CITATION: Taibud Pty Limited -v- Zol [2003] NSWADT 33 DIVISION: Retail Leases Division APPLICANTS (1)Taibud Pty Limited PARTIES: (2) Walter Zol RESPONDENT (1) Aquilina Zol and Maria Zol (2) Taibud Pty Limited FILE NUMBER: 015120; 025058 HEARING DATES: 17, 18, 19 June 2002 SUBMISSIONS CLOSED: 06/19/2002 DATE OF DECISION: 02/28/2003 BEFORE: Hole M - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease MATTER FOR DECISION: Principal matter LEGISLATION CITED : Conveyancing Act 1919 Retail Leases Act 1994 Nessmine Pty Limited v Devuzo Pty Limited (1989) NSW ConvR 55-496; Rethmeier v Pioneer House Pty Limited (1990) 6 BPR 13; CASES CITED: Lolly Pops (Harbourside) Pty Limited v Werncog Pty Limited (1989) 9 BPR 16,361; Flagstaff Investments Pty Limited v Cross Street Investments Pty Limited (1999) 9 BPR 17,067; Reilly v Liangis Investments Pty Limited (2000) 9 BPR 17,509; B S Stillwell & Co. Pty Ltd v Budget Rent-a-Car System Pty Ltd (1990) VR 589 REPRESENTATION: M Walton, Barrister G Blake, Barrister ORDERS: 1. The notice dated 30 June 1999 served on the Lessee by the Lessor has no further effect; 2. The notice dated 24 June 2000 served on the Lessee by the Lessor in so far as the second paragraphs therein being (a) and (c) have no effect; 3. The second paragraph (b) in the notice dated 24 January 2000 can no longer be relied upon by the lessor; 4. The notice dated 1 March 2000 served on the Lessee by the Lessor has no effect.; 5. The notice of termination served on the Lessee by the Lessor dated 5 November 2001 is of no effect.; 6. The application by the lessor in matter number 025028 in relation to items 2 and 3 of their claim filed on 15 May 2002 was settled during the course of the proceedings. REASONS FOR DECISION 1 An Application has been made by Taibud Pty Limited ("the Company") in relation to a lease and a cross application has been made by Aquilino Zol and Maria Zol in respect of the same lease. 2 A lease was entered into and dated 28 June 1996, for a period of 5 years commencing on 1 July 1996, between Aquilino Zol and Maria Zol ("the Lessors") as lessors and Deigo Iaria and Tony Polizzi as lessees in respect of premises being 30 Norton Street, Leichhardt ("the Premises"). 3 The lease is registered and numbered 2409387, it contains an option to renew for a period of 5 years and a further option to renew for a period of 5 years. The option in each case is to be exercised by notice in writing of not less than 3 months prior to the expiration of each term of the lease. 4 Tony Polizzi transferred his interest in the lease to Deigo Iaria prior to the assignment of the lease to Taibud Pty Limited. 5 On 10 June 1997 the lessees assigned the interest in the lease to Taibud Pty Limited, the Applicant in this matter. 6 The parties to the assignment were Deigo Iaria as the then lessee and Taibud Pty Limited ("the Lessee") as the assignee. 7 During the period from February 1997 to 10 June 1997 the premises were still subject to the lease which had been entered into on 28 June 1996. The parties in occupation appear to have been Mr Chioatto and Mr Morvillo. There were various negotiations between the parties in relation to the assignment of the lease including the negotiations described by the lessor's solicitor in a letter dated 17 July 1999 being Annexure L to Mr Chioatto's affidavit dated 6 March 2002. In that letter there is reference to the difference between the individuals in possession of the premises and the Company. 8 During the period between February 1997 and 10 June 1997 some monies were being paid on account of rent. During that period Deigo Iaria and Tony Polizzi were the lessees of the premises. The lessors accepted payment of some monies from Mr Chioatto and Mr Morvillo. 9 At the date of assignment on 10 June 1997 the relationship between Mr and Mrs Zol and Taibud Pty Limited became that of lessor and lessee. At that point of time the obligation of the Company to abide by the terms of the lease and pay rent in accordance with the lease commenced. 10 Evidence was given in relation to the accounting in respect of both the period prior to the date of assignment and from that time up to the point of time when notices were given by the lessor in relation to purported breaches of the lease. The affidavit by Mr Angelopoulos dated 13 May 2002 includes reference to rental unpaid as at 15 June 1997. The affidavit of Ms Hill dated 14 June 2002 purports to reconcile monies paid by Taibud Pty Limited in relation to the period of the lease commencing upon the operation of the assignment of the lease. 11 By notice dated 30 June 1999, the lessor notified the lessee of three failures in respect of payment of proper rent and purported to convert the lease to a monthly tenancy by that notice. Each of these instances arose prior to the date of the assignment of the lease on 10th June, 1997. 12 It is clear from the evidence of the lessor, Mr Zol, that he knew there was a doubt in respect of the accounting and that he recalled that the Deloittes' auditor had said that there was no breach. 13 From the evidence it is clear that there was some confusion in respect of the allocation of arrears of rental, that this confusion arose from the period between 18 June 1997 and 9 July 1997 inclusive. The Applicant relies on the occupation of the premises during that period by parties other than the lessee, and not having regard to the fact that one of those erstwhile occupiers is a representative the Company. On balance I prefer the evidence that the notice refers to underpayment of rent; (a) in the sum of $546.55 due and payable on 26 February 1999, (b) in the sum of $546.55 due and payable on 12 April 1999 and (c) the sum of $546.55 due and payable on 3 May 1999, so that consequentially, due to the confusion in the allocation of the payment of rental between the period 18 June 1997 to 9 July 1997 and, taking into account the evidence of Mr Angelopoulos on behalf of the Lessor, the arrears of rent of $6,895.46 was not consistent with the notice. On the evidence, the dispute in respect of the amounts referred to in the notice of 30 June 1999 had been left in abeyance by the lessor and in view of the evidence of Mr Angelopoulos the arrears of rent have been now allocated and revival of the notice dated 30 June 1999 cannot be relied upon by the Lessor. 14 The notice issued on 30 June 1999 will be referred to as the First Notice. This notice cites three reasons for the notice issuing being: (a) of 26 February 1999 instead of paying the sum of $5,546.65, the lessee paid the sum of $5,500.00. (b) on 12 April 1999 instead of paying the sum of $5,546.65, the lessee paid the sum of $5,500.00. (c) on 3 May 1999 instead of paying the sum of $5,546.65, the lessee paid the sum of $5,500.00. Correspondence, included in evidence, which passed between Mr Cohen the accountant for Taibud Pty Limited and Mr Vitt the real estate agent representing Mr Zol. Mr Cohen asserted that Taibud Pty Limited had overpaid to the end of July 1999 by a sum of $4,272.75. He further asserted that the obligation of Taibud Pty Limited did not apply to the period prior to the assignment of the lease. 15 This aspect of the issues between the parties is referred to in the letter from the solicitor acting for the Lessor to the solicitor acting for the Lessee a copy of which is included in the evidence as Annexure L to the affidavit by Mr Chioatto previously referred to. This letter refers to a "dispute" between the parties. The evidence and submissions of the parties was to the effect of the dispute being in relation to the alleged overpayment or non-payment of rent. This letter dated 17 July 1999 also included reference to "……leaving in abeyance the question of the Notice…… pending a resolution of the dispute.". There is also reference in the letter to: "It may be that on a technical approach, the Lease has not been breached". In view of the evidence given by Mr Zol, the terminology included in the letter dated 17 July 1999, the evidence included in the affidavit of Mr Angelopoulos and the affidavit of Ms Hill it is my view that the notice was unsupportable and the lease had not been breached. Therefore the notice given on 30 June 1999 could not be resurrected and could not be used as a means to convert the lease into a lease from month to month. 16 It is clear from the evidence given that Mr Chioatto and Mr Morvillo were in occupation for various parts of the time prior to assignment of the lease and that this has been recognised in the letter dated 17 July 1999 being Annexure L to the Affidavit of Mr Chioatto previously referred to. It is of my view that any monies owing prior to the assignment of the lease on 10 June 1997 were due and owing either the then lessees or by those in occupation of the Premises. The assignment of the lease is not made subject to outstanding arrears of rental. 17 On 24 January 2000 a second notice was given by the lessor to the lessee. This notice set out three items which were required to be remedied by the lessee. They were: (a) the lessors require to inspect the premises within seven (7) days of receipt of this notice upon you between 9.00 am and 5.00 pm at a time to be nominated by you during those hours. (b) you have breached the above covenants in that you have erected flagpoles and lights thereon without consent of the lessors and/or the Council and that you are to remove the flagpoles within 10 days of service of this notice upon you. (c) you have disposed of the materials set out hereunder on the adjacent premises, which also belonged to the lessor namely waste bin, glass recycling drums, timber, old signs, glass tubes, electrical wiring, pots and pans, steel wired cages and that you are to within seven (7) clean up the said materials. This notice was expressed to be a notice relying upon Clauses 3(6), 4(c), 4(i) and 4(k) and referred to in Section 129 of the Conveyancing Act 1919 . 18 In relation to the remedial action required by the second paragraph (a) referred to in the notice of 24 January 2000 the lessor inspected the premises on 9 February 2000. This inspection was arranged between Mr Zol and Mr Chioatto representing the lessee. Also present were two constables from Leichhardt Police Station. 19 The remedy required in the second paragraph (b) in relation to the flagpoles and lights thereon is a much more complicated issue that appears in the notice. Considerable evidence was given by both parties in relation to the occurrences in respect of the flagpoles and lights from the time of the assignment of the lease up to and including the date of the notice on 24 January 2000. This is a period in excess of two and a half years. Mr Zol was under the impression that he had signed a development application which had been submitted to the local council, Leichhardt Council for consent for the purposes of lights to be installed on the premises. Mr Zol saw that the lights had been placed on the premises subject to the lease a short time after he had signed what he believed to be the development application. He also noticed that there were three flagpoles also constructed on the premises. 20 Clause 4(c) of the lease requires that there be no alteration or addition to the premises or to any other lessor's fixtures or fittings therein without the written consent of the lessor. 21 The application to Leichhardt Council which had been signed by Mr Zol referred only to the erection of fairy lights on the trees on the footpath and also three lights on top of the building. Mr Chioatto gave evidence that there had been discussions in respect of three flagpoles and balls and lights on top of the premises. He further gave evidence that it was an oversight that the flagpoles were not specifically referred to and to the effect that with the passage of two and a half years there had not been any complaint from the lessor. He gave evidence that he spoke to the Council about a complaint made by the Council in 1999 and that the Council had indicated to him that as three to four years had passed and there had been no complaint or objection. 22 On 12 November 1999 Leichhardt Council wrote to Lessor requiring that the flagpoles be demolished or removed. In evidence Mr Chioatto appeared to be prevaricating in relation to his responses concerning the development application to the Council. It is my view that Mr Chioatto was aware that there was no reference to the flagpoles on the application to the Council. 23 Mr Chioatto further gave evidence that he decided to make an application to the Council for permission to fly the flags which he had on the front of the premises. He made this application to the Council through a solicitor in August 1999. 24 On 15 February 2000 the solicitor acting for the Lessee forwarded a form of building certificate application, to the solicitors acting for the Lessor, for the erection of three flagpoles on site. Mr Zol did not sign the application. Mr Zol gave evidence to the effect that if the Council had approved the erection of the flagpoles he had no problem with them. 25 The third alleged breach, in the notice dated 24 January 2000, which was required to be remedied related to the disposal of material on adjacent premises. This requirement relied on the clause in the lease [Clause 4(j)] which required the lessor to ensure that anything which requires not doing anything which may be or grow to be or cause a nuisance damage or obstruction to the lessor or to the tenants or occupiers of the building or of any adjoining or neighbouring premises. The lease terms can control the acts of the parties to that lease in respect of the premises referred to in the lease. Any activity on adjoining premises whether they be owned by one or other party of the lease would be subject to the behaviour of any individual in relation to that adjoining land notwithstanding the existence of the lease. The second sub-paragraph (c) of the notice dated 24 January 2000 states that the lessee had "disposed" of certain materials on adjacent premises. The lessee appears to have accepted that this allegation was true and complied with the notice by removal of the materials referred to prior to 14 February 2000. 26 It appears that the whole of the notice dated 24 January 2000, the second notice, can only have any continuing effect in respect of the issue of the flagpoles. The whole of any substance of the notice hangs on the flagpoles. 27 The flagpoles remained in situ at the time of the hearing and it does not appear in the evidence that Leichhardt Council has taken any further action in relation to those flagpoles. Mr Zol gave evidence, as referred to before, that he had no problem with the flagpoles as he had believed that they were Council approved. 28 The construction of the flagpoles was a matter that the Lessor believed was approved by Council pursuant to the application that he had made. When the Council issued a notice in relation to the flagpoles his response was to hand that notice to the lessee. The flagpoles remained in position. In view of the passage of time from the time the flagpoles were constructed to the time that the Council wrote to the Lessor in November 1999 a further attempt was made by the Lessee to obtain the Lessors signature to the application to the Council. I consider that the Lessor has waived any objection to the flagpoles he may have had and that the matter rests there. There was general acquiescence on the part of the Lessor. 29 On 31 March 2000 the lessor gave a further notice to the lessee being a notice converting the tenancy to a monthly tenancy pursuant to Clause 6 of the lease. Clause 6 of the Lease is in the following terms: 'DEFAULT BY LESSEE 6. IT IS HEREBY EXPRESSLY AGREED between the parties as follows:- (a) That notwithstanding anything herein contained upon the lessor becoming entitled to re-enter or determine this lease then the residue of the term for the time being unexpired of this lease shall at the option of the lessor immediately upon notice of the exercise of such option being given to the lessee become reduced to one (1) month and thereafter the tenancy hereby created shall be and remain a tenancy from month to month at a rental equivalent to one (1) month's proportion of the rental herein reserved and shall be determinable by one (1) month's notice in writing given by either party to the other expiring at any time. (b) That if – (i) The rent hereby reserved or any part thereof shall be unpaid for a period of fourteen (14) days after any of the days on which the same ought to have been paid (although no formal or legal demand shall have been made therefor); or (ii) the lessee commits or permits to occur any breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions contained in this lease; or (iii) (the lessee being a company) any order is made or resolution passed for the winding up of the lessee (except for the purpose of reconstruction or amalgamation with the written consent of the lessor which consent shall not be unreasonably withheld) or an order is made for the appointment of a provisional liquidator or the lessee makes an assignment for the benefit of or enters into any arrangement or composition with its creditors or is unable to pay its debts within the meaning of the Corporations Law or an official manager is appointed pursuant to the provisions of such Act; or (iv) execution is levied against the lessee and not discharged within thirty (30) days; then and in any one or more of such events the lessor at any time or times thereafter and without notice or demand shall have the right to re-enter the premises or any part thereof in the name of the whole and thereby determine the estate of and interest of the lessee and therein and expel and remove the lessee and those claiming under him without being taken or decreed guilty of any manner of trespass and without prejudice to any action or other remedy which the lessor has or might or otherwise could have for arrears of rent or preceding breach of covenant. 30 The notice dated 31 March 2000 referred to the reason for converting the tenancy to a monthly tenancy as: "AND WHEREAS the Lessee has failed to pay the proper rent under the lease namely: The rent due on 1 March 2000. AND Accordingly the Lessors opt to convert the Lease to a monthly tenancy and further give notice that the Lessee has forfeited its right to any option because of such breaches." 31 In so far as failure to pay rent there was no failure on 1 March 2000 any failure to pay rent would not accrue until 15 March 2000. This is disclosed in page 1 of schedule 1 of the affidavit of Mr Angelopoulos. 32 On 5 November 2001, the lessor served a notice on the lessee purporting to be a notice of termination of the lease. On 31 January 2001 the lessee served a notice on the lessor exercising the option to renew contained in the lease requiring the renewal of the lease for a further 5 years. 33 Section 133E of the Conveyancing Act 1919 provided prior to amendment the following: (1) In this Division "prescribed notice" means a notice in writing that:- (a) specifies an act or omission; and (b) states that, subject to any order of the court under section 133F, a lessor giving the notice proposes to treat that act or omission as having precluded a lessee on whom the notice is served from exercising an option contained in the lease. (2) Where an act or omission that constituted a breach by a lessee or his obligations under a lease containing an option would, but for this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of fourteen days next succeeding the purporting exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and:- (a) an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the court before the expiration of the period of one month next succeeding service of the notice; or (b) where such relief is so sought: - (i) the proceedings in which the relief is ought are disposed of, in so far as they relate to that relief, otherwise than by granting relief; or (ii) where relief is granted upon terms to be complied with by the lessee before compliance by the lessor with the order granting relief, the lessee fails to comply with those terms within the time stipulated by the court for the purpose. 34 In this particular case the only act or omission that could constitute a breach pursuant to the various notices served by the lessor would be the situation regarding the flagpole. 35 The Council for both the Applicant and the Respondent have drawn attention to various cases which have been considered in relation to section 133E. Particular reference has been drawn to the cases of Nessmine Pty Limited v Devuzo Pty Limited (1989) NSWConvR 55-496 (Hodgson J), Rethmeier v Pioneer House Pty Limited (1990) 6 BPR 13, 245 (Bryson J), Lolly Pops (Harbourside) Pty Limited v Werncog Pty Limited (1989) 9 BPR 16,361 (Young J), Flagstaff Investments Pty Limited v Cross Street Investments Pty Limited (1999) 9 BPR 17,067 (Windeyer J) and Reilly v Liangis Investments Pty Limited (2000) 9 BPR 17,509 (Young J). The Respondent also drew attention to the case of B S Stillwell & Co. Pty Ltd v Budget Rent-a-Car System Pty Ltd at 593.43-596.6 (O'Bryan J) at 602.24-604.3) (Gray J) (with whom Crocket J at 590.23-27 agreed). 36 Section 133E has now been amended and the amendment has taken into account the issues raised in the abovementioned cases with the particular view to clarify in the effect of section 133E and the second reading speech in relation to the amendment notes that: "In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner of acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by a the original offeree requiring acceptance by the original offeror if an agreement were to result." 37 In this particular case, the continuing breach of the lessee relates to a flagpole referred to in the notice dated 24 January 2000. This breach was one that the lessor had believed did not exist as he had believed that an application for consent to have the flagpoles erected had been made. Subsequently when it was discovered that consent had not been obtained he then used the opportunity to refuse to consent to the development application to be lodged with the Council. 38 In the event that the Local Council still requires an application to be made for the purposes of maintaining the flagpoles then I find that in view of the fact that the lessor had considered that he had given the consent then he ought to provide a consent to the application to be made to the Council. The effect of this would mean that there are no remaining issue subject of notices to the lessee which would ground any action pursuant to the lease to change the lease to a monthly tenancy or to refuse to grant to renew the lease. 39 It is clear from the evidence that the breach in respect of the flagpoles had occurred prior to the notice to renew being served. I therefore find that the provisions of section 133E as considered in Flagstaff Investments Pty Limited v Cross Street Investments Pty Limited do not apply. 40 The notice of termination dated 5 November 2001 is a nullity as the lessor had insufficient grounds upon which to serve such a notice. 41 The application by the lessee that there be a declaration that the lease between the Applicant and the Respondent exists is granted. I make the following orders:- (1) The notice dated 30 June 1999 served on the Lessee by the Lessor has no further effect. (2) The notice dated 24 June 2000 served on the Lessee by the Lessor in so far as the second paragraphs therein being (a) and (c) have no effect. (3) The second paragraph (b) in the notice dated 24 January 2000 can no longer be relied upon by the lessor. (4) The notice dated 1 March 2000 served on the Lessee by the Lessor has no effect. (5) The notice of termination served on the Lessee by the Lessor dated 5 November 2001 is of no effect. (6) The application by the lessor in matter number 025028 in relation to items 2 and 3 of their claim filed on 15 May 2002 was settled during the course of the proceedings. (7) I direct that all exhibits be returned to the parties. 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.