CITATION: Stevens & Anor v Yan [2004] NSWADT 77 DIVISION: Retail Leases Division APPLICANT PARTIES: Richard Charles Stevens and Colleen Louise Stevens RESPONDENT Tony Yuk Kau Yan trading as Asian Express Cafe FILE NUMBER: 045018 HEARING DATES: 25/03/2004 SUBMISSIONS CLOSED: 03/25/2004 DATE OF DECISION: 04/20/2004 BEFORE: Fox R - Judicial Member APPLICATION: Claim for payment of money - Claim for surrender of possession of premises MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: APPLICANTS REPRESENTATION: In person RESPONDENT In person ORDERS: 1. Tenant to pay Landlord as arrears of rent, outgoings, interest and fees, the sum of $16,721.69.; 2. Landlord entitled to possession forthwith, but this order stayed, until 15 February 2005, however the stay is to lapse automatically without further order if Tenant does not on or by Wednesday 21 April 4 pm, and by 4pm each and every Wednesday thereafter pay to the Lessor, in cash, at the premises, on account of weekly occupation including GST, and outgoings, an amount of $1,168.30, occupation otherwise governed by Lease commencing 6/02/2002, a copy of which is filed in these proceedings. 1 The Applicant Landlords brought this application against the Respondent Tenant seeking orders for payment of a money amount, mainly as arrears of rent, and terminating the Lease because of those arrears. 2 Defence appeared to be that an abatement of rent was justified because the roof was leaking badly, and the rear yard surface was dangerously uneven, and there were holes in the floor of the restaurant sitting area. 3 The premises in issue are 1950/60's built lock-up shop in Castlecrag which are used a restaurant styled "Asian Express". The lease is in standard Law Society approved form for a term of three years commencing 6 January 2002, with a three year option of renewal. 4 The Landlords appeared personally, as did the Tenant. The Tenant is from Hong Kong and conducted the matter through an interpreter. The absence of legal representation lead me to conduct these proceedings very informally, having the parties (more or less) debate each issue as it arose instead of a formal body of evidence from the one side, followed by a formal body of evidence in reply. 5 The lease commenced when the Tenant purchased the goodwill fixtures and fittings of a previous restaurant conducted from the premises by Danny Sankey and his partner Walter. There were initial meetings between the Landlord and the Tenant, presumably to assess the Tenant's suitability. 6 It became clear from the outset of the hearing that the Landlords are "hands on" personal managers and that the relationship between the parties is quite strained. It also became clear that the Tenant, almost from the start of the occupancy, had difficulty paying the rent, and blamed the gradual decline in business on the rainwater leaks from the ceiling in several areas of the restaurant. 7 I had in evidence, as well as a 20 minute video, a building inspector's report, statutory declarations from seven people (all of which appeared to be in relation to rainwater leaks during a particularly heavy storm on 4 December 2003) and correspondence (written by the Tenant's senior high school student son), comprising eighteen letters from 10 April 2002 to 29 February 2004 covering approximately 25 type written pages, and detailed written responses to each of those from the Landlords. 8 It became clear from the video, the Tenant's observations and the Landlords' responses to that, that the tile roof of the premises was in original condition, and had been leaking since well before the Tenant took occupation. There were obvious signs of water damage and water marking in a store room ceiling. In the Restaurant itself as far as I was able to put it together from the evidence, there were three separate areas of rain intrusion. These were a leak which resulted in water running down the wall which was behind the customer reception counter, a leak of some kind in the outside awning which resulted in water leaking against the front of the premises, in an area which was used for outside dining, and, the most troublesome of all of the leaks was that which resulted in water penetration in and around the cooking exhaust fan duct, letting water fall in and around the stove or cook top. 9 I am satisfied from the evidence that, although the storeroom and counter-wall leaks may have been difficult to resolve, the Landlords took the appropriate steps to employ a reputable roofing repairer, who eventually resolved them. That is not to say that the particularly heavy storm on 4 December 2003 did not result in similar rainwater penetration. In this regard I also note that, subsequently, the Landlord again brought a roofing contractor on to the site to carry out further repairs, which may have included the replacement of several broken tiles which had previously been repaired by the application of silicone. 10 Considering all of the evidence, I am not satisfied that the storeroom, counter wall and awning leaks were ever of such intensity or persistence as to justify an abatement of rent. 11 The leak in and around the exhaust duct seems to me to have been in a slightly different category, a difference not of building quality, but of emotional temperature. It became clear from the evidence that the exhaust fan and ducting had been installed in the premises prior to the time of the commencement of the Lease, were regarded as a tenant's fixture, and was one of the things purchased by the Tenant from the previous occupant. It is quite clear to me that the duct had leaked rainwater prior to the commencement of the Lease, and that that was a matter which was discussed between the outgoing occupant and the present Tenant. I was given a copy of a letter from Danny Sankey, a previous part owner, in which it was acknowledged that there had been a rainwater leak in the ducting, but that had been fixed at Mr Sankey's expense shortly after the goodwill sale settlement. 12 It appears that, subsequently, the Tenant had the existing fan replaced within the same ducting, and that, thereafter, the water ingress problems in that area intensified. The Stevens are convinced that this resulted from careless installation and treatment by the Tenant's tradesman whilst on the roof, whilst Mr Yan blamed it all on the failure of the ageing terracotta roof tiles and ageing lead flashing installed around the roof penetration of the ducting. 13 It is also clear from the evidence that the responsibility for the necessary rectification was a very sore point indeed, the Tenant claiming it to be part of the structure, and so the responsibility of the Landlords, whilst the Landlords very clearly were of the view that, because the fan is a Tenant's fixture, it was all the Tenant's responsibility. 14 I accept that this particular leakage was more persistent, and no doubt more irritating than the other leaks complained of, but I am still not satisfied that it was of such persistence or intensity as to justify an abatement of rent. The evidence also satisfied me that the parties had made regular attempts to resolve it and that whatever leakage now continues to evidence itself is part of the Tenant's fixtures and is the Tenant's responsibility to resolve. I note that the building report by "Multi Construction" dated 4 August 2003 confirmed the leaking in the storeroom and the counter wall to which I have referred, and went on to say "there was evidence of leaking around the exhaust fan in the kitchen area due to failed and deteriorating flashing around the exhaust fan. Full replacement of the flashing is recommended in this area". 15 There was evidence that the Tenant had sealed the existing flashing, but I was not told whether this was before or after the building report. In any event, if replacement of the flashing was indicated, then that was the Tenant's responsibility. 16 I would not wish to give the impression that I make light of the Tenant's complaint. It seems obvious that such a rainwater leak in a restaurant kitchen of open design, readily on view from the seating area of the restaurant, would be a matter of continuing irritation. However, I am satisfied that the ducting was part of the restaurant equipment which the Tenant purchased (perhaps at an unwise price) from the previous occupant, and its failure is the Tenant's responsibility. 17 Generally speaking it is fair to summarise the rest of the building report as describing the condition of the fabric of the walls and floor and the roof tiles, the ridge-capping, and the various flashings of the roof (other than those around the duct) as "fair to poor". It is of some concern that the building report in several paragraphs referred to the roof tiles as "concrete" when, clearly, they are ageing terracotta, but this persistent typographical error does not, in my view lessen the other observations of the report. 18 If it wasn't already clear from the other evidence before me, then the building report does establish the fact that the roof cladding is obviously reaching the end of its economic life, and leaks from time to time. However I am not satisfied that the Landlords have not taken appropriate and prompt action to address every instance of leaking brought to their attention. In a letter of 12 June 2003 Mr Stevens said as follows "put simply if there is any problem with the roof it is clearly our responsibility. It the leak is from the stove exhaust it is your responsibility". 19 In this regard I should also observe that much appeared to be made by the Tenant, in his video, of the fact that, in daytime from inside the roof cavity; there is a fair amount of natural light visible between the tiles, and this was said to be the cause of all the leakage. However the video showed only one or two instances of actual water penetration or evidence of marks from water penetration, and I am satisfied that, for the rest, such daylight penetration is normal and inherit in the nature of an unsarked terracotta tiled roof. 20 There is complaint in relation to the condition of the concrete surface in the backyard, and I am satisfied that there were proposals to repair it, but there was a substantial misunderstanding as to who would bear the cost, and that in the end nothing was done. The evidence before me did show a yard surface of some irregularity, but did not establish a situation such of danger to justify an abatement of rent. I note that Mr Yan was injured when he apparently slipped out there one night in the dark, but it appears that there was an appropriate electric light out there which was not working. There was no evidence before me that the Tenant had ever complained to the Landlord about it before his unfortunate injury. The area in question was used for Tenant's carpark and it appears that the only public use was for delivery but, from the evidence shown to me, it was not in such bad condition as to present a hazard for someone taking reasonable care of his or her own safety. 21 The building report also referred to three or four holes in the floor of the sitting area of the restaurant. These were also shown on the video, and appeared to me to be bored drill holes perhaps 20mm across, large enough to fully accept a leg of the restaurant chairs, and so presenting a situation of some apparent danger. However the video and the report date from almost a year and half after the commencement of the occupancy (and the holes were very obviously not new). I accept as genuine the observation of Mr Stevens to the effect that the holes had not been drawn to his attention until a day or two before the hearing, when he first saw the video. It seems obvious that this is a matter needing urgent attention by the Landlord, however it does not in anyway justify the actions of the Tenant. 22 The correspondence placed in evidence established that, shortly after the commencement of the Lease, Mr Yan drew the conclusion that he had been mislead about the length of occupancy of the previous occupant from whom he had purchased the goodwill and equipment of the business and blamed that on the Landlord "the shop should not have goodwill because Walter [ the previous occupant ] was only there for about nine months, and the rent should not be up at $950.00 plus GST". (10/04/2002) 23 This seems to me to indicate that either the goodwill purchase decision, or alternatively the rent negotiated, amounted to bad business decisions, but, unless there be evidence of misrepresentation, this is not a matter which the Tenant can bring home to the Landlords. 24 There is a further indication of the true cause of the Tenant's difficulty in the letter of 23 May 2002 "Right now we have a $3,000.00/$3,500.00 a week turnover. If you were in our position, would you be paying $950.00 for that amount a week? Then we have to pay rent, electricity, gas, phone, water, wages, insurance, garbage, superannuation, groceries, meat and dairy products, bread and tax. With a turnover like that, it should only be worth $500.00 per week plus GST". 25 In a letter of 22 June 2002 these words appear "the $30,000.00 that he paid Danny for the equipment is now pretty much a waste. This is because of the fact that almost everything that he paid for has now almost broken down except for the cash register and tables and chairs". 26 I am satisfied that, within three months of the commencement of the Lease, the Tenant resolved to attempt to sell the goodwill of the business because it was failing. 27 By 3 July 2002 the Landlord had agreed on a weekly rent reduction. The agreement was proposed by the Landlords in response to the Tenant's complaints as indicated. The proposal was that the rent be reduced by $100.00 per week and that the outgoings and water usage contributions be postponed, "provided it is sold within 12 months. On settlement of the sale of the business all these outstanding monies are to be repaid to us. If the business is not sold in this time the rent will revert to that provided by the lease". 28 Landlords assert in the Application, and in evidence, that the amount resulting from this "holiday" was $6,846.94, and seek payment. My difficulty in this regard is that I understood Mr Yan's evidence to be that he thought this meant that, if the business was not sold in the 12 month period, the "holiday" amount was simply forgone. That seems to me to be the proper construction of the words of the agreement placed in evidence before me. Considering all of the evidence, despite other words in correspondence that the "holiday" amount would be paid, I am satisfied that Mr Yan was entitled to assume, and did assume that the amount of $6,846.94 would not be payable if the business were not sold within the proposed time. 29 I note that in further correspondence the Tenant proposed to unilaterally reduce various rent payments to address his complaints, but does not appear to have done so. Ultimately, early in 2003, there appear to have been serious suggestions for substantial amounts to be claimed as set off from the Landlords as loss of income due to the rainwater leakage. This resulted in the Stevens making a suggestion on 8 April, which was apparently taken up, as follows:- "I am happy for both of us to meet with your Solicitor and I will share the costs so that you fully understand the consequences of not paying the rent, forfeiting all goodwill and your liability to reinstate the building after your fittings have been removed". 30 Such a meeting apparently took to place, even though it did not resolve the dispute between the parties. The evidence indicates that the Landlords did pay one half of the fees. 31 The correspondence in evidence also covers various attempts at selling the goodwill of the business, which Mr Stevens undertook with the Tenant's agreement, being by way of newspaper advertisements, listing with agents, and placement of a sign above the awning of the shop. Potential buyers were attracted, and several appeared to have entered into quite meaningful negotiations, but, in the end, they all came nought. It is not surprising that this became a further matter of contention between the parties and whilst in I sympathise with the Stevens' claim for recompense in relation to advertising costs etc, I can find nothing in the evidence to suggest that such refund was agreed. As I understand it, Mr and Mrs Stevens claimed this amount pursuant to clause 5.1.13 of the Lease as part of the cost of remedying default, but that kind of claim, in the absence of agreement, can only arise after the lease has been terminated. 32 I am satisfied from the evidence that the Landlords had compiled with the requirements of the Sections 27 and 28 of the RLA in relation to outgoings. 33 The Landlords claim "Retail Tenancy Tribunal/Mediation Fees to Date (claimed under Clause 5.1.8 of the Lease) $765.00". It transpired that each party had paid $500 towards the Mediator's fees, but of course the Landlords had paid the initial application fee of $165.00. The sharing of this amount is envisaged by 66 (2) of the RLA, and consequently the Tenant is obliged to pay $82.50 in this regard. 34 The Landlords claim interest at 8%, pursuant to provisions in the Lease, and that claim is proper. 35 The amount which I am prepared to order the Tenant to pay the Landlords is as follows:- RENTAL ARREARS Rental for period 01/10/03 to 01/11/03 (includes outgoings) $ 4,838.46 Rental for period 01/11/03 to 01/12/03 (includes outgoings) $ 4,807.37 Balance of rental due for period 01/12/03 to 01/01/04 $ 519.75 Balance of rental due for period 01/01/04 to 01/02/04 $ 519.75 Balance of rental due for period 01/02/04 to 01/03/04 $ 2,874.99 Balance of rental due for period 01/03/04 to 01/04/04 $ 2,496.25 OUTGOINGS Willoughby City Council Rate increase for December, January, February and March $ 49.52 GIO Insurance increases Dec. Jan. Feb and March $ 160.96 Water usage 16/11/03 to 19/02/04 $ 42.14 INTEREST Interest on Arrears under Clause 5.1.5 of Lease $ 330.00 FEES Retail Tenancy Tribunal/Mediation fees to date (claimed under Clause 5.1.8 of the Lease) $ 82.50 TOTAL $16,721.69 36 I was not given any oral evidence in relation to the bond paid by the Tenant, but there is evidence in the correspondence to indicate that $14,000.00 in this regard is held. 37 The Tenant did, at the close of the hearing, attempt to put into evidence an agreement reached at the Mediation, but the Landlords objected, and I am satisfied that this means that Section 69 of the Act continues to have effect. For obvious evidentiary purposes, I directed that a copy of the agreement be made, and placed in a sealed envelope, which is held with the Tribunal Papers. 38 Lastly, the Tenant did draw my attention to the fact that, despite the friction between the parties he had made all payments as and when they were due up to October of last year, and my findings support that. 39 The Tenant's persistent failure to pay the whole of the rent due since October 2003 has clearly entitled the Lessor to terminate the Lease, and that is the Lessor's right. However, I am not satisfied, in view of all the circumstances, including the expenditure by the Tenant on substantial renovation to the shopfront, that the Tenant is not entitled to the exercise of some discretion in his favour. A proper result in this regard is achieved by my ordering a stay of some part of my order. 40 As indicated earlier in these reasons, the status of the Tenant's bond has to be resolved, and, obviously, if the Tenant is to remain within the premises pursuant to the orders which I propose to make, the Landlord must have some security against the condition of the premises at the time of surrender of possession. 41 Of course, as neither party was represented, there will be no order for costs. 42 My Orders Are:- 1. Tenant to pay Landlord as arrears of rent, outgoings, interest and fees, the sum of $16,721.69. 2. Landlord entitled to possession forthwith, but this order stayed, until 15 February 2005, however the stay is to lapse automatically without further order if Tenant does not on or by Wednesday 21 April 4 pm, and by 4pm each and every Wednesday thereafter pay to the Lessor, in cash, at the premises, on account of weekly occupation including GST, and outgoings, an amount of $1,168.30, occupation otherwise governed by Lease commencing 6/02/2002, a copy of which is filed in these proceedings. 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.