CITATION: Chapman v Chang & anor [2002] NSWADT 275 DIVISION: Retail Leases Division FIRST APPLICANT Michelle Chapman FIRST RESPONDENT PARTIES: Y H Chang & Z M Gao SECOND APPLICANT Y H Cheng & Z M Gao SECOND RESPONDENT Michelle Chapman FILE NUMBER: 025057; 025109 HEARING DATES: 03/09/2002, 24/10/2002, 21/11/2002 SUBMISSIONS CLOSED: 12/02/2002 DATE OF DECISION: 12/20/2002 BEFORE: Donald BG - Judicial Member APPLICATION: Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: FIRST APPLICANT C Chapman, agent SECOND APPLICANT REPRESENTATION: A Campbell barrister FIRST RESPONDENT A Campbell, barrister SECOND RESPONDENT C Chapman, agent ORDERS: 1. The Lessors to pay the Lessee $1986.37 and to release the bond of $600 to the Lessee, subject to Order 2 ; 2. The Lessee to pay the Lessor unpaid rent of $1,091.42 which the lessors may set off against the amount payable by them; 3. No order as to costs. The Applications 1 This is an application filed on 15 May 2002 by the Lessee in respect of a retail shop lease of a florist shop at Leumeah commencing 7 March 1998 for an express term of 26 weeks with a monthly holding over provision. A cross application was filed by the Lessors on 10 September 2002 for unpaid rent. 2 The Application first filed in the Tribunal on 15 May 2002 alleged an unlawful lockout and sought seven orders including access to remove property, confirmation of rental amount, setting the termination date of the Lease at 10 May 2002 and compensation for travel and administration expenses. This was accompanied by an Application for Urgent Interim Order for access to remove stock-in-trade for the stated reason that the Lessee needed the stock to carry on her business. 3 On 17 May 2002 the Tribunal granted an Urgent Interim Order for immediate unencumbered access to the premises and also gave directions for the filing of evidence and submissions with a hearing date for the primary application set for 11 June 2002. The Tribunal did not publish reasons. 4 On 24 May 2002 the Lessee filed a submission which included some eight new heads of claim which would subsequently be adopted as the amended application. The head of claim for Damages was subsequently itemised on June 3, 2002 and further amended on July 19, 2002 to include a wide range of damages including for loss of future business and loss of goodwill, as well as loss of reputation and emotional stress for both the Lessee and her husband. 5 An unconscionability claim was initially raised on 3 June 2002 but withdrawn following a directions hearing. 6 After interlocutory directions and summonses hearings, the matter came on for hearing on 3 September 2002 at which the Points of Claim were first clarified by the Tribunal. Some of the claims were no longer pressed so the application became:- + a claim for breach of covenant of quiet enjoyment in relation to events surrounding the Lessors' attempt to recover rent in arrears and negotiate a higher rent; + a claim concerning the bond money; and + a claim for damages under a number of headings arising from the events of the lockout and termination of the Lease. 7 By Cross Application filed 10 September 2002 with leave after the first day of hearing, the Lessors cross-claimed all outstanding rent in the sum of $1091.42. Term of the Lease 8 The Application as amended up to the first day of the hearing and the submissions filed by the Lessee proceeded on the basis that this was a six-month Lease with a monthly holding over in respect of which the parties had been engaged in a negotiation for a rent increase from January 2002. The whole of the first day of the hearing also proceeded on that basis, during which most of the evidence and submissions were put to the Tribunal. 9 The Lessee Applicant did not suggest to the Tribunal nor place any evidence before it that the term of the Lease was other than six months with a monthly holding over and at no stage during the urgent interim application or the directions hearings did the Tribunal, variously constituted, of its own motion raise the issue of the manner in which the provisions of s.16 of the Retail Leases Act 1994 may apply to the Lease. 10 Section 16 provides that the term of a retail shop lease (including options granted at the outset) must be not less than five years unless under sub-section (3) a certificate of advice to the lessee is provided excluding the operation of s.16 and hence the five-year term. The policy is that a lessee can contract out of the statutory term if properly advised. 11 A suggestion that s.16 might apply in this Lease was only raised by the Lessee on the adjourned hearing of the matter on 24 October 2002 at which time the Tribunal asked the parties whether a s.16(3) certificate existed. Neither the Lessee nor the Lessors produced such a certificate; the Lessors were not aware whether any such certificate was ever obtained, the Lessee asserted that none was. 12 It would obviously have been prudent for both parties to have had proper legal advice as at January 2002, when the negotiation for the increased rent began, as to whether or not the Lessors were entitled to propose a higher rent in lieu of terminating an assumed monthly tenancy or whether the Lessee was the beneficiary of a five year term not expiring until 6 March 2003. 13 It may also have been preferable for this Tribunal to have requested in the directions hearings process the filing of a copy of a s.16(3) certificate, if any, in the same way in which in directions hearings the Tribunal seeks filing of the Lease and the disclosure statement in the ordinary course of any Application. Given that the Lessee was represented by her husband and not legally represented, this would, in retrospect, have been advisable. 14 None of this having happened however, the Tribunal at the 24 October 2002 resumption of hearing gave the Lessee the opportunity to re-assess whether, notwithstanding her previous approach to the case based on the giving of notice terminating the monthly holdover Lease, vacating the premises and ceasing to operate a business therefrom, she would now wish to contend that the Lease continued on foot until March 2003. 15 Having considered the matter, the Lessee informed the Tribunal that she did not seek a continuation of the Lease and maintained that it had been terminated on or about 8 June 2002, as will subsequently be indicated in the review of the facts. 16 The Tribunal observes however that if proper legal advice had been taken by both parties as to the term of the lease in view of s.16, but particularly by the Lessee during what became a heated negotiation for an increased rent, the subsequent circumstances which became highly distressing for the parties may never have occurred, including the very time-consuming proceedings for both parties before this Tribunal. If the Lessors had been advised whether or not they were the beneficiary of a s.16(3) certificate, they would have known whether they were entitled to seek a higher rent in the first place, this becoming a significant matter between the parties. 17 Parties to important commercial transactions, in particular retail shop leases, are ill-advised to enter into them and engage in disputes concerning their provisions, including asserting rights, without competent legal advice. 18 The Tribunal cannot make a positive finding that no s.16(3) certificate was provided. The likelihood is that there was none. However one was not put in evidence by the Lessors in support of their case that they had a valid six months term with a holding over. There was no disclosure statement filed which would have assisted; nor does there appear to have been a disclosure statement. The Tribunal did not raise the issue. The Lessee only thought of the issue after most of the evidence and submissions had been heard by the Tribunal, but elects to treat the term as concluded. 19 Accordingly the Tribunal proceeds to determine this application on the basis pressed by the Lessee Applicant namely that it arises in respect of a lease which has now been terminated, albeit in circumstances where the parties may have both been mistaken as to the lawful term of the lease. This position is accepted by the Respondent Lessors. Finding of facts concerning rent, rent negotiations and termination of Lease 20 Under the Lease, rent of $150 per week was payable weekly in advance. From early January 2002 and over the ensuing months, rent fell into arrears resulting in the managing agent issuing arrears notices which were ultimately paid up to 23 March 2002. Rent has remained unpaid therefrom until termination of the Lease in May/June, the precise date yet to be determined by the Tribunal. 21 On 14 January 2002 the Lessors' managing agent first proposed a rent increase to $200 per week. The rent increase proposal was repeated in February and then in April. The Lessee informed the agent she would not agree. On 11 April 2002 the managing agent purported to issue a tax invoice for 8 weeks arrears of rent at a higher rate of $175 per week. The Lessee refused to pay at that rate. 22 During this time the managing agent was regularly pressing the Lessee, in forthright terms, for the payment of rent arrears. 23 By letter of 3 May 2002 the agent sought payment of arrears at the $150 rate, repeated a final increase offer of $175 a week for the lease to continue and advised that if payment of arrears was not received within 48 hours the Lessors would exercise their rights. 24 By letter of 8 May 2002 the Lessee referred to the previous correspondence including the letter of 3 May and said: "I refer to your letters...proposing a rent increase...Unfortunately, as discussed, I am unable to accept your proposal. Therefore I have no option but to give notice of termination. I expect to be able to vacate the premises within the next calendar month. Please re-calculate my rent arrears based on the existing rate of $150/wk plus GST, and provide statement of same." By reply posted the same date, 8 May 2002, the agent acknowledged receipt of the Lessee's Notice, calculated the rent claimed to be owing up to 8 June at the rate of $150 per week and proposed a release of the bond on payment of rent and vacation of the premises in good condition. It is important to set this out in full as it followed and superseded the letter of 3 May:- "We hereby write to acknowledge receipt of notice to vacate the above premises on 8 th June 2002 and we also advise that you are responsible for rental until that date. Please keep in mind: 1. Property is to be left in good/clean condition. 2. The keys are to be handed into our office on the day of vacation before 5pm or further rental will accumulate. Rental is currently paid till the 16 March 2002. 16/03/2002-08/06/2002= $2,214.96 GST inclusive A rental payment of $2,214.96 until time of vacating premises is due. We are currently holding your bond of $602.57. This will be released to you when the premises are left in good condition and the rental is paid up until your lease expiry date. Should you require any further information, please do not hesitate to contact the writer." 25 In my view this letter clearly superseded the 3 May letter which could not then be relied on as notice of intention to re-enter the premise forthwith. Facts relating to the lockout and alleged loss of business 26 Notwithstanding this correspondence which by agreement terminated the lease in an orderly manner, the agent on 10 May 2002, a Friday, phoned the Lessee requiring immediate payment of rent arrears. There is a dispute in the evidence as to whether the agent said words to the effect: "We are going to re-enter the premises." 27 I am not satisfied that the Lessors have established that such words were definitely used. 28 Later that day at about 3 p.m. the agent went to the shop, the Lessee was not there, the locks were changed and a copy of a letter dated 10 May 2002 was left under the door stating as follows: "We write to notify yourselves that the Owner has instructed us to exercise his rights under the Conditions of the Lease to re-enter the Unit for the purpose of taking possession of the property and its contents due to the Breach of the Lease as being in Arrears of Rental being greater than 14 days and you are further Notified that Notice is given of the Termination of the Lease." 29 It should be noted that the tenor of this letter is quite contrary to that of the letter posted 8 May 2002 acknowledging the Lessee's notice to vacate. In any event the letter left under the locked door with changed locks could not constitute notice of intention to re-enter. 30 A Notice was placed on the shop window stating "This shop is now in the possession of the owners of the property." In handwriting on the top right of the Notice the following annotation appears "LEASE-NOTICE-EV.". The Notice also added "Any person/persons entering these premises without the property owner's consent is doing so illegally & will be charged accordingly." 31 The agent gave evidence that the 10 May letter was duly posted to the Lessee who denied ever receiving it. I am not satisfied on the evidence that the 10 May letter was posted but in any event by Tuesday 14 May 2002 the Lessee had drafted its Application to this Tribunal which was urgently listed for 17 May when access to the premises was granted. The Tribunal then did not give reasons however it would be apparent that those facts would not constitute proper notice entitling a lockout. 32 Following the decision of the Tribunal on 17 May 2002 the Lessee regained access to the premises although there is a contention that that access was not free and open and was impeded in certain ways. The Lessee finally left the premises on about 8 June but it is clear that the business was not continued in the shop after 17 May, the Lessee having quickly taken a monthly lease on alternative premises after the lockout. 33 Following the events of the lockout the Lessee and her husband say they experienced a serious level of hostility and rejection by other shop owners and workers in the shopping centre. The Lessee led evidence from a person who worked at the shopping centre that another person at the mini-market had told her on 14 May "They haven't paid five months' rent". 34 Evidence was led by the Lessee as to loss of business following the events of the lockout. A chart of receipts of the business showed them falling away to nothing by mid June 2002. Some diary entries indicated that certain functions at a function centre called Macarthur Grange had been available as business opportunities for the Lessee's shop in April and that there were significant functions there on 9, 10 and 17 May. 35 This evidence was led in support of the assertion that the events surrounding the lockout and the termination of the Lease resulted in the loss of reputation for the Lessee and her business and the loss of that particular client to the Lessee, it being asserted to the Tribunal that Macarthur Grange had cancelled business with the Lessee following becoming aware of the lockout. 36 The Lessee had summonsed the Manager of Macarthur Grange for the first hearing day but there having been no appearance by that witness, and given the relevance of the evidence to the claimed loss of business, the Tribunal scheduled subsequent hearings for this evidence. Following one further non-attendance, the witness did attend on 21 November 2002. 37 However the evidence from the manager of Macarthur Grange was that while some discussions had been held with the Lessee, it was never a customer of the Lessee's business and no orders had been placed with the Lessee's business for any of the functions noted in the Lessee's diary. The Manager gave evidence that she had never bought flowers from the Lessee's business, that she had not had any conversations with the office of the managing agent concerning the termination of the Lease, that she had never seen the Notice placed on the door of the shop during the lockout. 38 The Lessee put to her that she would have heard of the lockout and seen the Notice when visiting her hairdresser at the shopping centre, but the Manager denied those suggestions. 39 The Tribunal is satisfied that the effect of her evidence was that Macarthur Grange did not have a business relationship with the Lessee's shop and that it did not terminate any such relationship at the time of, or as a consequence of the events surrounding the lockout. 40 There was no other evidence led by the Lessee relating to loss of goodwill or loss of reputation resulting from the circumstances of the cessation of the business at the shop. Claims relating to the rent arrears and the rent increase negotiation 41 The Lessee first contends that the conduct of the Lessor's agent seeking to negotiate a higher rent and to press for payment both of rent arrears at the level under the Lease and at a higher level, constitutes a breach of the covenant of quiet enjoyment and is otherwise in breach of the Lease. The claim is also put more broadly as a harassment claim. 42 It is undoubted that the attempts by the Lessor's agent to seek a higher rent for the shop were strenuously pursued from January through May 2002 including one occasion where an invoice was actually issued for arrears of rent at the as yet not agreed higher level of $175 per week. 43 The difficulty in this case is that, on the assumption that no s.16(3) certificate had ever been provided in respect of the Lease, it therefore ran for an implied term under the Act of five years and hence the Lessor had no right to suggest that unless a satisfactory higher rent was negotiated, the Lease could be terminated on one month's notice. However nothing in the evidence to the Tribunal establishes that the Lessor had acted deceitfully or fraudulently so as intentionally to mislead the Lessee. Accordingly the issue arises whether any legal consequences, entitling the Lessee to a claim for damages, flow from this conduct and the probably mistaken belief of the right of the Lessor; this belief was not corrected by the Lessee herself taking legal advice, she accepted the short-term nature of the Lease. 44 In my opinion any conduct of this nature by a lessor would not be within the class conduct generally covered by a breach of the covenant of quiet enjoyment. To demand rent at the agreed level and to assert that failing agreement for a higher rent then one month's notice period will be exercised, does not interrupt the Lessee's enjoyment of the Lease while it continues to run. 45 Nor would a strenuous endeavour by the Lessor in demanding unpaid rent at the agreed rate and seeking a higher rate of rent, even mistakenly, and even if the Lessee felt intimidated and harassed, be such as to give rise to the right to claim damages for loss of quiet enjoyment in connection with the operation of the Lease. Claims relating to the lockout and the termination of the Lease 46 The Lessee gave notice terminating the Lease on 8 May 2002 in circumstances where there was substantial arrears of rent either from the 23 or the 16 March but also expressing a view that she did not wish to agree to pay a higher rent, this again being part of the probably mistaken view as to the Lease then being month to month. The orderly vacation of the premises appeared agreed to take effect before 8 June 2002 but the agent immediately thereafter and without due notice locked the Lessee out. 47 The Lessee obtained an immediate remedy against that lockout but the Tribunal at that time stated no reasons in respect thereof and obviously made no interim orders as to the consequences. The lockout was clearly, in my view contrary to s.129 of the Conveyancing Act 1919 (NSW):- 129 Restrictions on and relief against forfeiture of lease (1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice: (a) specifying the particular breach complained of, and (b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and (c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. (2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit. 48 The lockout occurred after the Lessee had decided to relocate her business. Even after regaining possession, the Lessee did not seek to re-establish the business for the longer term at the shop and finally vacated the premises no later than 8 June 2002. Certainly in the hearing of this matter, as noted, the Lessee did not seek a continuation of the Lease in light of the possibility that she had had a five year term. 49 The question then is if any "costs, expenses, damages, compensation, penalty or otherwise" may be appropriately awarded by the Tribunal in this case under s. 129(2). 50 The evidence establishes that the agent placed a notice on the premises with an annotation which an ordinary reader would be likely to conclude meant that the Lessee had been evicted. Given the prior agreement for termination of 8 May 2002 and the failure to give notice of the proposed lockout, a notice stating the tenant had been evicted was in my opinion quite wrongly and inappropriately displayed. 51 However, while there was evidence that in the aftermath of the lockout and termination of the Lease, relationships between the Lessee and her husband and surrounding shop-owners soured, with some people in the Centre understanding that there had been some six months arrears of rent, there was no firm evidence that any customer of the business took a commercial decision to cease dealing with the business as a result of the termination of the Lease. 52 Certainly the Tribunal accepts the evidence of the Manager of Macarthur Grange that there was no pre-existing commercial relationship with the Lessee which had been terminated as a result of hearing of the lockout and the termination of the Lease. Nor does it appear that the neighbouring shop-owners or staffers who may have understood that there had been arrears of rent and a lockout, were themselves customers of the business or passed that information on to other customers. 53 The Lessee contends to the Tribunal that she and her husband have been the victim of damaging whispering and gossip in their community that they had been evicted from their premises when in fact they left of their own accord and that this campaign caused the loss of the goodwill of their business and the withdrawal of custom by their clients. However there is no evidence that whatever people may have thought about the Lessee that this resulted in loss of her clientelle. 54 Accordingly it is not possible to conclude that however wrongful the conduct of the agent was in locking out the tenant having just agreed to an orderly termination, this, in circumstances where the Lessee was intending to vacate the premises anyway, can be said to have caused loss or damage in the nature of loss of business or goodwill. 55 The Lessee and her husband were plainly hurt by the process of the lockout; any lessee is. But in my opinion, hurt feelings are not the basis for a claim that commercial loss has been caused by the wrongful conduct of a lessor. 56 It should also be observed that it is difficult for the Tribunal to decide whether or not the Lessee was motivated to terminate the Lease as much because of an inability to pay the rent at the existing $150 a week rate as by the demand for an increase in rent. The rent history over the preceding six months had been difficult and at the time when the termination notice was given by the Lessee, at least six weeks rent arrears existed. 57 However the Lessee has established some specific costs and expenses resulting from the lockout which the Tribunal considers should be paid by the Lessors:- o Rent of alternative premises. The Lessee immediately secured these but the minimum available term was one month. $1650. o Replacement stock. $166.37. o Door and locksmith costs. $170. This totals $1986.37 58 Further, the Lessors should not recover lost rent from the time of the wrongful lockout until the actual departure from the premises. This will be dealt with in the cross-application for unpaid rent. Bond and state of repair 59 The Applicant Lessee contests the right claimed by the Lessors to forfeit the bond in relation to the state of repair of the premises on the termination of the Lease. The Lessors at the beginning of the hearing initially conceded that the premises were in an acceptable state of repair having regard to the period of occupation but subsequently withdrew that concession and filed a submission in respect of the condition of the premises. 60 The Lessors' submission went beyond justifying the forfeiture of the bond but also claimed the cost of replacement of an air-conditioner and a vending machine which they say have been stolen or otherwise removed by the Lessee. 61 In regard to those major additional items, they do not appear in the cross-application filed by the Lessor following the first hearing which is confined to a claim for rent from 24 March 2002 to 10 May 2002. There was no evidence on those matters and so they cannot in my view now be claimed. 62 Having reviewed the repair invoice attached to the Lessors' submission and the response by the Lessees I am not satisfied that the Lessor has established that the state of repair is any other than the subject of fair wear and tear and accordingly I do not accept that the bond should be forfeit. The cross-application for unpaid rent 63 The Lessee has always acknowledged that there was a period from 24 March to 10 May when rent had not been paid but sought to set-off any such obligation against other claims and the bond. 64 The cross-application is only for rent until the date of the lockout the sum of $1,091.42 which does not exceed rent calculated at $150 per week plus GST for that period. This is consistent with the view above that any further rent should not be recovered. Costs 65 This dispute regrettably became bitter. As observed, it may not have done so had both parties properly understood the legal position. The bitterness was not assisted by a wrongful lockout following an agreed termination of the Lease. The aftermath including the proceedings before this Tribunal have probably as a consequence both of that bitterness and of the appearance of the Lessee through her husband rather than being legally represented, become complex and protracted. 66 There was considerable interlocutory time involved with summonses of records of other tenants in the shopping centre which was ultimately ruled not to be relevant. The Lessee was seeking to demonstrate that the new rent proposed for her premises was above that for neighbouring shops. However the Tribunal ruled that in the context of an open negotiation, as would have been the case for a new lease following the termination of the monthly lease, comparison with prevailing market rents and issues of fairness were not relevant. 67 The Lessee has not made out a claim at anything like the level of the damages schedule filed 19 July. However she did succeed on the interim order against the lockout and in its claim for some damages claimed from the lockout. 68 The final day's hearing of a witness who had failed to attend on two prior occasions was not the fault of the Lessee despite the evidence completely failing to come up to its predicted effect. However it turned out to be essential for the Tribunal to be properly satisfied that the claim for loss of business opportunity flowing from the events surrounding the termination of the Lease, could not be sustained. 69 In all those circumstances I do not consider any application by the Lessors for costs to be warranted under the usual tests for special circumstances which apply in this Tribunal. Nor do I think the Lessee is entitled to her costs. 70 Accordingly I make no order as to costs. Orders 1. The Lessors to pay the Lessee $1986.37 and to release the bond of $600 to the Lessee, subject to Order 2. 2. The Lessee to pay the Lessor unpaid rent of $1,091.42 which the lessors may set off against the amount payable by them. 3. 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.