Hale -v- ISPT Pty Limited [2001] NSWADT 153

CITATION: Hale -v- ISPT Pty Limited [2001] NSWADT 153 DIVISION: Retail Leases Division APPLICANT Graeme Laurence Hale PARTIES: RESPONDENT ISPT Pty Limited

FILE NUMBER: 015003 HEARING DATES: 08/08/2001, 09/08/2001 SUBMISSIONS CLOSED: 08/09/2001 DATE OF DECISION: 09/18/2001

BEFORE: Donald B - Judicial Member APPLICATION: Claim for payment of money MATTER FOR DECISION: Principal matter LEGISLATION CITED : Retail Leases Act 1994 CASES CITED: Alessa Pty Ltd v. Total and Universal Pty Ltd No. 015080 of 2001 APPLICANT REPRESENTATION: R Speirs, solicitor RESPONDENT J Orsborn, solicitor ORDERS: 1. Applicant's Application dismissed; 2. Respondent's Cross Claim upheld. Applicant to pay the Respondent the sum of $18,828.35 within 14 days; 3. Costs reserved.

1 Mr. Hale, the Lessee, leased Shop 31 of The Southgate Shopping Centre in Sylvania from ISPT Pty Ltd , the Lessor, to carry on his business "Fantasia Gifts". The Lease commenced on 22 November 1999 and was for a five year term with no option. The Lease document appears to have been formally executed on or about 14 February 2000. The annual rent was $39,987.50 subject to a percentage rent for sales over a certain level as specified in the formula within the Lease. 2 There was an agreed fitout period of one month under a Tenancy Fitout Guide provided to the Lessee. Clause 32 of the Lease expressly set out the Lessor's work during the fitout which included "provide a machine coat finished concrete floor to a standard approved by the landlord's architect". 3 Before the Lease commenced it was apparent that there was a damp problem on the rear wall on the other side of which was the cool room for the adjoining fish shop. The Lessor had undertaken to repair this damp problem immediately prior to fulfilling its obligation to lay the concrete floor in Shop 31. However the Lessee decided to install the concrete floor itself before that preparation work could happen (being subsequently reimbursed with the cost of the floor by the Lessor) and at the time of fitting out the shop agreed that the damp problem could be addressed at a later time. 4 One of the air-conditioning units for the shopping centre was located directly above the ceiling of Shop 31 and the Disclosure Statement included a special condition that the Lease was "subject to noise levels from the air-conditioning unit above the tenancy being satisfactory to the tenant prior to the Commencement Date." While this did not become a special condition of the Lease as such, the executed lease acknowledged the Disclosure Statement and the disclosure of matters therein. 5 Access to this air-conditioning unit for servicing was through a manhole directly outside Shop 31 which required the placing of a ladder outside the display window of Shop 31 to reach the manhole. The evidence established that considerable work was required during the initial months of the lease to complete the upgrade and installation of the air conditioning system and its integration with existing plant. 6 The permitted use set out in the Lease was "retail sale of dolls, bears, collectibles and wood-mounted stands." In addition, the shop stocked from the outset a range of specialty paper products marketed from a purpose designed showcase mounted against the side wall. 7 In his first approach for lease of premises in the Centre by letter of 14 April 1999, Mr. Hale stated, "We also conduct classes in 'stamping' which attracts a wide range of customers from all over Sydney." There was no provision in the Lease referring to stamp classes but by arrangement with the Lessor, space was provided in the nearby common areas of the Centre for the Lessee to conduct stamp classes on a weekly basis. In addition the Lessor provided tables and chairs for those classes. 8 An item of ceiling damage and electrical problems had been drawn to Centre Management's attention by letter from the Lessee of 31 January 2000. 9 On 20 May 2000 the Lessee wrote to the Centre Manager raising three outstanding building matters including the water damage to the rear wall, un-remedied damage to the ceiling and certain electrical fitting problems. The letter also sought reimbursement of the floor installation. It did not mention noise problems with the air-conditioning, trading problems resulting from the positioning of the ladder for ceiling access and associated noise from maintenance work. Nor did it refer to trading problems resulting from the damp on the rear wall. 10 There appear to have been delays in paying the June and July rent for which late payment letters were sent by Centre Management. 11 In mid-October 2000 a dispute arose as to the conduct of the Lessee and his staff in relation to the stamp classes and the equipment as a result of which, by letter of 16 October 2000, the Lessor advised that it proposed "to remove your privileges in supplying you with this equipment, effective Wednesday 22 October 2000 … after this date your staff will be required to arrange their own equipment." 12 The Lessor at about that time also informed the Lessee that due to Christmas decoration installations, the part of the common areas where the stamp classes were held would not be available during November and December 2000. 13 By this time, the Lessee had become seriously concerned at the trading results in Shop 31 and on 7 November 2000 he had a meeting with the Centre Manager in which the possible assignment of the Lease was discussed. By letter of 8 November 2000 the Centre Manager confirmed that the Lessor would be agreeable to the Lessee proceeding to try to find an assignee and referred to the specific terms of the Lease as to the process for approval of assignment. Then by letter of 25 November 2000, the Lessee confirmed "experiencing serious trading difficulties" and specified that it had "incurred trading losses of $3,000 per month since opening in December 1999". The letter added: Our difficulties at Southgate are compounded by the additional burden of our Darling Harbour and Liverpool store which also are trading at a loss. It has become apparent that the concept of dolls, bears and collectibles and paper craft does not meet the needs of the shopping public at Southgate and there is little prospect of succeeding in the current performance.