Clausen Property Pty Limited atf Clausen Property Hybrid Trust v RVM Pty Limited [2011] NSWADT 112

Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Clausen Property Pty Limited atf Clausen Property Hybrid Trust v RVM Pty Limited [2011] NSWADT 112 Hearing dates: On the papers Decision date: 24 May 2011 Jurisdiction: Retail Leases Division Before: Judicial Member R J Fox Decision: The valuation to be effected pursuant to s31 is to establish the current market rent for the whole of the holding Catchwords: s78 and s31 of Retail Leases Act 2004 Legislation Cited: Retail Leases Act 2004 Cases Cited: Botts v Grimme (2001) NSWADT 14 Moweno Pty Limited v Stratis (2002) NSW Conveyancing Reports 56/050 Moweno v Stratis Promotions Pty Limited [2002] NSWSC 1151 Tringas v Quach (2007) NSWADT 24 Tristar Video Pty Limited v Walpole (2007) NSWADT 193 Category: Separate question Parties: Clausen Property Pty Limited atf Clausen Property Hybrid Trust (applicant) RVM Pty Limited (respondent) Representation: D'Arcy Sloman Peacock Lawyers – Applicant Marando - Respondent File Number(s): 105166

REasons for decision 1This was firstly an application by the lessor, in respect of premises at Rozelle, for the appointment of a Specialist Retail Valuer to establish the rent payable upon the exercise by the lessee of its option to extend the term (which commenced 27 July 2007) from three years to six years resulting in the term ending 26 July 2013. The lease is in the "standard" Law Society approved form, provided for a 5% rent increase at the end of year 1, a CPI review at the end of year 2 and a review to current market rent on exercise of option. 2The lease states the permitted use of the two storey premises to be "restaurant and upstairs residence". 3The dual use led me on 18 November 2010 to direct:- "There cannot be a valuation of the rent for the upstairs residence section of the building - see s79 of the Retail Leases Act . Parties will have to agree on proportion of the present rent which applies to the restaurant, and only then can there be a valuation under s31." In this context reference should be made to my decision in Botts v Grimme (2001) NSWADT 14. 4The parties appear not to have agreed, and on 9 December 2010 I observed that:- "If the parties cannot agree on the proportion of rent which applies to the retail space, then the only way in which the matter can progress is for the Applicant to amend Application to seek an Order identifying the retail space. Once such an order is made, then it is possible to have the valuer assess the rent." That led to the application being amended on 4 February 2011 to the following:- "1. For the retail space to be identified as directed by Judicial Member Fox on 9 December 2010, 2. Appointment of a Specialist Retail Valuer pursuant to s31." 5On 21 January 2011 Deputy President Higgins ordered that the parties file and serve evidence, but that appears not to have been done and similar orders were made on 3 March 2011, so that a decision could be made on the papers to resolve the preliminary point, being to identify the area of the premises used for a purpose which falls within Schedule 1 of the Retail Leases Act . 6On 3 March 2011 the rental managing agent appeared for the lessor and Mr Marando, solicitor appeared for the lessee. Subsequently D'Arcy Sloman Peacock Lawyers made written submissions for the lessor, together with a dimensioned plan of the downstairs and upstairs parts of the premises, and statutory declarations by Lisa Indge and Natalie Allen attesting to their observations of the premises in January 2009 and September 2010. These establish that the ground floor of the building consisted of 174.7 square metres, together with a 6 metre by 6 metre dining courtyard and conveniences to the rear, the dimensions of which were not readily ascertainable from the plan. The upstairs part of the premises consisted of 72.7 square metres. 7Nothing was heard from Mr Marando, or the lessee personally. 8I understand from the submissions made by D'Arcy Sloman Peacock that Mr Marando submitted, at the 3 March 2011 directions hearing: "The upstairs part of the premise were not fit for the retail purpose to which they were being put, and so not part of the retail space." 9That seems to fly in the face of both reality and the law. Clearly, by the unchallenged fact that the lessee is using the premises for a retail purpose, the lessee is estopped from asserting that the premises are not fit for that purpose. Further, the law, absent very specific provisions in a lease to the contrary, is clearly that it is not the lessor's obligation to render the premises fit for the use to which the lessee proposes to put them. The lease limits the lessor's obligation to structural repairs which (I apprehend) includes such matters as ensuring that the roof of the premises does not leak. 10There being no evidence to the contrary, and relying on that which is given by the two statutory declarations, I find that the upstairs part of the premises are used for cooking and food storage to the exclusion of any residential use. That being so, upstairs forms part of the retail use, and so the entirety of the premises, downstairs, courtyard, conveniences and upstairs fall within the Retail Leases Act generally, and specifically for the purposes of s31. 11I must say that the fact that the use of the upstairs part of the premises appears to be in breach of the provisions of the lease caused me deep concern. Submissions on this aspect may well have been of assistance in coming to a conclusion. 12The proper analysis appears to be that, upon the lessor becoming aware of the breach, and taking no action to prevent it, a variation to the lease agreement occurs, binding both lessor and lessee. To hold otherwise would leave the lessor free at any later time to claim the breach as a basis for termination, and that would clearly be inequitable to the point that a Court (and in retail lease circumstance, the Tribunal) would refuse to allow that and would grant the lessee relief against that attempt to claim the breach. 13Another analysis might be that the acceptance of the rent after knowledge of the breach is itself an implied retail shop lease within the definition of s3 of the Retail Leases Act :- " "retail shop lease" or "lease" means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop: (a) whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and (c) whether the agreement is oral or in writing, or partly oral and partly in writing. Note: Sections 6, 6A and 84B limit the retail shop leases to which this Act applies." Thus, the implied agreement is a separate retail lease, for the upstairs part for the remainder of the term, on the same covenants and conditions as those which applied to the downstairs part of the premises. The situation is perhaps analogous to the situation in Tristar Video Pty Limited v Walpole (2007) NSWADT 193 where (without any writing at all) a lease was found to exist as a result of words between the parties. Here there is lease (or a variation of a lease) implied at a result of the behaviour of the parties. 14I accept the only available evidence which appears to establish that the upper storey might well divide into two separate parts, to the right and to the left of the top of the stairway, and that both of those parts are used for activities which can only be described as an adjunct to the "restaurant" purpose. I recognise the possibility that it is open on the evidence to conclude that the upstairs room which faces the street is not used for restaurant purposes, however the Respondent has not filed any evidence in that regard, and consequently it is proper to find, as I have, that the whole of the upper storey is so used. 15The unauthorised use of that part of the premises having been accepted by the lessor, the definition of "retail shop" is enlivened:- " "retail shop" means premises that: (a) are used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph (whether or not in a retail shopping centre), or (b) are used, or proposed to be used, for the carrying on of any business (whether or not a business prescribed for the purposes of paragraph (a)) in a retail shopping centre. Note: Section 5 limits the retail shops to which this Act applies. Note: Clause 17 of Schedule 3 provides that the businesses specified in Schedule 1 are taken to be prescribed for the purposes of paragraph (a) of this definition until regulations prescribing businesses and repealing Schedule 1 are made." It is the use which results in a retail lease which falls within the Schedule. In this regard reference might be had to Moweno Pty Limited v Stratis [2002] NSWSC 1151 in which Barrett J (upheld on appeal) observed that, after considering the authorised use set forth in a lease, it is open to consider the actual use to establish whether or not the Retail Leases Act applies. "The definition in s3 makes it clear that the question whether a "retail shop lease" exists at a particular time will depend on the scope and content of the parties' agreement as it exists at that time. if, in the course of a particular tenancy relationship defined by reference to a particular use the parties choose to make some fresh agreement by which the landlord grants to the tenant a right of occupation for the purpose of a new and different use, the terms of the fresh agreement will fall to be examined against the Act's criteria. It may be that an agreement that was at inception a "retail shop lease" is replaced or supplemented in such a way that there is a new agreement that is not a "retail shop lease"; or conversely that an agreement that was originally not within the definition is replaced or supplemented in such a way that there is a new agreement that is within it . " That judgment was the subject of an appeal ( Moweno v Stratis [2003] NSWCA 376) where the decision at first instance was upheld, but words of Young CJ paragraph 51 and 52 be noted:- "Of course there may be cases where the circumstances of the actual user of the premises with the acquiescence of the lessor may show that there has been some variation of the lease and that the purpose of the letting has changed. There may even be an oral arrangement which operates by way of estoppel, see Thompson v Easterbrook at pp 482-3. The present case does not raise the matter mentioned in the previous paragraph. It was not raised before the trial judge...." Despite these comments being obiter , I accept that they are a clear guide to the law which applies to the situation in hand. It seems to me to follow that, once the lessee has elected to use a part of the premises which otherwise would not fall within the Act, for a purpose which brings them within the Act, from the moment that the landlord accepts that use, s79 ceases to have effect, and that part of the premises falls within the legislation. 16It seems appropriate to observe that, on much the same basis, were the lessee to at some future stage elect to voluntarily rectify the breach, and commence to use the upstairs part of the premises for residential purposes, then the Retail Leases Act would cease to apply to that upstairs portion. 17In view of all of the above I am satisfied that it is clearly the case that the valuation to be effected pursuant to s31 should establish the current market rent for the whole of the holding, however I would also observe that it would be extremely beneficial to all concerned were the valuer to turn his mind to the current market rent of the lower part of the premises so that, if the lessee decides to reinstate the upstairs residential use, parties will be able to refer to the valuation to establish the appropriate (presumably reduced) rental appropriate for the use of the lower portion only, and then leaving the question of the rental for the upper portion to be resolved pursuant to the Residential Tenancies legislation which may apply. I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal. Registrar 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. Decision last updated: 24 May 2011