CITATION: Uckhan v A& J Verdi Pty Ltd [2010] NSWADT 223 DIVISION: Retail Leases Division APPLICANT Metin & Cetin Uckhan PARTIES: RESPONDENT A & J Verdi Pty Ltd Alexander Verdi Julianne Verdi FILE NUMBER: 105113 HEARING DATES: 30 August 2010 SUBMISSIONS CLOSED: 30 September 2010 DATE OF DECISION: 10 September 2010 BEFORE: Rickards K - Judicial Member CATCHWORDS: Use of premises - responsibility to obtain council approval LEGISLATION CITED : Liquor Act 1982 Administrative Decisions Tribunal Act 1997 Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd (2006) NSWCA 296 CASES CITED: Harrem Pty Ltd t/as CTH Transport & Services v Toyo Tyre Rubber Australia Pty Ltd (2008)NSWSC 776 Land Law, 5th Edition (2006) – Professor P Butt, Law Book Co APPLICANT G Rich, barrister REPRESENTATION: RESPONDENT D Robertson, barrister 1. The present use by the First Respondent of the premises at 16/55-58 Cliff Road Wollongong NSW is declared to be not in breach of the terms of the lease agreement between the parties ORDERS: 2. The First Respondent is declared to be responsible for obtaining all necessary development approval for the use of the premises 3. The proceedings are to be listed for further directions on 30 September 2010 at 10:30am 4. There will be no order for costs unless either party files and serves submissions as to costs within 14 days. If submissions as to costs are filed and served in accordance with this order, the other party may file and serve any submissions in response within 14 days, and a decision as to costs will be made upon the documents filed, pursuant to s 76 of the Administrative Decisions Tribunal Act 1997. REASONS FOR DECISION Background 1 The dispute which is the subject of this application relates to premises owned by the Applicant lessors located at 16/55-58 Cliff Road, Wollongong. 2 The First Respondent is the lessee of the premises pursuant to a registered lease entered into on 23 August 2003, which was assigned to the First Respondent on 1 July 2005. The Second and Third Respondents are guarantors pursuant to the terms of the relevant Deed of Assignment. 3 The premises of which Lot 16 are part consist of two eight storey residential towers containing 30 residential units and two ground floor food retail premises of which the subject property is one. 4 Construction of the premises took place following the release of Development Consent number D822-00 by Wollongong City Council on 6 October 2001, within which Clause 8 provided that: "Approval is granted for the construction only of two cafes. No approval is expressed or implied for the intended use of those cafes." Further, Clause 9 provided that: "A new development application must be submitted to and approved by Council, for the use of the cafes prior to their occupation…." 5 Following completion of construction, no application was made to the Council for use of the premises prior to the time that occupation and use under the subject lease commenced. There has still been no such application made. 6 Clause 5.01 of the memorandum to the lease states that the tenant is not to use the premises for any purpose other than the purpose specified at Item 1 in the schedule to the lease. In turn, Item 1 specifies the agreed use to be "light meals and coffee shop". 7 It is common ground that the Applicants later consented to the Respondents obtaining a liquor licence for the premises on or about 23 May 2006. 8 Both the Application filed in these proceedings and the Respondents' "Points of Defence and Cross Claim" raise a number of issues which remain to be resolved. Following a directions hearing on 26 August 2010 before Judicial Member Fox, the issues to be determined at hearing on 30 August 2010 were confined to the question of whether the present use of the premises by the Respondents was compliant with the terms of the lease agreement between the parties, and to determination of which party bore the obligation to obtain development consent or approval for the use permitted by the terms of the lease. 9 Due to the various issues which had arisen between the parties, payment of rent had been withheld by the Respondents since 1 November 2009 and following the hearing on 30 August 2010 an interim order was made that, pending any further order of the Tribunal, the Respondents were to resume monthly payments of rent on the first day of each calendar month in accordance with the terms of the lease but with the first monthly payment to be made on or before 7 September 2010. Is the present use of the premises compliant with the agreement between the parties? 10 The Applicant lessors contend that the current use of the premises is not as a coffee shop serving light meals but as a restaurant serving meals which are not "light". Further, the Applicants complain that the First Respondent has installed an automatic teller machine which is inconsistent with the agreed use. 11 The Applicants draw attention to the menu of meals which is provided by the First Respondent at the premises and submit that, when this menu is viewed in its entirety, a fair conclusion to be reached is that the First Respondent is not serving "light meals". Further, the Applicants point out that the First Respondent originally requested its former solicitor to seek formal agreement from the Applicants to a change of use of the premises from "light meals" to "light and main meals", but that this request was subsequently discontinued. 12 The Applicants also rely upon the evidence given by the Second Respondent that the premises seat between 64 and 70 people, tables are set for evening meals with white linen and candles, there is soft lighting in the premises, fine bottles of wine are available which are served with glasses and a wine bucket, and orders are taken and meals delivered to the table by a waitress. The Applicants submit that, when viewed in their entirety together with the contents of the menu, these factors establish that the Respondent is not just serving "light meals" and is therefore using the premises in a manner inconsistent with the agreed use. 13 The Respondents assert that the agreed use of the premises as a "coffee shop and light meals – licensed premises" includes activities necessary to maintain lawful operation pursuant to the restaurant licence issued pursuant to the Liquor Act 1982 which was then in force; section 4 of that Act defined a "restaurant" to be "premises in which meals are….regularly supplied on sale to the public for consumption on the premises…" and "meal" was defined to be "a genuine meal partaken of by a person seated at a dining table" . The Respondent argues that a "genuine meal" goes beyond what one may consider to be a "light meal". 14 The Applicant bears the onus of proving that the current use of the premises by the First Respondent is not compliant with the agreed use. 15 The Applicant agreed to an extension of use of the premises to permit sale of liquor under a restaurant licence which in turn required service of "genuine meals". 16 The term "genuine" is commonly accepted to mean the same as "actual" or "true". A "meal" is commonly accepted to mean a specific prepared dish of food. The term "light" within the context of describing a meal is commonly accepted to mean "not heavy", but both terms are clearly incapable of precise definition. A reasonable approach to such definitions leads to the conclusion that the "genuine" meal required to be served in a licensed restaurant needs to be an actual prepared dish of food of sufficient size to satisfy the legislative intention that alcohol be consumed responsibly at the premises. It is really a matter of factual degree as to whether a "light" meal would or would not satisfy the test of being a "genuine meal". 17 The menu used by the First Respondent indicates that there are a range of meals available at lunch or dinner time and a range of different types of individual dishes. There are no "courses" prescribed within the menu, as opposed to other restaurants where an entrée, main course and dessert are offered or where the pricing is fixed upon the basis of consumption of at least two courses. As far as the meals offered by the First Respondent are concerned, the question as to whether at least some of these meals are not "light" is incapable of an objective answer. The Applicants tendered into evidence a receipt dated 28 August 2010 indicating that two patrons at the premises had consumed a meal consisting of a single serve of garlic bread and a seafood platter for two; it is suggested by the Applicants that this is an example of a meal which is not "light", but in the absence of any other probative evidence, and given the service of this meal accompanied by wine, I am not reasonably satisfied that this is so. 18 The provision of linen, soft lighting, waitresses and the like are not factors relevant to the determination of whether or not the First Respondent is using the premises in a compliant manner. The discontinued request made some time ago on behalf of the First Respondent for the agreed use of the premises to extend to "main meals" was something of which the Second Respondent was unaware and in any event is not relevant to determining whether ,upon an objective basis, the current use of the premises now falls outside of the agreed use. 19 The provision of an automatic teller machine within the premises is not inconsistent with the use of the premises as a coffee shop, or for provision of light meals, or as licensed premises. I accept the uncontradicted evidence of the Second Respondent that the machine is only available for customers and is provided as an alternative mechanism to facilitate payment of bills. 20 The Applicants have not discharged their onus of showing that the First Respondent's use of the premises is not compliant with the agreed use. Which party has the obligation to obtain development consent or approval for use permitted by the Lease? 21 The Respondents submit that the combined effect of clauses 5.01 and 5.03 of the memorandum to the lease expressly requires the First Respondent not to use the premises otherwise than in accordance with the agreed use and to have the premises open and operating at least six days per week between the hours of 9.00 am and 5.00 pm. It is contended that because there is this contractual obligation pursuant to the lease agreement to only carry on the agreed use, it would be an impossible position if the tenant was contractually obliged to continue with this agreed use if it was not permitted by Council, and that this situation thereby creates an implied term within the lease for reasons of business efficacy that the landlord is obliged to ensure that the agreed use is also approved by the Council. 22 In support of the above contention, the Respondent relies upon the decision of the Court of Appeal in Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd (2006) NSWCA 296, which dealt with a situation where premises has been leased for the manufacture, storage and sale of steel products in circumstances where the building was not completed and was unsuitable for use as a sale room. 23 One of the issues for determination by the court in Fallon was whether the lease was subject to an implied term that the lessor would carry out the building work identified in the interim occupation certificate within a reasonable time. In considering this question, the Court had this to say: "(35) The effect of the implied term was to require the Appellant to take steps necessary to ensure that occupation of the building under the lease was lawful and in accordance with the conditions of the development consent under which the building had been constructed, prior to the negotiation of the lease. A term in that form was not merely reasonable and equitable, but necessary to give business efficacy to the lease and was a term of which it could properly be said that it "goes without saying". Such a term is not inconsistent with the expressed terms of the lease, but rather is necessary to allow them their proper scope of operation…." 24 There is no evidence in the present matter to indicate that the premises at any time have not been fit for use as retail premises providing meals, coffee and other refreshments including the sale of liquor. The Respondents' argument that because the lease agreement required the First Respondent to only use the premises for a particular purpose, a term is therefore implied into the lease agreement which requires the landlord to obtain from the Council the necessary development approval for the agreed use of the premises, is not accepted. 25 There is no evidence that the premises cannot be lawfully used as a coffee shop, or for the service of light meals, or for the sale of liquor. No application has been made for approval of such use by Wollongong Council, but this does not therefore mean that the premises cannot lawfully be used for these purposes. 26 The fitness of premises for any lawful use, and the obligation of a party to obtain such permits or approvals as are required for that lawful use, are two separate issues. The Court in Fallon was concerned with the fitness of the subject premises for the use specified within the lease agreement. This was also the situation in the other authority relied upon by the Respondents , which was the Supreme Court decision in Harrem Pty Ltd trading as CTH Transport & Services v Toyo Tyre Rubber Australia Limited (2008) NSW SC 776 , where the subject premises had been leased for use as a warehousing, storage and distribution and an issue arose as to whether the premises had in fact been unsuitable for carrying the heavy vehicles and heavy storage incidental to such use. In the course of its judgment in Harrem, the Court relied upon the commentary of Professor Butt in Land Law, 5th Ed, (2006) (Law Book Co) at page 1573: "There is no landlord's implied covenant that leased premises are suitable for the purposes for which they are let, or that they can lawfully be used for the purposes of which they are let. Nor does the express inclusion of a covenant for quiet enjoyment require otherwise. However, it may be possible to imply such a covenant in the particular case under general contract law principles governing the implication of terms into contracts. The principles fall into two categories: implication as a matter of business efficacy, and implication as a legal incident of the particular class of contract concerned…. On these bases, it is conceivable that a term may be implied that (for example) the landlord will do whatever is necessary to render the premises fit for the purpose for which they are let and will maintain them in that condition (although in practice such an implication will be difficult to establish); or (more easily perhaps) a term may be implied that the landlord will not undertake work that would render the premises unfit for their intended purpose (there seems less difficulty in applying these principles to imply a term into licence that the premises are fit for the purpose of the licence)…." 27 There is no evidence to show that the premises were not constructed in compliance with the original development approval or that they were unfit for the use as agreed between the parties. There is an implied obligation upon the Applicant to ensure that the premises are fit for the agreed use, but there is no obligation implied by reasons of business efficacy or created by the terms of the lease agreement for the Applicant to obtain approval from Wollongong Council for such use. In addition, clause 5.04 of the memorandum to the lease expressly requires the Respondent as the tenant to "maintain and renew all licences permits and registrations required for the carrying on of the business of the tenant in the premises". 28 The First Respondent accordingly bears the responsibility to obtain approval from Wollongong Council for the use of the premises. ORDERS 1.The present use by the First Respondent of the premises at 16/55-58 Cliff Road Wollongong NSW is declared not to be in breach of the lease agreement between the parties. 2.The First Respondent is declared to be responsible for obtaining all necessary development approval for the use of the premises. 3.These proceedings are to be listed for further directions on 30 September 2010 at 10:30am. 4.There will be no order for costs unless either party files and serves submissions as to costs within 14 days. If submissions as to costs are filed and served in accordance with this order, the other party may file and serve any submissions in response within 14 days, and a decision as to costs will be made upon the documents filed, pursuant to s76 of the Administrative Decisions Act 1997 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.