Grand Development Pty Ltd v Simdex Surry Hills Pty Ltd [2009] NSWADT 26

CITATION: Grand Development Pty Ltd v Simdex Surry Hills Pty Ltd [2009] NSWADT 26

DIVISION: Retail Leases Division

APPLICANT Grand Development Pty Limited PARTIES: RESPONDENT Simdex Surry Hills Pty Limited

FILE NUMBER: 085142

HEARING DATES: 1 December 2008

SUBMISSIONS CLOSED: 1 December 2008

DATE OF DECISION: 6 February 2009

BEFORE: Fox R - Judicial Member

CATCHWORDS: Jurisdiction, lettable area

LEGISLATION CITED : Retail Leases Act 1994

CASES CITED: Nichols Global Enterprises Pty Limited v Biviano & Anor [2003] NSWADT 134

APPLICANT D Hall, solicitor REPRESENTATION:

RESPONDENT S Farkas, agent

1. The Tribunal has jurisdiction because the lettable area of the premises is less than 1,000 sqm, and the business conducted on the premises is that of "furniture shop" ORDERS: 2. Costs reserved 3. Listed for directions 19 February 2009 at 10:30am.

REASONS FOR DECISION 1 The Applicant is the Lessor of premises in Flinders Street, Darlinghurst which the Lessor's surveyor Theo Mossel described as "two storey single tenanted free standing brick warehouse/showrooms". The Respondent (which traded as "Design Warehouse") is the former tenant of the premises. It is common ground that the business conducted from the premises was that of a furniture showroom. 2 A dispute about outstanding rent in the sum of approximately $38,500.00 arose when Design Warehouse quit the premises in March 2008, and the Lessor took action in the Local Court to recover that amount. It appears that Design Warehouse raised the question of transfer to this Tribunal, pursuant to section 75 and to resolve that the lessor then made the present application seeking a declaration that that Tribunal had no jurisdiction because the premises contained a lettable area of more than 1,000 square metres. 3 Section 5 of the Retail Leases Act states: "This Act does not apply to any of the following retail shops: (a) shops that have a lettable area of 1,000 square metres or more…." Evidence 4 The evidence for the Applicant was by way of Affidavits from Norman Blundell, real estate agent and letting agent for the premises and from Theo Mossel, surveyor. For the Respondent there were Affidavits by Simon Farkas, director of Design Warehouse and Graham Wilson, surveyor. There was nothing relevantly controversial in the Affidavit of Mr Blundell and he was not cross examined, but the three other witnesses were. 5 Mr Mossel's evidence was that he had surveyed the premises in June of 2005 and, using one of formulae promoted by the Property Council of Australia (PCA) in its publication "Method of measurement for lettable area", found that the two floors comprised 1,141.1 square metres. The formula used was gross lettable area (GLA). He further deposed that he (in July 2008) measured the property using a different formula promoted by the Property Council in the same publication, being the gross lettable are retail (GLAR). Using that method the area comes to 980.3 square metres. 6 Obviously if, properly considered, the lettable area of the premises is less than 1,000 square metres, then Design Warehouse has the right, under section 75 of the Act, to have the matter adjudicated by the Tribunal, instead of leaving it to the Local Court. 7 The introduction to the PCA publication states:- "The document aims to promote consistency by providing a simple approach to floor space measurement that is both practical and cost effective." 8 It gives, by description and by diagram, indications of various measuring techniques aimed, amongst other things, at smoothing out the measurement of internal engaged structural columns, free standing internal columns, protruding service conduits and, service cupboards etc. The formulae were formerly described as the "BOMA" method of measurement. 9 Section 78 of the Retail Leases Act states:- "In the interpretation of this Act, a court (as defined for the purposes of Part 8) is to have regard to accepted practices and interpretations within the industry concerning the leasing of retail shops." and so enables me to have regard to the formulae. 10 On cross examination Mr Mossel indicated that he felt his first measurement (GLA) to be the correct application of the formula because the publication shows it to be appropriate for "warehouses and showrooms", whereas the GLAR is appropriate for "freestanding shops". I have already given Mr Mossel's description of the premises in the first sentence of these reasons. 11 When asked "what makes it a showroom?" he said that it was a place which displayed large and heavy items which people could not simply buy and take with them. He went on to refer to the fact that the premises had previously been used as a car showroom. He admitted that he had asked no one in the building for a description of what was sold, and further he did not know that items were sold (to put it in my words) on a cash and carry basis. 12 Mr Farkas' evidence on the other hand, was to the effect that the showroom had many ancillary furniture items, such as lamps, vases and statues, stools and bedside tables and that these were bought and carried out every day. He referred to the fact that the letting had always been thought to be within the Retail Leases Act, and that the authorised use, pursuant to the Lease, was:- "retail showroom and associated offices". In his view the business was a furniture shop, not just a showroom. He agreed that a facility for showing dresses on a wholesale basis, so that buyers from department stores might consider to buy in volume, but where none were sold direct to the public, would be a showroom as opposed to a shop. 13 Mr Wilson, surveyor, gave evidence to state that he had been told to measure the GLAR, and that he computed it to be 943 square metres. The difference between his conclusion of GLAR and that of Mr Mossel arose from a different interpretation of the exclusions directed by the PCA formula. Nichols Global Enterprises Pty Limited v Biviano & Ano [2003] NSWADT 134 and "lettable area" 14 I considered a similar dispute (and the GLAR formula) in the matter of Nichols Global Enterprises Pty Limited v Biviano & Anor [2003] NSWADT 134. In that decision I questioned the relevance of the GLAR formula to a single occupied free standing building and in fact did not completely apply it. In that matter I was not asked to compare the two formulae, I only had GLAR measurements before me. I remarked that the formula was useful in explaining the surveyor's calculation but was "of little assistance to me in putting some meaning to the concept of "lettable area" as that term was used in section 5 of the Retail Leases Act as it then applied. "Lettable area" now appears in section 3 as well, as a result of the 2005 amendments, but that definition, only excludes car parking spaces and separate storerooms, and (regrettably) does nothing further to indicate what is included in "lettable area". 15 The words of the new definition:- "Lettable area" of a retail shop does not include:- (a) car parking spaces…" still refer back to "retail shop". Of course "retail shop" is defined as:- "Premises that: (a) are used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses…." listed in schedule 1 The relevant part of schedule 1 is:- "furniture shop". 16 The uncontradicated evidence before me is that the business did not just show furniture for order, it actually sold things to the public to be then and there taken away. That being the case, I am satisfied that the business conducted was a furniture shop. These remarks are not intended to indicate that a business which only shows furniture in order to receive orders for manufacture and later delivery, on a retail basis, and does no takeaway trade, is not a furniture shop. That is an issue for another day. That said, on the basis of the PCA publication, the correct formula to apply is GLAR, because that is said to refer to shops instead of showrooms. 17 In my view, Mr Mossel, in deciding which formula was appropriate, should have had regard to schedule 1 of the Retail Leases Act, and perhaps should have made enquiries to establish the actual use of the premises before electing a formula. "Gross lettable area retail" as opposed to "lettable area" 18 Although the parties agreed that my indicating which of the 2 formulae was appropriate would resolve the issue, because both surveyors agreed that the GLAR measurement lead to a lettable area of less than 1,000 square metres, I am not satisfied that it does end the matter. Jurisdiction is not a matter of agreement, it is a matter of law. The point at issue is:- what is the "lettable area" of the premises as used in the Act; that may not be the same as the GLAR. The statute refers to "lettable area". It is trite law that I have to look to the plain ordinary meaning of those words before I apply section 78 to gain some guidance. As I observed in Biviano, the GLAR formula may be appropriate and properly applied for measuring the occupancies in buildings which have communal facilities, but it seems to me to be a different matter when applying the formula to retail tenancies which are occupied by one tenant. 19 The PCA publication in its' instructions for the application of the GLAR formula gives the exclusions and comments:- "1.3.1 The following areas:- Stairs; Accessways; Fire stairs; Toilets; Recessed doorways; Cupboards; Telecommunications cupboards; Fire hose reel cupboards; Lift shafts; Escalators; Smoke lobbies; Plant/motor rooms; and, Tea rooms and other service areas; Where all are provided as standard facilities in the building; 1.3.2 areas set aside as public spaces, thoroughfares or accessways for use by service vehicles and for delivery of goods, where such areas are not for the exclusive use of occupiers of a tenancy; and, 1.3.3 areas where there is less than 1.5 metre height clearance above floor level – these spaces should be measured and recorded separately (see diagram page 22)." Comparison of measurements 20 The full measurements as given by Mr Mossel are:- "GLA June 2005 GLAR July 2008 Ground Floor 571.6 square metres 486.5 square metres First Floor 569.5 square metres 493.8 square metres TOTAL 1141.1 square metres 980.3 square metres