Appellants had remained in possession during the intervening period and the parties treated the execution of the licence agreement as being, in substance, a renewal of the lease. This was apparent from a letter dated 21 October 2003 sent by Hunt & Hunt, the Respondent's solicitors, to the Appellants, in which they described Ms Tate as having 'obligations upon termination under the original lease and/or the current lease' and as being 'a monthly holding over tenant under the original lease'. 25 Ms Walker submitted further that, on its proper interpretation, s 16(4) did not require that the 'renewal' to which it referred must be the consequence of the formal exercise of an option to renew contained in the relevant lease. It was sufficient that an option to renew should exist. This interpretation received support from the Note to the subsection. 26 The ruling of the Tribunal, shortly expressed, was as follows: 'There is no question that section 16, subsection (4) would not apply in this case.' 27 We agree with this ruling. As Mr Vincent argued, the difficulty with the Appellants' argument is that it takes no account of the phrase 'pursuant to an option conferred on the lessee' in s 16(4). We cannot accept Ms Walker's claim that a transaction may fall within the subsection even though neither party treated it as brought about through the exercise of an option of renewal in a pre-existing lease. Even if, as Ms Walker submitted, the execution of the licence agreement was considered by the parties to have been in some sense tantamount to a renewal of the earlier lease, the fact remains that this 'renewal' did not occur 'pursuant to an option conferred on the lessee'. 28 For these reasons, we reject the second ground of appeal. The Respondent's failure to provide a draft of the licence agreement 29 Section 9 of the Act provides as follows:- 9 Copy of lease to be provided at negotiation stage A person must not, as lessor or on behalf of the lessor, offer to enter into a retail shop lease, invite an offer to enter into a retail shop lease or indicate by written or broadcast advertisement that a retail shop is for lease, unless: (a) the person has in his or her possession a copy of the proposed retail shop lease (in written form, but not necessarily including particulars of the lessee, the rent or the term of the lease) for the purpose of making the lease available for inspection by a prospective lessee, and (b) the person makes a copy of the proposed lease available to any prospective lessee as soon as the person enters into negotiations with the prospective lessee concerning the lease. Maximum penalty: 50 penalty units. 30 The third ground of appeal was based on the assertion that the Respondent did not make a draft of the licence agreement available to the Appellants once the negotiations between them began. It followed that, if indeed the licence agreement was a 'retail shop lease' within the Act, the Respondent had breached s 9. It thereby gave the Appellants no opportunity to obtain a solicitor's certificate under s 16(3) of the Act, which would have prevented the extension of the term of the lease to five years under s 16(1). On these grounds, Ms Walker argued that the Respondent should not have the benefit of s 16(1). 31 Mr Vincent responded by pointing to passages in the evidence suggesting that the Respondent gave a draft of the licence agreement to Ms Tate during February 2002, and/or made a copy of the agreement available for inspection. He also claimed that, since this issue of compliance with s 9 was not raised with the Tribunal, it could not properly be raised on appeal. His third submission was that a breach of s 9 had no effect on the validity or duration of the lease involved. For this proposition, he relied on the Tribunal's decision in Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17. 32 In our opinion, this last submission by Mr Vincent must be accepted, and is sufficient to dispose of the issue. Although the Tribunal in Wanice did not in the relevant passage (paragraphs [21] to [33]) expressly state the proposition urged on us by Mr Vincent, its decision in the case was to the effect that, despite a breach of s 9 by the lessor in the case, the lease between the parties was valid according to its terms. The principal grounds for the view of s 9 apparently adopted (see [30]) were (a) that s 9 did not itself state that a breach of its requirements rendered the lease void or otherwise unenforceable against the lessee and (b) that subsections (2) and (3) of a companion provision, s 11, did give the lessee a right of termination in the event of breach, subject to expressly stated restrictions. 33 In our opinion, the approach adopted in Wanice was correct. It receives implicit support from the decision of the Appeal Panel in the same case (Wanice Pty Ltd v Bocove Pty Ltd (RLD) [2003] NSWADTAP 24). The Panel was not required to consider the consequences of a breach of s 9. But, as the judgment at [20] and [32] shows, its approach to determining the consequences of a breach by a lessor of other provisions of the Act – specifically, ss 22, 27 and 28, requiring disclosure of the nature and amount of outgoings to be charged to the lessee – was to identify, as the only consequences, those that were spelt out in the relevant provision. In the case of s 9, the only such consequence is that a lessor in breach is liable to prosecution for a criminal offence. 34 For this reason, the Appellant's third ground of appeal is rejected. The Respondent's failure to provide a disclosure statement 35 The Appellant's fourth ground of appeal raised a similar contention to the third ground, relating to s 11 of the Act. This section states in subsection (1) that at least seven days before a retail shop lease is entered into, a lessee must be given a disclosure statement containing prescribed information. As already noted, subsections (2) and (3) give the lessee a right of termination in the event of breach, subject to expressly stated restrictions. These restrictions limit the grounds on which termination may occur and also establish a time limit of six months after the lease was entered into. Under subsection (6), a breach of subsection (1) is made a criminal offence. 36 Ms Walker argued that on account of this breach by the Respondent, it should not have the benefit of s 16(1), extending to five years the term of any retail shop lease arising from the licence agreement. 37 Mr Vincent did not claim that there was any evidence suggesting that a disclosure statement had been provided. But he submitted once again that this issue had not been raised with the Tribunal and therefore should not be raised here. He also submitted that the consequences of a breach of s 11 went no further than those specified in the section. In contrast to s 9, these included a right of termination by the lessee. But that right was limited in scope and, most importantly, had to be exercised within six months after the lease was entered into. It was therefore not available now to the Appellants. 38 Once again, we accept this submission by Mr Vincent relating to the consequences of non-compliance. It receives express support from the Tribunal's judgment in Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADT 17 at [30]. This ground of appeal must fail. Whether any retail shop lease between the parties was terminated by agreement 39 In this connection, the Appellants relied on the letter, already mentioned, that Hunt & Hunt, the Respondent's solicitors, sent to the Appellants on 21 October 2003. This was, it seems, the day after the Appellants moved out of the premises. The letter contained a statement that the Respondent would accept Ms Tate's termination of the lease one month after receipt of a written notice of termination so long as 'her obligations under the lease' were fulfilled. It listed these as being (a) giving one month's notice; (b) paying all arrears of rent, outgoings and 'other monies'; (c) making good the premises to their original condition and (d) paying all legal and management costs incurred by the Respondent. 40 According to Ms Walker, the evidence put before the Tribunal showed that the Appellants fulfilled these obligations. It was well established, notably in the reasoning of the Supreme Court in Blackler v Felpure Pty Ltd [1999] NSWSC 958, that the provision of a minimum term of five years in s 16(1) of the Act did not prevent the parties agreeing to an earlier termination. In consequence, the Tribunal erred in not finding that any retail shop lease created by the execution of the licence agreement was terminated during November 2003. It therefore erred in holding the Appellants liable for the 'site fee' between 14 November 2003 and 23 June 2005. 41 Mr Vincent's initial argument in response was that, although the evidence relating to this alleged agreement for termination had been put before the Tribunal, it had not been submitted to the Tribunal that this evidence established any such agreement. It was therefore not appropriate for this submission to be made on appeal. 42 With regard to the merits of the submission, Mr Vincent agreed that the prescription of a minimum term of a retail shop lease in s 16(1) did not preclude early termination by agreement between the parties. 43 He contended, however, that the evidence did not in fact establish any such agreement. The reason was that the Appellants did not fulfil the obligation to pay the Respondent's legal and management costs. Instead, as revealed in an affidavit of Ms Tate dated 28 June 2004, she went no further than to pay the amount of these costs to Colin A Hogan & Co, her solicitors, to be held in trust. At no stage were they forwarded to Hunt & Hunt or, it would appear, was any notification given to Hunt & Hunt of Ms Tate's payment. Accordingly, when on 14 November 2003, Hunt & Hunt wrote to Colin A Hogan & Co offering to settle the dispute between the parties on different terms, they revoked on the Respondent's behalf the earlier offer of termination by agreement contained in their letter of 21 October. 44 In our opinion, if the evidence submitted to the Tribunal did clearly establish the agreement for which Ms Walker contended, we would not dismiss this ground of appeal merely because it was not expressly put to the Tribunal. But we accept Mr Vincent's submission that, for the reasons he advanced, no such agreement was reached. We cannot treat Ms Tate's payment to her own solicitors of the amount of the Respondent's legal and management costs as equivalent to a payment to the Respondent itself or its solicitors, particularly since it appears that no notification of the payment made by Ms Tate was ever given to the Respondent or its solicitors. There was accordingly no acceptance of the Respondent's offer of 21 October 2003, and the Respondent's withdrawal of this offer on 14 November 2003 was effective. 45 We are similarly unconvinced by arguments of Ms Walker to the effect that this issue of the payment of costs was only a 'technicality' and that since the parties had been on good terms throughout it should have been inferred that the Appellants would comply with their obligations. In fact, the terms of the two letters written by Hunt & Hunt indicate that at this stage the parties were not at all on good terms. 46 For these reasons, the fifth ground of appeal must be rejected. The absence of Mr Tate's signature on the licence agreement 47 Ms Walker did not press this argument strongly. The licensee named in the licence agreement was a business name, 'Ultimate Style Unisex Hair Salon'. It is implicit from the Tribunal's judgment that the proprietors were the two Appellants. One signature, apparently that of Ms Tate, appears beside the bracketed words 'Licensee/for and on behalf of the Licensee by a person duly authorised by the Licensee'. In these circumstances, there being no further evidence on the matter, we cannot agree that Ms Tate signed on her own behalf only. There is no ground on which we should set aside the Tribunal's decision in so far as it imposed liability on Mr Tate as well as Ms Tate. Conclusion 48 During the hearing, Mr Vincent indicated that the Respondent had sold the premises on 24 November 2004 and was therefore not entitled to any amount for the weekly rent or 'site fee' of $350 after that date. This meant that the Respondent's claim covered a period of 53.5 weeks only. On the footing that no additional amount representing GST should be included, since payment under the judgment would not be assessable to GST, the Respondent agreed that the amount of its claim should be reduced to $350 x 53.5, i.e. $18,725. 49 Accordingly, our principal orders are that the appeal should be dismissed but that the amount of the judgment against the Appellants should be reduced to $18,725. 50 We recognise that this outcome appears to treat the Appellants harshly, since it is likely that neither they nor the Respondent realised at the time of signing the licence agreement that a five-year term was created through the operation of s 16 of the Act. But neither the wording of this section nor the policy underlying it supports the conclusion that it does not apply to a retail tenant who wishes to vacate the premises before the five-year period has expired. 51 We offer the following comments on the policy underlying the section. It is generally acknowledged that one of the principal aims of the section is to protect retail tenants from the disadvantages that may flow from having security of tenure for a short period only. These disadvantages include the likelihood of deriving benefit for only a short period from fitout that they have installed in the premises at significant cost. But landlords may also benefit significantly from knowing that the duration of a retail lease that they have granted is not less than five years. The section cannot be viewed as having been enacted for the benefit of tenants only. 52 We will allow to each party a period of 28 days in which to file and serve an application for the costs of this appeal, with supporting submissions. Any submissions in response must be filed and served within a further 28 days. Unless a hearing is requested, the matter of costs will be decided on the papers. If no application is filed, there will be 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.