CITATION: Alma Constructions Pty Ltd v C. D. Management Group Pty Ltd [2008] NSWADT 3 DIVISION: Retail Leases Division APPLICANT Alma Constructions Pty Ltd PARTIES: RESPONDENT C. D. Management Group Pty Ltd FILE NUMBER: 075123 HEARING DATES: 30 November 2007 SUBMISSIONS CLOSED: 30 November 2007 DATE OF DECISION: 7 January 2008 BEFORE: Molloy GB - Judicial Member CATCHWORDS: Appointment of a specialist retail valuer MATTER FOR DECISION: Prelminary matter LEGISLATION CITED : Retail Leases Act 1994 Clifton v. Palumbo [1944] All E.R.497 CASES CITED: Great Tastes of Australia Pty Limited v. Shorty Holdings Pty Limited [2006] NSWADT 253 Taylor v. Johnson (151 CLR 422) APPLICANT G Wright, barrister REPRESENTATION: RESPONDENT A Kardiasmenos, solicitor 1. Declare that there has been no agreement between the parties on a new rent consequent upon the exercise by the Respondent of the option in the lease ORDERS: 2. The Tribunal has jurisdiction to appoint a Specialist Retail Valuer pursuant to section 31 Retail Leases Act 3. Absent any appeal from this decision the Tribunal will appoint a Specialist Retail Valuer 4. No order for costs unless application is made by either party seeking an order for costs within 28 days of the date of this decision. REASONS FOR DECISION Background 1 The Applicant is the lessor of premises known as Lot 3 in Strata Plan 39526, being a retail shop situate at Shop 3, 52 Simmat Avenue, Condell Park ("the shop"). By Lease dated 23 February 2005 ("the lease") the Applicant leased the shop to the Respondent for a term of 3 years commencing 1 July 2004 and terminating 30 June 2007, which lease contained two options for renewal each for a period of 3 years. The first option, once exercised would renew the lease for 3 years from 1 July 2007 through to 30 June 2010; and the second option, once exercised would renew that lease for 3 years commencing 1 July 2010 to 30 June 2013. 2 It is common ground that: a) the first option has been exercised; b) the method of rent review for the fixing of the rent for the first year of the new term is "current market rent". 3 The lease contains fairly standard clauses relevant to the matter in issue. Those clauses, referring to "current market rent", commence at clause 5.12 and end at clause 5.21. The relevant clauses for the purposes of argument are as follows: 5.12 In this case (referring to current market rent) the rent is to be the current market rent. This can be higher or lower than the rent payable at the rent review date and is the rent that would reasonable be expected to be paid for the property, determined on an effective rent basis, having regard to (a number of specified matters). 5.13 The landlord (the Applicant) or the tenant (the Respondent) can inform the other in writing at least 60 days before the rent review date that the rent that the landlord or tenant thinks will be the current market rent at the review date. 5.14 If the landlord and the tenant agree on a new rent then that rent will be the new rent beginning on the rent review date and the landlord and the tenant must sign a statement saying so. 5.15 If the landlord and the tenant do not agree on the amount of the new rent 30 days before the rent review date the current market rent will be decided by a valuer appointed under clause 5.16. 4 It is common ground that the balance of clause 5 is not relevant simply because the Retail Leases Act 1994 has now provided an overriding regime for the determination of current market rent. 5 It is also common ground that Retail Leases Act 1994 Section 31 provides the law and machinery for the determination of current market rent when the parties are unable to agree, and it is also common ground that the section overrides any contractual term, either to the contrary or providing its own regime, for the determination of current market rent – in other words, the section and the Act apply notwithstanding the terms of the lease contract. 6 There is no need to set out in this Judgment the whole of the terms of Section 31. The relevant sub-sections are as follows: 31(1)(a) …. (b) If the lessor and the lessee do not agree as to what the actual amount of that rent is to be, the amount of the rent is to be determined by a valuation carried out by a specialist retail valuer appointed by agreement of the parties to the lease, or failing agreement, by the Tribunal (referring to this Tribunal). Note: the parties may agree to appoint a specialist retail valuer nominated by the President of the Australian Property Institute (NSW) or the President of the Real Estate Institute (NSW), or nominated by some other person of the parties' choice. [No party relied on this Notation – there was no agreement that would have fallen within this Notation]. (c) ... (d) ... (e) ... (f) ... Note: The procedure provided by this section can be avoided if the parties can come to an agreement as to what the rent is to be. (1A) A party to a lease may apply to the Tribunal for the appointment of a specialist retail valuer for the purposes of subsection (1)(b). (1B) ... (2) ... (3) ... (4) ... The Application 7 By Application for Original Decision filed 23 July 2007 the Applicant sought the appointment of a specialist retail valuer pursuant to Section 31. The Applicant swore that the "parties have not reached agreement as to whom should be appointed as the specialist retail valuer under s. 31". 8 In support of the Application the Applicant appended to the form of Application a copy of the lease and a short sworn statement setting out the bare facts and asserting that no agreement had been reached. No other documentation was filed. 9 The Respondent filed a sworn affidavit to which was annexed a copy of the lease and, more importantly, a copy of the correspondence that had flowed between the parties and later between their legal advisers. 10 It is the Respondent's contention that there has in fact been an agreement reached such that this Tribunal should dismiss the application and not appoint a specialist retail valuer because the parties have in fact agreed on what is to be the current market rent for the first year of the new term commencing 1 July 2007. Evidence 11 The Applicant has sworn no evidence regarding its intentions or understandings, neither has the Respondent, save that the Respondent has put in evidence the correspondence. Both parties have based their cases upon that correspondence, the Applicant asserting that the correspondence demonstrates no agreement and the Respondent submitting otherwise. Neither party has filed any evidence, nor sought to give oral evidence regarding, as to what their intentions or understandings were in relation to the correspondence. 12 By letter dated 18 May 2007 ("the first letter") the property manager for the Applicant's leasing agent wrote to the Respondent as follows: "We confirm that your lease expires on 1 July 2007. We note that you have exercised your option please find below the new rent and outgoings as at 1 July 2007. Rent to be charged as of 1 July 2007 $2,774.00 Outgoings $550.00 GST $332.40 Per month GROSS $3,656.40 Per Annum GROSS $43,876.90 Should you require any additional information then please do not hesitate to contact me." 13 There was no reply to that letter. 14 By letter 8 June 2007 ("the second letter") the property manager again wrote to the Respondent as follows: "Please find outline the break-up of the outgoings: Council rates $516.92 Water rates $473.95 Postage & Petties $13.20 Body Corporate fees $2,279.20 Government Taxes and Charges $1,631.00 Management Fees $1,176.27 Lease expenses $500.00 If you require any further assistance please do not hesitate to contact me". 15 The solicitors for the Respondent then replied to both the first and second letters by letter 25 June 2007 (the "third letter") stating (relevantly): Our client has exercised its option to renew the lease for a further term in accordance with his lease. We note that your letters provide for charges and that our client is not liable to pay under the lease. For instance, our client is not liable to pay any outgoings under the lease. Our client is prepared to agree to the new monthly rent amount of $2,774.00, however, does not agree to pay any of the other charges". 16 The solicitors for the Applicant, by letter dated 26 June 2007 ("the fourth letter") responded (relevantly) as follows: "We note that you have indicated that your client does not agree to the gross rent figure proposed by our client in the letter of 18 May 2007 (the first letter) to your client. Our client does not agree to the new monthly rent proposed in your letter 25 June 2007 (the third letter). As you are aware, if the parties do not agree on the market rent, the rent is determined by a specialist valuer in accordance with section 31 of the Retail Leases Act. The costs of such valuation are payable by the parties in equal shares. We are instructed that the rent proposed by our client is still lower than market rent. If a valuer is required and a higher rent is determined, that amount will be payable by your client. As the new rent is due to begin on Sunday next, please advise by 5.00 pm Wednesday whether your client accepts our client's determination of the new rent or advise the names of up to 3 specialist valuers your client proposes to assess the rent." 17 The solicitors for the Respondent replied by letter 30 June 2007 ("the fifth letter") relevantly as follows: "We …. note that our letter dated 25 June 2007 (the third letter) did not propose the new rent but rather merely accepted the new rent amount proposed by your client. Furthermore, our letter clearly stated that our client did not agree to pay additional charges that your client sought, such as outgoings etc. As you are aware, our client is not obliged to pay those additional charges under the lease. Therefore, as our client has accepted the new rent amount proposed by your client, there is no dispute and no need for a valuer to be instructed." 18 Finally, the solicitors for the Applicant responded thereto by letter 30 July 2007 ("the sixth letter") relevantly as follows: "We refer to your letter of the 30 June 2007 (the fifth letter) and confirm that the rent has not been agreed. As you and your client are fully aware, our client's assessment of the gross rent is $3,656.40 per month, not the figure of $2,774.00 referred to by you. As your client does not accept this rent, there is a dispute …". 19 For the purposes of this Judgment it is only the first, second and third letters that would, in my opinion, go towards proving whether or not there was an agreement between the parties within the terms of section 31. The fourth, fifth and sixth letters would seem to me more in the nature of argument demonstrating the view of the parties as to whether or not the third letter was an acceptance of the offer contained in the first letter, thus amounting to an agreement and thereby ousting section 31. The parties have based their respective cases and legal arguments on the lease and the correspondence only. 20 Both parties filed Written Submissions and made oral submissions at hearing. There is, if I might respectfully observe, considerable force in the arguments of both parties. Applicant's Submissions 21 In short, the Applicant says there was no agreement. Its primary submission was that in order to amount to an agreement for the purposes of section 31 the Tribunal would need to find an offer, an acceptance and effectively the formation of a contract. The Applicant correctly pointed out that the Act "does not define the circumstances in which (a) lessor and lessee will be taken to have agreed as to what the actual amount of the current market rent is to be. There is nothing in the Act to indicate that the common law in this regard does not apply. The Act does not codify landlord-tenant law in respect of those premises subject to the Act". Parties may not contract out of the provisions of the Act, the Act itself (by section 7) making void any lease provision, agreement or arrangement which is inconsistent with the provisions of the Act. 22 Reliance was placed upon clause 5.15 in that it was submitted plain from the correspondence that the parties had not agreed "on the amount of the new rent 30 days before the rent review date" and, it was submitted that, by operation of that clause the Applicant was absolutely entitled to the orders that it sought for the appointment of a specialist retail valuer because "there having been no agreement as to the current market rent 30 days before the rent review date, the new rent must be determined by a specialist retail valuer". 23 It was then submitted, in addition or in the alternative, that "even if the parties had agreed on the new rent 30 days before the rent review date, they had not signed a statement as to the "new rent" as required by clause 5.14 of the lease – there having been no signed statement there was no agreement … the lease required a signed statement as a condition of any agreement" and such a condition is not inconsistent with section 31(1)(b). 24 It was the Applicant's further submission that the first letter was a proposal for a new rent commencing 1 July 2007. However, it was submitted that "properly understood" the amount proposed was not $2,774.00 but rather the combination of $2,774.00 plus the outgoings of $550.00 (total $3,324.00). The Applicant drew attention to the fact that the GST component in the first letter in $332.40 was in fact based on the total (thus calculated) at $3,324.00, not $2,774.00 as was "accepted" by the Respondent in the third letter. The Applicant submitted that an offeree cannot pick and choose which parts of the offer it would accept and which parts it would reject, such that there was no acceptance by the Respondent saying in the third letter "our client is prepared to agree to the new monthly rent amount of $2,774.00, however, does not agree to pay any of the other charges and" it was submitted the "other charges" included the outgoings of $550.00. 25 It was common ground that the lease did not require the Respondent to pay any outgoings at all (clause 5, Item 14 B) but did require the Respondent to pay Goods and Services Tax (clause 15 Item 13 B). Thus it was plain, so the argument went, that when one took into account the terms of the lease, the offer contained in the first letter was an offer, not of $2,774.00 but rather of $3.324.00 – after all, it was that sum upon which the GST component was calculated and that would have been obvious to the Respondent. Furthermore, the Respondent would have been aware of the terms of the lease, as was the Applicant, and all the Applicant was doing in the first letter was particularising how the market rent was calculated having regard to the terms of the lease – in other words, the Respondent, not having to specifically pay outgoings, would have been aware that in the calculation of current market rent that would be one of the terms of the lease that would be taken into account by a specialist retail valuer and would have been thereby included as part of the "current market rent" such that the "current market rent" would have been outgoings inclusive. 26 In any event, it was submitted that the third letter was not, in its terms, an acceptance anyway because the Respondent used the words "is prepared to agree to …", being a phrase which falls short of an acceptance of the offer, or an agreement itself. After all, the third letter is in response to the first and second letters – the second letter set out what was unarguably either a miscalculation of the outgoings simply because on its face the outgoings in the second letter did not add up to, or even remotely equate to, the outgoings of $550.00 in the first letter, and it was plain that the second letter did not set out any of the outgoings or other payments which the Respondent was obliged to pay pursuant to the terms of the lease. Presumably, and also, the third letter could be taken to be a rejection, not only of the second letter but also of the GST component of the first letter – by use of the words "does not agree to pay any of the other charges" – even though the lease contract provided that the Respondent was required to pay GST. 27 The Applicant submitted that, alternatively, there was an unilateral mistake by the Applicant because the offer in the first letter wrongly included an amount for outgoings whereas the gross amount (being a combination of rent and outgoings) should have included the specified outgoings of $550.00 and therefore the consequent gross amount should be the market rent. Therefore, it was said, there was no agreement because of mistake, the mistake being that the Applicant as landlord intended to read the rent and outgoings together to constitute "the current market rent" and therefore the Tribunal should relieve the Applicant by finding that there was such a mistake. The Applicant relied on certain passages from legal authors and a decision of the High Court of Australia in Taylor v. Johnson (151 CLR 422). 28 Finally, the Applicant submitted that it was plain in any event that there was a mistake because the amount specified in the first letter of $2,774.00 and allegedly accepted by the Respondent in the third letter was in fact less than the current rent being paid at the end of the first term of the lease (in $3,065.96) whereas it was plain that the combination of the rent and outgoings in the first letter (in $3,324.00) was the proper rent because payment of a lesser rent, objectively speaking, would have been "obviously a mistake". Respondent's Submissions 29 The Respondent conceded (as is the fact) that the third letter has been awkwardly worded. It was intended, so it was submitted, to be an acceptance of the monthly rent of $2,774.00. There was, it was submitted, no evidence of a mistake, no assertion of mistake was raised in any correspondence, the Applicant would have known that the Respondent would not have been liable for outgoings and therefore the Respondent only needed to reach agreement on the "current market rent" being the $2,774.00. The first letter, constituting an offer, contained an irrelevant aspect, namely the outgoings of $550.00 and the irrelevant subject could simply be ignored by the Respondent in accepting the offer of $2,774.00. The third letter therefore specified the obvious, namely that the Respondent as lessee, as a matter of contract, had "no obligation to pay outgoings" and as the parties had agreed to the "rent to be charged as of 1 July 2007 - $2,774.00" then that was the end of the matter. 30 In any event, clause 5.14 "does not make the execution of a statement as to rent a pre-condition of the enforceability of the agreement as to the new amount of rent" and clause 5.15 "does not set out the consequences of non-compliance with that clause". 31 Furthermore, it was irrelevant that the offer of $2,774.00 was in fact less than the rent being paid as at 30 June 2007 because there "is no requirement at law that a contract be a good bargain in order to be binding" and, in any event, clause 5.12 "provides that current market rent can be either higher or lower than the rent payable at the rent review date". The Law 32 For reasons that I shall set out shortly I do not believe that this case requires a detailed analysis of the law of mistake. The primary reason is that no party elected to give evidence which would go towards their state of mind at the relevant time. It is plain from Taylor v. Johnson that the various Courts based their various decisions on the evidence. The High Court (at 427) made the observation that it "is this belief of mistake or misapprehension on the part of the other that explains both the conduct of Mr Taylor in procuring the exercise of the option in the circumstances in which it was procured and the alacrity of Mrs Johnson in agreeing to requests by Mr Taylor for an option and for a right of way". The High Court drew inferences from the evidence. But in my view the matter now before the Tribunal does not depend upon any legal concept of mistake. 33 Furthermore, it is not my view that one should attempt to apply a gloss on the meaning to be ascribed to the word "agree" in section 31(1)(b) – the word has a common or usual meaning importing a meeting of minds on the particular issue. I am minded of the observations of the Appeals Panel in Armstrong Jones Management Pty Limited v Saies Bond and Associates Pty Limited [2007] NSW ADTAP 47 at [41]ff. There the Appeals Panel was examining the words in section 10(1) relating to a representation to which liability may attach and which may be "made by the party or any person acting under the party's authority", the legal analysis of the "authority" issue, the various types of authority that are recognised at law, and then expressed this opinion at [47]: "The Tribunal is simply required therefore to make a finding as to whether a party to a lease alleged to have been engaged in the false or misleading representation, in this instance, the lessor had delegated or conferred an "authority" on the representor … by its conduct. The classifications of agent's authority found in the law of agency are helpful in making this assessment but not determinative". 34 Consequently, I am of the view that the word "agree" where it appears in section 31(1)(b) has a common or garden variety meaning of reaching a similar opinion such that the offer made is acceptable to the offeree and there is a meeting of their minds. Other Preliminary Aspects 35 It is appropriate to dispose of a number of the other important arguments raised by the parties. Firstly, it was put that clause 5.14 required as pre-requisite to an agreement the parties signing a statement. In my opinion that is not what the clause says. The requirement to "sign a statement" is merely evidentiary and the failure to sign a statement does not avoid the consequence if in fact there has been an agreement. Of course, absent a signed statement then there is room for argument, particularly where the agreement reached is oral. But, and subject to appropriate evidence, if the Tribunal is satisfied that the parties have in fact agreed on a new rent, then clause 5.14 is satisfied and the agreed new rent becomes the new rent. 36 Secondly, it was suggested that clause 5.15 imposes a regime that entitles either party to apply to the Tribunal for the appointment of a specialist retail valuer. I agree with that submission but if it is suggested that the parties thereafter cannot reach an agreement then I reject that proposition. In my view, the parties to a retail lease can always reach an agreement – after all that is the whole purpose of the mediation regime; and the Note that appears at the end of section 31(1) supports that conclusion. In any event, it is not uncommon for parties to continue negotiations, even after (in a litigated matter) the court has reserved, such that if agreement is then reached then that disposes of the matter and there is no need for the court to deliver its reserved Judgment. 37 Thirdly, in my view it is irrelevant whether or not any offer made by a lessor is more or less that the rent actually paid at the expiration of the term of the lease. The only question is: what is the current market rent? And, in any event, clause 5.12 makes it plain that the rent "can be higher or lower than the rent payable at the rent review date". Opinion 38 I am of the opinion that the determination of the issue simply resolves around the terms of the first and third letters. The second letter is certainly confusing, and, having regard to its terms, was not relied upon by either party as forming part of the Applicant's offer. Why it was written was never explained and its content bears little or no relationship with the lease. 39 Thus, in my view, one looks at the first letter and then the third letter to see whether the third letter is an acceptance of the offer contained in the first letter. In my opinion it is not. Firstly, the first letter (at para [12] above) sets out the rent and outgoings, the GST calculated on both of those items, and then specifies the gross monthly and yearly rent. To try and pick and choose bits of the first letter and attempt to structure an acceptance indicates to me a failure to reach an agreement. The first letter is plain in its terms – the offer is $3,656.00 per month gross, $43,876.90 per annum gross. That was the offer. The third letter (at para [15] above only "accepted" the first line of the first letter, and not the total package. In my view there was no meeting of the minds, no agreement, and in those circumstances the Applicant must succeed. Clearly, what the Applicant was putting to the Respondent in the first letter was a market rental proposition in $43,876.90 for the first year of the new term. In my view, the Respondent cannot rely on section 31(1)(a)(iii), which requires the current market rent to be determined on an effective rent basis having regard to, inter alia, "the gross rent, less the lessor's outgoings payable by the lessee", simply because the lease does not require the Respondent to pay outgoings. In my opinion all the Applicant was doing in the first letter, by reference to outgoings, was indicating how the gross market rent offer was calculated as part of the package offer on the discrete issue of "current market rent". 40 There is a second reason why, in my opinion, there is no agreement. In the third letter the Respondent used the words "is prepared to agree". In my opinion those words fall short of agreement, import a negotiating position, and I can see no difference between the use of those words and the use of the words "prepared to offer" in Clifton v Palumbo [1944] 2 All E.R. 497 where the Court of Appeal in England held that those words meant that that it was not a definite offer to sell but rather a preliminary statement as to price. 41 In these circumstances, I am of the opinion that there has been no agreement regarding the current market rent and therefore the Tribunal has jurisdiction to appoint a specialist retail valuer as sought by the Applicant. 42 I shall list this matter before me at a convenient time after the expiration of 38 days from the date of this decision (to date into account the Christmas/New Year period) to enable the parties to consider their respective positions and, should there be no appeal from this decision, I shall deal with the appointment of the specialist retail valuer in chambers in accordance with the practice and principles set out in Great Tastes of Australia Pty Limited v Shorty Holdings Pty Limited [2006] NSWADT 253. 43 I reserve costs. Should any party wish to agitate an argument in favour of an award of costs in their favour I grant leave to notify the Registry within 28 days of the date of this decision with leave to re-list the matter for argument on that discrete issue only. Absent any such notification there will be no order as to costs. Orders 1. Declare that there has been no agreement between the parties on a new rent consequent upon the exercise by the Respondent of the option in the lease. 2. The Tribunal has jurisdiction to appoint a Specialist Retail Valuer pursuant to section 31 Retail Leases Act. 3. Absent any appeal from this decision the Tribunal will appoint a Specialist Retail Valuer. 4. No order for costs unless application is made by either party seeking an order for costs within 28 days of the date of this decision. 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.