Batson Holdings Pty Ltd v Rose [2002] NSWADT 110

CITATION: Batson Holdings Pty Ltd v Rose [2002] NSWADT 110 DIVISION: Retail Leases Division APPLICANT PARTIES: Batson Holdings Pty Ltd RESPONDENT John Emmanuel Rose FILE NUMBER: 025027 HEARING DATES: 10/04/02 SUBMISSIONS CLOSED: 04/10/2002 DATE OF DECISION: 06/28/2002

BEFORE: Molloy GB - Judicial Member APPLICATION: Claim for declaration of rights, obligations and liabilities under a lease MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 Commissioner of Taxation v Montgomery (1999) HCA 34 CASES CITED: Burns Philp Hardware Pty Limited v Howard Chia Pty Limited 1986 8 NSWLR 621 Norwich Union Life Insurance Society v Trustee Savings Bank Central Board (1986) 278 Estates Gazette 162 APPLICANT REPRESENTATION: R Gye, barrister RESPONDENT G Vardas, solicitor ORDERS: 1 Leave granted to restore matter to list within 28 days; 2 Absent any such application the orders of the Tribunal will be:; (a) Declare the rights and liabilities of the parties in accordance with this judgment; (b) Declare that the valuations provided by each of the parties are not prepared in accordance with the relevant principles that apply to the calculation of current market rent having regard to the terms of this judgment; (c) Otherwise Application dismissed with no order as to costs.

Background: 1 The Applicant is the Lessee of part of the land in Folio Identifier 45/867758 being the whole of the ground floor of premises known as 724 Darling Street Rozelle (the premises) pursuant to a registered Lease 0542508. The Respondent is the Lessor. 2 The initial Lease period was for four years commencing 13 March 1995 and terminating 12 March 1999. The Lease contained three option periods, each for three years. The first period commenced 13 March 1999 and terminated 12 March 2002, the second commenced 13 March 2002 and terminates 12 March 2005 and the third commences 13 March 2005 and terminates 12 March 2008. The maximum period of tenancy under the Lease and permitted renewals was therefore 13 years. 3 It appears that the Lessee exercised its option for the first renewal period commencing 13 March 1999 and I assume that no difficulties were occasioned in agreeing or fixing the rent for that first option term. The Lessee then exercised its option for the second option term commencing 13 March 2002 but no agreement has been reached as to the rent payable for that second option term. 4 Relevantly, the Lease contained the standard terms in accordance with the 1994 Law Society Lease. I shall deal with these later in this Judgment. There were also various additional clauses on some of which the parties placed some reliance. 5 Clause 5.4 of the Law Society Lease conditions provided that (relevantly) "The rent is to be reviewed on the rent review dates stated in item 15 in the Schedule". Item 15 provided (relevantly) that rent review at the "commencement of renewal Lease under Part A, Item 11" was to be the current market rent. Unfortunately, due to what appears to have been an error in drafting, "Part A" in Item 11 was in fact deleted. So also was the letter "B" and instead of "A" and "B" the numbers 1, 2 and 3 were inserted in relation to each renewal term respectively. The parties accepted that reference to Part "A" was intended always to be a reference to the numbers 1, 2 and 3 as specified such that the method of rent review at the commencement of each renewal period was to be current market rent. I think it must follow that there must be consequent alterations to Item 12 because it is plain that both Items A and B have in fact been deleted such that in order to make the whole exercise work consistent with the intent of the parties a reference to "Item 11 A" would be a reference to Item 11.1, a reference to Item 11B would be a reference to Item 11.2 and there being no reference to Item 11C in Item 12 it is consistent with the intent of the parties (so it seems) that the rent for the third option period commencing 13 March 2005 would be calculated in accordance with Item 11.3. such that the method of rent review at the commencement of that term (13 March 2005) would also be current market rent. 6 There are a number of other significant matters. Firstly, the premises are in fact a liquor bottle shop. Clause 6.1 provides that the Lessee (stated in the Law Society Lease as the "tenant") "must – use the property for the purpose stated in item 16 in the schedule and not for any other purpose" and Item 16 states the permitted use to be "liquor retailing". The initial draft of the registered Lease shows the permitted use as being "off licence retailing" but the words "off licence" were deleted and the word "liquor" inserted in lieu. 7 Secondly, it is a fact that the adjoining premises are the subject of a hotelier's licence. These premises are situate at 726 Darling Street Rozelle, the hotelier's licence being held in the name of Trinkaye Pty Limited. Importantly, the evidence shows that by Application 131805.99 the Licensing Court re-defined the licensed premises (applicable to the hotel) to include the "adjoining retail shop" which, on my understanding of the evidence, is in fact the demised premises at 724 Darling Street Rozelle. 8 Thirdly, the Lease provides that the Lessee will pay 50% of the local council rates and charges, water, sewerage and drainage charges, land tax and insurance for the land or the building of which the premises are part. 9 Fourthly, Additional Clause 19 provided firstly, that the initial grant of the Lease was "subject to the granting of authorisation by the Licensing Court (of NSW) in respect of the redefinition of the tenant's existing adjoining licensed premises under an existing licence to extend to the area comprising the property leased" (to which I have made reference above); secondly, it was the Lessee's obligation to apply for all necessary approvals and consents and so on; and thirdly, if the approvals were refused or the permitted use was required to be discontinued or the Licensing Court declined to authorise the redefinition of the Lessee's licensed premises to include to the area of the property leased, the Lessee "shall be entitled to determine this lease by giving fourteen (14) days notice in writing to" the Lessor. Issues Before the Tribunal: 10 The parties agreed that the issues before the Tribunal were as follows: A. Identification of the appropriate method as to how current market rent is to be payable by the tenant (Lessee) upon exercise of the option to renew the Lease; and B. Whether or not the valuations provided by each of the parties is in accordance with the appropriate method of calculation of the current market rent. 11 During the course of argument I raised with the parties the question of whether in fact the Tribunal had appropriate jurisdiction and secondly whether there was any utility in the Tribunal making a determination of the issues as put by the parties. As to jurisdiction it would seem that the Tribunal has appropriate power under Retail Leases Act 1994, Section 72(1)(f)(iii) which provides that in proceedings for a retail tenancy claim the Tribunal is empowered to make an order declaring the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not. In Section 70 a "retail tenancy claim" is defined (Section 70(a)(ix)) as, inter alia, a claim for a declaration of the rights, obligations and liabilities of the parties under a Lease. So, it seems, that the Tribunal has appropriate jurisdiction. 12 As to the utility of the whole exercise, clause 5.12 through to clause 5.21 prescribes the method of determining rent when the method of rent review is by reference to current market rent. By these clauses the parties go through a procedure directed firstly to reaching an agreement as to the new rent and then (clause 5.15) if there is no agreement as to the amount of the new rent "30 days before the rent review date" then "the current market rent will be decided by a valuer appointed under clause 5.16 …". In the course of argument it seemed to me that the Tribunal was being asked to make a determination that had no utility. Both parties had obtained their own valuations, both parties could not agree and it seemed plain to me that clause 5.15 applied such that either party, if they could not agree upon a valuer, could simply ask the President of the Law Society of NSW to nominate a person who is a licensed valuer to decide the current market rent (clause 5.16) . Obviously, in these circumstances, both parties took a calculated (or risky) punt because if the valuer acted properly then he acts as an expert, not an arbitrator, and both parties would be bound by his decision. 13 Neither party seem terribly enamoured with this course of action. No party seemed to want to put their commercial future with regard to these premises in the hands of a valuer appointed pursuant to clause 5.16. Rather, they seemed to want a determination in accordance with the issues put before this Tribunal with a view (as I understood it) to enable them to reach an agreement themselves without recourse to the rather deadly and final clause 5.16 mechanisms. 14 Consequently, it seems to me that the Tribunal not only has jurisdiction but also should determine the issues as placed before it as the parties wish those issues to be determined and as the parties have commercially rationalised their respective positions. Lease Terms: 15 It is appropriate to set out the relevant additional terms of the Lease. These terms are found in clause 5.15 of the standard Law Society Lease and are relevantly as follows: 5.15.2 the current market rent is the rent that, having regard to the terms and conditions of this lease and such other matters as are relevant to the assessment of current market rent , would be reasonably expected to be paid for the property if it were unoccupied and offered for renting for the use to which the property can be put in accordance with this lease. 5.15.3 rent concessions and other benefits that are frequently or generally offer to prospective tenants of unoccupied retail shops, where the property is a retail shop, and otherwise of unoccupied comparable premises, are relevant matters; and 5.15.4 the value of goodwill created by the tenant's occupation and the value of the tenant's fixtures and fittings are to be ignored. 6.1.1 (the tenant must -) use the property for the purpose stated in item 16 in the schedule and not for any other purpose. Retail Leases Act: 16 Relevantly, for the purposes of the determination of current market rent, the Act makes provision in Section 31 as follows: "31(1) A retail shop lease that provides an option to renew or extend the lease at current market rent is taken to include provision to the following effect: a) the current market rent is the rent that would reasonably be expected to be paid for the shop, determined on an effective rent basis, having regard to the following matters: