CITATION: Stringer v Glennan & anor [2005] NSWADT 11 DIVISION: Retail Leases Division APPLICANT PARTIES: Joyce Yongxin Stringer RESPONDENTS Michael Bruce Glennan & Muriel Heather Glennan FILE NUMBER: 045126 HEARING DATES: 13/12/2004 SUBMISSIONS CLOSED: 12/13/2004 DATE OF DECISION: 01/24/2005 BEFORE: Rickards K - Judicial Member APPLICATION: Claim for assignment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 Nissim & Anor v Marino [2001] NSWADT 191 CASES CITED: Scopo's Pty Ltd v Stocklands Property Management Pty Ltd [2003] NSWADT 194 Zaoud v Musico & Anor [2001] NSWADT 58 APPLICANT D Nelmes, solicitor REPRESENTATION: RESPONDENTS In person ORDERS: 1. I declare that the landlords are not entitled to withhold consent to assignment of the lease of the premises to Judy Baxter; 2. The lease of the premises is hereby assigned to Judy Baxter as lessee; 3. I give liberty to either party to file and serve written submissions in relation to costs within 21 days, and in the absence of such submissions there will be no order as to costs. REASONS FOR DECISION INTRODUCTION 1 The Applicant Joyce Yongxin Stringer ("the tenant") is the lessee of a small sandwich bar and takeaway food shop located at 316 Grey Street, Glen Innes, New South Wales ("the premises"). The Respondent Michael Bruce Glennan and Muriel Heather Glennan ("the landlords") are the owners and lessors of the premises. 2 The tenant seeks a declaration that the landlords are not entitled to withhold consent to an assignment of the lease of the premises, such other orders as are deemed necessary, and including an order that the landlords pay the tenant's costs of these proceedings. 3 During the course of hearing, the landlords confirmed that the basis of their refusal of consent to assignment of the lease was their contention that the proposed assignee had financial resources inferior to those of the tenant, and that therefore their withholding of consent was justified by s39(1)(b) of the Retail Leases Act 1994 ("the Act"). BACKGROUND 4 The landlords have owned the premises for some time as part of their retirement investment portfolio. 5 The current lease was entered into on 2 July 2001 between the landlords and a lady by the name of Helen Margaret Jillett. 6 The lease was assigned to the tenant on 12 April 2002 after the landlords had conducted a careful assessment of her background. This review included a personal interview between the landlords and the tenant in the course of which the tenant was asked to provide financial and other information pursuant to a schedule of questions which had been prepared for the landlord by their accountant. 7 By early 2004, the tenant had decided to sell her business. It appears that at least one likely purchaser was located by the tenant but that this purchaser was lost, and the relationship between the tenant and the landlords deteriorated by reason of a number of things but including disagreement concerning the extent and type of information concerning proposed purchasers of the business to which the landlords were entitled. At about this time the tenant wrote to the landlords advising that any further communication from the tenant would come through her solicitor, David Nelmes & Associates ("Nelmes"). 8 Nelmes wrote to the landlords on 6 October 2004 advising that the tenant had negotiated a sale of her business to Judy Baxter. The letter enclosed a document entitled "Allan & Judy Baxter - Statement of Assets & Liabilities" together with a reference from a Ms Janice Currie of Davis Ford & Associates Pty Ltd dated 5 October 2004 confirming that that firm had been the accountants and tax agents for Judy Baxter for the past 10 years, outlining her business background and attesting to her proficiency in operating her business and maintaining appropriate records. The Statement of Assets and Liabilities disclosed that Mr & Mrs Baxter at that time owned a property in Taree and a property in Glen Innes, that they owned motor vehicles, furniture and sundry items which were assessed at a total value of $347,000, and that they had a mortgage debt of $194,000, therefore leaving surplus equity of $153,000. 9 The landlords replied by letter to Nelmes dated 20 October 2004. That letter advised that the landlords did not consent to an assignment of the lease, and that in doing so they relied upon s39 of the Act. The letter was in these terms: Dear David, We are in receipt of your letter dated 06/10/04 where you advise that you act for Joyce Yongxin Stringer who has leased our building for a two and a half year period at 316 Grey St Glen Innes NSW 2370. Your letter states that she has negotiated a sale however we have not had any courtesy shown to us regarding this. We have had no conversation with Mrs Stringer for several months since June 2 2004 regarding any detail relating to the lease which has 20 months to run. She has advised us that she would not be renewing the lease on several occasions which means quite a bit of expense after removal of their fixtures to repair and paint the shop so that it will be left in good condition. We would guess about $4200.00 as tradesmen, plumber, painter, builder would be required as provided for in the lease We note that you have provided on behalf of your client two sheets of fax paper which originates from Davis Ford Accountants with details regarding the intending purchaser Judy Baxter. It is noted that she is a good record keeper and Takeaway Food business operator which is mentioned on one of the sheets. The information contained does not satisfy our requirements. It is quite clear that no financial security has been demonstrated which we currently enjoy. In our opinion the information provided does not reflect any security within to us and only highlights an enormous debt on behalf of the purchaser. We advise you accordingly we do not consent to a transfer of the lease document. We are advised RLA 1994 as amended Part 5 section 39(B) provides relief. There have been several enquiries regarding taking over the lease to us and two of them which had not been notified at the time as prospective purchasers had expected the lease document to be changed to suit their financial situation. We strongly object to being berated on the telephone re these matters. These prospects became quite nasty when advised they would have to speak to Mrs Stringer as it would be improper for us to discuss details about her business and lease. It appears that the opinion formed is that we are not entitled to information in any form to appraise a prospective incoming lessee. These matters are well provided for within the lease and in legislation. Yours faithfully MB & MH Glennan" 10 Nelmes wrote to the landlords again on 25 October 2004 after he had held a telephone discussion with the male landlord. The precise terms of the telephone conversation are not directly relevant to this matter. The letter purported to confirm part of the telephone conversation being to the effect that the male landlord had indicated that the landlords did not have enough information, but had refused to specify what further information was sought. The letter went on to again advise that Judy Baxter had significant assets in the event of default under the lease. Nelmes also gave an estimate that the maximum level of indebtedness should Judy Baxter default under the lease, given the annual rental and the remaining period of the lease, was conservatively less than $25,000. The letter also requested the landlords to reconsider their position, and to specifically advise Nelmes of any further information which they sought which might assist their decision. 11 The landlords again wrote to Nelmes on 26 October 2004. The landlords denied that they had requested more information and asserted that they were under no obligation to request any more detail at all concerning Judy Baxter. The letter again advised that the landlords refused consent to assignment of the lease. 12 The present application was filed on 29 October 2004. Subsequent to that date, Nelmes wrote to the landlords on 3 December 2004 enclosing a Westpac Bank statement confirming that Mr & Mrs Baxter now additionally held the sum of $22,785 in credit, and also enclosed trade references from Shultz First National Real Estate and from PFD Food Services Pty Ltd, as well as a further short letter from Davis Ford & Associates accountants confirming that Mrs Baxter held sufficient equity to meet her lease commitments. 13 As set out in paragraph 3 above, the sole ground relied upon by the landlords for refusal of consent to assignment of lease is that Judy Baxter has inferior financial resources to the tenant. 14 Having read the affidavit material and spoken to the landlords during the course of the hearing, I am satisfied that they are both honest and responsible people who have been truthful at all times in relation to the information and material placed before this Tribunal. The landlords did not give sworn evidence at the hearing, and I had previously advised them that unless there was some objection on behalf of the tenant, I would accept what was told to me by them from the bar table and that they would suffer no penalty if they preferred to follow that course and not give sworn evidence and be cross-examined. The tenant gave sworn evidence and was cross-examined, as well as placing affidavit material before me. I am concerned that the tenant went into some detail in her affidavit sworn 10 December 2004 concerning assets and liabilities, but did not refer at all to a property at 292 Grey Street, Glen Innes NSW owned jointly with her husband. It is also apparent that the tenant's information as to financial standing which was recorded by the landlords prior to her obtaining assignment of the lease in 2002 was somewhat less than accurate. Mr Nelmes asserted in his submissions that the tenant did not appear to have a sophisticated knowledge of financial matters, was relatively naïve, and that she was not intending to mislead. I have come to no final conclusion upon this aspect of the matter, but I have preferred the evidence of the landlords to that of the tenant as being more reliable in respect of any relevant factual issue. 15 In relation to the tenant, and her financial position, I am satisfied as to the following:- (a) That the tenant was married to her present husband in 1993. (b) She came to Australia in 1997. (c) The tenant's family (apparently including a son from a previous relationship) remain in Singapore. (d) The tenant's husband previously owned property in Queensland which he sold in order to acquire their home in Glen Innes. (e) The Glen Innes home was currently on the market with an asking price of $295,000; its true market value is unclear. (f) The tenant and her husband also own premises in Grey Street, Glen Innes (which is the main street of Glen Innes). This property was purchased by the tenant's husband from an inheritance. That inheritance also permitted the tenant's husband to discharge the mortgage over their Glen Innes home. The Grey Street property is also unencumbered. (g) Apart from the two properties which are owned as joint tenant with her husband and a car jointly owned with her husband, the tenant has no other equity. (h) There are no children from the marriage between the tenant and Mr Stringer. RELEVANT FACTORS CONCERNING ENTITLEMENT TO WITHHOLD CONSENT TO ASSIGNMENT OF THE LEASE 16 A preliminary issue raised in this matter is the question of at what point in time should the financial resources of the tenant and the proposed assignee be compared. The tenant asserts that the comparison should take place between the financial resources of the tenant as at the time of her commencement as lessee and the present financial resources of Mrs Baxter as proposed assignee. It is accordingly argued in this case that any improvement in the tenant's financial situation since the date of commencement of her own assignment of the lease should be disregarded. 17 If such an assertion as above were to be accepted, then it would equally apply to prevent consideration of any deterioration in a proposed assignor's financial situation between the time of first becoming lessee and the time of seeking to assign the lease. Furthermore, the language of s39(1) is expressed in the present tense in setting out the limited circumstances in which consent to assignment can be withheld. In my view, the section is clear and unambiguous in requiring a current, and not historical, comparison of financial resources between proposed assignor and assignee. 18 The next issue is that of which party bears the onus of establishing that a proposed assignee has inferior financial resources to those of an existing lessee. In this matter the landlords have not sought any financial information beyond that which was supplied originally on behalf of the tenant, before deciding to withhold consent to assignment. Notwithstanding material filed with this Tribunal indicating the extent and type of information which the landlords previously required concerning financial background of prospective lessees, no such information was requested or required in relation to Mrs Baxter, and indeed the landlords specifically advised Nelmes that they did not consent to assignment of the lease and that they were not requesting any further form of information upon which to base their decision. 19 In this matter, the tenant has a positive right to assign the lease to Judy Baxter, subject to the entitlement of the landlords to withhold consent if Judy Baxter has financial resources inferior to those of the tenant. This positive entitlement of the tenant, subject only to the limited specific exclusions set out in s39, has been emphasised by this Tribunal in Zaoud v Musico & Anor [2001] NSWADT 58, Nissim & Anor v Marino [2001] NSWADT 191 and Scopo's Pty Ltd v Stocklands Property Management Pty Ltd [2003] NSWADT 194. 20 It is incumbent upon a lessor to show that this positive right of assignment does not apply if it wishes to withhold consent. In this matter, it is therefore incumbent upon the landlords to show on the balance of probabilities that Judy Baxter's financial resources are inferior to those of the tenant; if they are unable to do so, the tenant is entitled to assign the lease. REASONS FOR DECISION 21 Based upon either the material which has been provided to the landlords by the tenant, or upon the evidence before this Tribunal, a significant degree of speculation is required and definite comparison of the respective financial resources of the tenant and Judy Baxter is impossible. 22 Assumptions have to be made about Judy Baxter which may help determine her actual personal financial position, but these assumptions may or may not prove to be valid. An assumption that Judy Baxter is entitled to or owns 50% of the net value of assets held in the name of her and her husband may or may not be appropriate, depending upon a number of unknown factors including length of marriage, past financial and other contributions, and the ages and needs of the spouses and of any of their children, If an assumption of 50% ownership is made, the information about assets is accurate, and the values ascribed to the real estate provided upon her behalf are accurate, then her financial resources may be assessed at something in the order of $88,000. 23 By way of comparison, the tenant was married to her husband in 1993 when he was aged 48 years. He already owned his own home in Queensland. The tenant arrived from Singapore with no assets in 1997. There are no children of the marriage. There is no information as to whether the tenant's husband has other children. Since the date of marriage, the tenant's husband has made further significant financial contribution by applying money received from an inheritance toward discharge of a mortgage and toward acquisition of another property in Grey Street, Glen Innes which appears to be rented out to a medical practitioner. The value of the Grey Street premises is not stated, but may or may not be approximate to the value of the retail premises which are the subject of this matter and which yield annual rental of approximately $9,500. The value of the tenant's home which she jointly owns with her husband is not known but its asking price on the real estate provides some guide. The tenant's own share of the assets owned jointly in the names of her and her husband is probably no greater than 50%, and may be somewhat less than 50%, if one takes into account their respective ages, the length of the marriage, the period of cohabitation, and the respective financial contributions of the tenant and her husband over the course of the marriage. Assessment of a particular monetary value of the tenant's financial resources is not possible, and at best could be put into a wide range. The tenant's financial resources cannot be said to be probably superior to those of Judy Baxter. 24 As it is not established that Judy Baxter has financial resources which are inferior to those of the tenant, the orders I therefore make are as set out below. ORDERS 25 I declare that the landlords are not entitled to withhold consent to assignment of the lease of the premises to Judy Baxter. 26 The lease of the premises is hereby assigned to Judy Baxter as lessee. 27 I give liberty to either party to file and serve written submissions in relation to costs within 21 days, and in the absence of such submissions there will be no order as to 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.