CITATION: Zaoud -v- Musico & anor [2000] NSWADT 107 DIVISION: Retail Leases Division APPLICANT Saadein Zaoud PARTIES: RESPONDENT Domenico Musico and Antonina Musico FILE NUMBER: 995028 HEARING DATES: 10/07/ 2000 SUBMISSIONS CLOSED: 07/10/2000 DATE OF DECISION: 08/15/2000 BEFORE: Donald B - Judicial Member APPLICATION: Claim for assigment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights MATTER FOR DECISION: Preliminary decision LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: REPRESENTATION: R Walker, barrister R Lee, barrister ORDERS: 1. Declare that the Respondents had not been entitled to withhold consent to the proposed assignment of the lease by the Applicant; 2. Applicant to have leave to set the matter down for hearing of his application for damages at a date to be fixed by the Tribunal. REASONS FOR DECISION 1 The parties entered into a five year lease commencing 1 January 1999 in which clause 10 repeated the statutory regime from Part 5 of the Retail Leases Act establishing the conditions under which the lessor is required to consent to an assignment. 2 During the hearing it was agreed between the parties that the issue for determination by the Tribunal is whether, in the circumstances of this particular case, the tenant had complied with the obligation in clause 10.3 of the lease and s.41(a) of the Act to "provide the lessor with such information as the lessor may reasonably require concerning the financial standing and business experience of the proposed assignee" for the purpose of satisfying the requirement within s.39 and cl 10 that the lessor may only withhold consent "if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor". (It was not proposed in this case that there would be a change of use of the shop). 3 The premises were operated as a tobacconist and from very early on during the lease, the lessee experienced serious problems including break-ins and a deliberate car crash into the roller door of the premises. This caused fear and stress to his staff and as a result he then decided to seek to sell the business and assign the lease. 4 In about April 1999 the lessor's consent was sought to an assignment to Mr A. The lawyer for the lessor specified the information they required for consent but as a result of contending that they had not received sufficient information to make a reasonable decision, the consent was not forthcoming and the sale did not proceed. There is no continuing claim in respect of this transaction. 5 The lessee then notified a proposal to sell the business to Mr B. This however appears not to have proceeded either and then in July 1999 consent was sought for the assignment of the lease of the business to a Mr and Mrs C. 6 The evidence established that a meeting occurred on 9 July 1999 at which I am satisfied it was made clear that the lessor required references and a statement of assets and liabilities. 7 The problem in this case arises because, from that point on, the lessee's lawyers basically left it to the assignee's and the lessor's respective lawyers to resolve the provision and adequacy of the required information. It would have been preferable, and in my view better practice, if the lessee's lawyer had taken a more specific and active role in making quite clear what information the lessor actually required, from the point of view as to whether that was reasonable, to clarify that view with the lessor's lawyer and to supervise the delivery of that material. 8 In the result by correspondence of 21 July 1999, the lawyer for the proposed assignees delivered to the lawyers for the lessor:- - four commercial references for the assignees, including one from a retail shop business in a Westfield Shoppingtown, one from Comet Taxation Service and another from Roger David Menswear, Parramatta, - a personal reference from a medical practitioner concerning the assignees, - an investment home loan summary statement from the Commonwealth Bank in the name of Mrs C, - two Rate Notices from Blacktown City Council for two separate properties owned by the assignees with land values of $86,200 and $72,600 respectively. 9 The bank loan documentation showed a closing balance of $47,230 on their borrowings and that the assignees were so satisfactorily ahead in repayments that their repayment was to be reduced to $310 per month. 10 While it is clear that this form of information was not a formal statement of assets and liabilities in a form which the lessors' son (who looked after their interests) said in evidence he expected to receive and with which he was familiar, it nevertheless provided considerable information about the assignees within the required categories. 11 The lawyers for the parties remained in debate over the adequacy of the information provided but also were involved in extensive correspondence on a range of other issues including the form of the lease, allegations as to unremedied breaches and a dispute concerning the bond. It appears that the lawyer for the lessor may have considered that unless those issues were resolved, the lessor would be entitled to withhold consent to the assignment. 12 However, it was agreed by the lawyers for both parties during the course of the hearing that, whatever legal consequences may have flowed from those issues, none of them would have constituted a permitted basis for the lessor to have withheld consent to the assignment under s.39. Accordingly the only issue for the Tribunal to determine is whether clause 10 and ss.39/41 had been complied with namely as to establishing the business (ie retailing) experience and skill and the financial standing of the assignees. 13 In this respect in early September 1999, by an undated handwritten facsimile (annexure AF to the affidavit of Joseph Musico dated 9 May 2000, Exh. 1,) the lawyer for the lessor advised "We refer to the above matter and advise that our clients have inspected the references of the proposed assignees and will grant an assignment subject to the following…" 14 The following list of items did not include anything relating to further information within clause 10 and s.39/41 but did include as item 6:- "Your client must agree to pay all costs associated with the assignment of the lease to the present assignees and the proposed assignees whose references were not sufficient…" 15 In my opinion the effect of this letter from the lawyer for the lessor constituted an acknowledgment that the information that had been provided as to their financial standing and reputation of the assignees, including their business experience, was adequate and sufficient to permit consent. The reference to "the proposed assignees whose references were not sufficient" is clearly a reference to the previous assignment proposals which had not proceeded. 16 In my view, even if this letter had not made such a concession, the information provided with the correspondence of 21 July 1999, although not in the form which Mr Musico expected to receive it, constituted information which ought reasonably to have satisfied the lessor in that it set out the level of debt which the assignees say they were subject to, set out three clear business references from other established traders, albeit not in the tobacconist trade but in other fields of small business endeavour, and demonstrated two properties of unimproved land value totalling in excess of $150,000. 17 Given that this is a lease of a very small tobacconist shop at a monthly rent of just over $1,000 (subject to standard review), the information provided ought reasonably to have satisfied the lessor as to the relevant standing and experience of the assignees. 18 The fact that the business references were not specific and clear in relation to the ability of the assignees to conduct a tobacconist business does not in my opinion constitute a basis for objecting to them. The assignees were referred as people of good standing in running the retail tailoring business that they appear to have run for some years as well as having a repayment record with the Bank that was clearly faultless. 19 For these reasons I am of the opinion that the lessor has failed to give consent as required by both the lease and the Act. I will make a declaratory order to that effect. This leaves the issue of the damages which may flow from that breach. That issue was by consent stood over pending my decision on the initial point for either negotiation between the parties and failing their ability to settle that issue, a further hearing at a date to be determined on the application of the lessee. 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.