Mantale Pty Ltd v Kline [2007] NSWADT 78

CITATION: Mantale Pty Ltd v Kline [2007] NSWADT 78

DIVISION: Retail Leases Division

APPLICANT PARTIES: Mantale Pty Ltd RESPONDENT Denia Kline

FILE NUMBER: 065144

HEARING DATES: 9 March 2007

SUBMISSIONS CLOSED: 9 March 2007

DATE OF DECISION: 5 April 2007

BEFORE: Rickards K - Judicial Member

CATCHWORDS: Claim for payment of money

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Legal Profession Act 2004 Retail Leases Act 1994

Botts v Grimme (2001) NSW ADT 14 CASES CITED: Long & Anor v Piper (2001) NSW CA 32 Masters v Cameron (1954) HCA 72 Randi Wixs Pty Ltd v Pokana Pty Limited (No 2) (2003) NSW ADT 4)

APPLICANT R Dynon, Solicitor REPRESENTATION: RESPONDENT In person

ORDERS: 1. The Respondent is to pay to the Applicant the sum of $22,876.81; 2. Unless either party files written submissions as to costs within twenty one (21) days of the date hereof, there will be no order as to costs.

REASONS FOR DECISION Background 1 The Applicant is the owner of retail premises known as Shop 1, 563 Sydney Road, Seaforth. The Respondent was the lessee of those premises pursuant to a lease dated 15 June 2002. 2 The lease was for a term of two years with an option for renewal for a further term of three years commencing from 15 June 2004 and terminating 14 June 2007. 3 The Applicant is seeking payment of rent said to be due under the original lease and the renewed lease as well as a share of outgoings, interest, a share of valuation costs, the agent's fee paid by the Applicant when the premises were subsequently re-let, and the legal costs of the Applicant following alleged breach by the Respondent. Particulars of these items are fully and clearly set out in the schedules attached to the Application filed, and total the sum of $54,985.85. 4 Having heard evidence given on behalf of each of the parties, having perused the relevant documents and considered submissions, the facts relevant to this matter either as agreed between the parties or as found by me are set out below. Facts 5 The subject premises were used by the Respondent as a beauty salon as and from the commencement of the original lease on 15 June 2002. 6 The initial rent was $30,766.00 per annum excluding GST, payable by equal consecutive monthly instalments of $2,563.83. The Respondent was also required to pay 20% of increases in outgoings in respect of rates, charges, insurance, land tax and electricity over the course of the lease. 7 Pursuant to the terms of the original lease, the Respondent was required to give not more than six months nor less than three months notice prior to the expiration of the term of the lease if she wished to exercise the option to renew for a further period of three years. In effect, this meant that any exercise of option by the Respondent should normally have been notified to the Applicant before 15 March 2004. 8 Over the course of the two year period of the initial lease, the Respondent had some difficulties in meeting due payments of rent. 9 The Applicant wrote to the Respondent on 17 April 2004 in relation to two matters; (a) to demand payment of an outstanding monthly rent instalment of $2,961.29 (b) to advise the Respondent that she had not exercised her option to renew the then current lease for a further three years, but granting a two working day extension (until 5.00 pm on 20 April 2004) for written notification of exercise of option if the Respondent did indeed wish to exercise such option. 10 The letter dated 17 April 2004 also advised the Respondent that the Applicant required her "written request for our solicitors to prepare the lease document pertaining to the three year option term". 11 By letter dated 19 April 2004 and faxed on that day, the Respondent notified the Applicant that she did indeed wish to exercise the three year option. 12 The Applicant then wrote to the Respondent on 21 April 2004 acknowledging receipt of the written notice of exercise of option and enclosing a Disclosure Statement wherein the rental sought for the first year of the renewed period was $34,500 per annum with subsequent increases to $36,225 for the second year and $38,036.28 for the third year of the term of renewed lease. 13 From time to time the Respondent's husband became involved in negotiations and discussions concerning the lease and rent review. The Respondent, through her husband, indicated that she was dissatisfied with the proposed rent and by letter dated 3 May 2004 she accordingly sought a rent review. This rent review was available pursuant to clause 26.1 of the lease, which provided for determination of appropriate rent by a qualified valuer either appointed jointly by the parties or nominated by the President for the time being of the Australian Property Institute Inc, NSW Division. 14 By letter dated 6 May 2004, the Respondent nominated Mr John Fawcett to carry out the rent review, and the Applicant agreed. 15 The Applicant's solicitors obtained a fee quotation from Mr Fawcett which was then forwarded to the Respondent by letter dated 8 June 2004. 16 On 11 June 2004 Messrs Atkinson Vindon solicitors were instructed on behalf of the Respondent write to the Applicant's solicitors advising that the Respondent had become aware that Mr Fawcett may be biased and that accordingly the Respondent now requested that the valuer be appointed by the President of the Australian Property Institute, NSW Division. 17 Mr Michael Covey was subsequently appointed by the said President of the Institute to determine the rent. Mr Covey sought confirmation of his appointment and payment of his fee in advance, which was the sum of $3,300.00 including GST. The Applicant paid its half share of the fee but the Respondent did not pay her share. The proposed rental valuation by Mr Covey was abandoned by him because he had not received confirmation of appointment from the Respondent nor payment of the Respondent's share of his fee, and he later refunded the sum of $825.00 to the Applicant being one half of the amount which had been paid by it. 18 The Respondent took no further action to have the rent reviewed for the option period, despite notice given to the Applicant by letter dated 2 December 2004 that failure by her to properly retain Mr Covey would be treated as an abandonment of the rent review. 19 On 17 February 2005 the Respondent paid rent in the sum of $3,162.50 which was the monthly amount originally proposed by the Applicant in its Disclosure Statement. No further rent payments were made by the Respondent. 20 On 7 June 2005 the Applicant re-entered possession of the premises and determined the lease. As at that date the Respondent's fixtures and fittings had not been removed nor had the premises been restored in accordance with the requirements of the lease. 21 The Respondent instructed solicitors by the name of CG Taylor & Son to write to the Applicant on 3 June 2005, undertaking to remove her fittings and fixtures and to restore the premises pursuant to the lease. This work was not completed until 27 August, 2005. 22 The Applicant subsequently re-let the retail shop on 10 October 2005 for a two year term at a rental of $26,000 per annum escalating by 4% in the second year of the term, but with payment of rent not required until 10 December 2005. 23 Rent and outgoings have remained unpaid by the Respondent, and the Respondent does not contest that she is indebted to the Applicant, but does dispute the amounts sought. Determination 24 The Respondent argues that the lease was not renewed for a further period of three years for two reasons. The first reason advanced by the Respondent is that she gave notice of exercise of option whilst under duress. She says that the Applicant's director, Mr Mangraviti made a number of phone calls on 18 April 2004 to the Respondent and to her staff in which Mr Mangraviti was "threatening and abusive with yelling and screaming demanding to talk to me and also threatening my staff over the phone with words to the effect that they would not have a job tomorrow if I didn't pay my rent and that their job security was in jeopardy because there was no lease." 25 In evidence, the Respondent enlarged a little upon the above assertion, saying that Mr Mangraviti threatened that the Respondent would be evicted the following day. 26 I do not accept the Respondent's argument that her purported exercise of option of the lease was invalid because of duress. The Respondent's husband conducted a number of dealings with the Applicant over a prolonged period before and after this event on behalf of the Respondent, and was the author of the majority of letters sent on behalf of the Respondent including the letter dated 19 April 2004 giving notice of exercise of option. No complaint of duress was ever raised at any time. Furthermore, pursuant to the terms of the lease as well as the terms of the letter dated 17 April 2004, it would have been clear to the Respondent at that time that there was simply no basis to any alleged threat that she would be immediately evicted if the option to renew was not exercised. It was at that time clear that the term of the lease extended until 14 June 2004. I note that Mr Mangraviti denies threatening the Respondent in the terms alleged, but I do not have to determine that issue. 27 The Respondent also contends that there was no valid exercise of option because she had given no written request for a lease as requested by the Applicant in its letters to her dated 17 April 2004. 28 This second alternative contention of the Respondent must also fail. 29 After giving notice of exercise of option, a retail shop lease will be considered to have been entered into when an existing lessee holds over in occupation with no specific reservation in relation to such occupation, (see Sections 3 and 8 of the Retail Leases Act, 1994, and Botts v Grimme (2001) NSW ADT 14 and Randi Wixs Pty Ltd v Pokana Pty Limited (No 2) (2003) NSW ADT 4). 30 The mere fact that no new written lease was entered into does not mean that there was not a new lease agreement for a three year term, at a rent as nominated in the Disclosure Schedule or as determined following rent review. 31 This agreement entered into by the parties falls within the first of the three categories of situations described by the High Court in Masters v Cameron (1954) HCA 72 at page 360: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract." 32 The determination as to whether there was a concluded agreement for lease between the parties depends upon the intention of the parties and is an objective test, without regard to the subjective intention of either of the parties (see the decision of the Court of Appeal in Long & Anor v Piper (2001) NSW CA 32) 33 In this matter, there was a clear and unambiguous exercise of option made by the Respondent and the Respondent's argument to the contrary flies somewhat in the face of her own filed Statement, which was admitted into evidence, that the option had in fact been exercised. This argument also contradicts the letter from her solicitors Atkinson Vindon to the Australian Property Institute dated 15 June 2004 stating that "our client has exercised her option to renew, but agreement with the Lessor as to the current market rent has not been achieved….". 34 In my view, the option was validly exercised by the Respondent in circumstances where the mechanism for setting the new rental figure was clearly defined and agreed. 35 The terms of the lease provided that the rental for the first year of the renewed period was not to be less than the rental for the previous year. 36 At this point, I also note that it is apparent from the terms of clause 26.1 of the lease that there was nothing to prevent the Applicant paying the full valuation fee so that the rental review was finalised, and that it would have been open to the Applicant to then claim a refund of that fee from the Respondent. 37 I accept the Applicant's argument that the Respondent, by payment of the sum of $3,162.50 on 17 February 2005, has accepted the rental for the retail shop premises as originally proposed by the Applicant. There were no reservations or qualifications made by the Respondent at the time of making the payment, and in evidence the Respondent simply stated that she could not recall the payment being made. Whilst I accept the Respondent's evidence on this point to be truthful, it is reasonable to expect that if she had still wished to dispute the amount of rent as sought by the Applicant, the Respondent would have expressed some sort of reservation or qualification to the Applicant at the time of making payment, and made some response to the Applicant's assertions that the Respondent had abandoned the rent review. 38 In accordance with the determinations which I have made above, I therefore find that the Respondent validly exercised an option to renew the lease of the subject premises for a three year period from 15 June 2004, and that the Respondent is bound by the terms as set out in the Disclosure Statement provided by the Applicant and dated 21 April 2004. Relevantly, these terms required her to pay $34,500.00 per annum plus GST for the first year of the term of the renewed lease plus 20% of increases in outgoings. The rental for the second year was to be $36,225.00 and for the third year $38,036.00. 39 The Applicant contends that, pursuant to such a finding, the Respondent is liable to pay all arrears of rent due for the period of time up until the date that the Applicant received rent from the subsequent tenant, and that the Applicant should also meet the shortfall in rent now received from that subsequent tenant, as compared to the rent otherwise payable by the Applicant pursuant to the agreed lease terms. The Applicant, as stated above, also claims in respect of the valuation costs foregone by it, as well as re-letting fees, legal costs, outgoings and interest. 40 As pointed out by me to the Applicant's solicitor during the course of the hearing, I do not consider that the "agent's fee on re-letting premises" can properly be claimed by the Applicant as an expense sustained by reason of the conduct of the Respondent. Not only is there no evidence to prove that amount, there is nothing to rebut the expectation that such a fee would be incurred in any event when the premises were vacated and that therefore, at best, such an expense could only be claimed to the extent that it became payable sooner rather than later. In my view, that is the proper approach to be taken toward this expense, namely that it is an expense which would not have been expected to have been borne until perhaps two years beyond the date when it was in fact incurred. Therefore, the real loss to the Applicant would be less than $300.00. Even then, the entitlement of the Applicant to claim this loss pursuant to the terms of the lease is unclear, and I do not propose to allow this aspect of the claim. 41 The Applicant has claimed the sum of $825, being a refund of the valuation costs which it incurred by reason of entering into the process of retaining the valuer appointed pursuant to the terms of the lease. Clause 26.1(a) of the lease provides for equal sharing of costs and I accordingly am of the view that the sum of $412.50 should be allowed. 42 The Applicant also claims the sum of $1,281.50 being described as "legal costs – RF Dynan & Co" in the Application. These costs are said to be incurred by reason of non-payment by the Respondent of rent due under lease. Apart from the bald recital of this sum and its description within the Application, there is no other evidence before me as to how this sum has been arrived at nor as to whether a bill claiming such amount has been provided to the Respondent. By reason of the definition of "client" as set out within s.4 of the Legal Profession Act 2004 and the operation of s.309(1)(b)(ii) of that Act, a party claimed to be responsible for legal fees should be provided with a bill. Given that there is no evidence that this has occurred, I disallow this portion of the claim. 43 In relation to the claim for rent, interest and increases in outgoings, I must have regard to the duty which the Applicant has to mitigate its loss. 44 There is no evidence before me as to what steps were taken by the Applicant to find suitable alternative tenants nor is there evidence as to the basis upon which a rental of $26,000 per annum for the first year of the lease was agreed with the subsequent tenant, nor how the reduced escalation clause of 4% for the second year of the two year term, was arrived at. 45 It is apparent that the rental for the premises which was subsequently agreed represents a significant discount to that which was payable by the Respondent pursuant to the terms of her lease. Furthermore, there is no explanation as to the basis upon which "a rental holiday" was granted to this subsequent lessee extending until 9 December 2005. 46 In the absence of any evidence as to these matters, the Applicant has not discharged its onus of proving that it has properly mitigated its loss, and accordingly I find that the Applicant should only be entitled to payment of arrears of rent, outgoings and interest referable to the period finishing on 10 October 2005. Accordingly, I assess rent due and payable as being in the sum of $21,542.24, I assess increases in outgoings due and payable as being in the sum of $47.00, and interest due and payable at the claimed rate of 10% in the sum of $875.07. 47 By adding the allowed valuation costs of $412.50 to the above figures, I accordingly arrive at a final figure of $22,876.81 due and payable by the Respondent to the Applicant. Orders 1. The Respondent is to pay to the Applicant the sum of $22,876.81. 2. Unless either party files written submissions as to costs within twenty one (21) days of the date hereof, there will be no order as to costs.