Uckan v Verdi Pty Limited (No 4) [2012] NSWADT 180

Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Uckan v Verdi Pty Limited (No 4) [2012] NSWADT 180 Hearing dates: 20 April 2012 Decision date: 03 September 2012 Jurisdiction: Retail Leases Division Before: D Patten, Deputy President Decision: Respondents to pay to Applicants $83,910.92 inclusive of interest Catchwords: Repudiation of lease - calculation of damages - unreasonable conduct factor in refusing costs. Legislation Cited: Administrative Decisions Tribunal Act Category: Principal judgment Parties: Metin Uckan and Cetin Uckan (Applicants) A & J Verdi Pty Ltd (First Respondent) Alexander Verdi (Second Respondent) Julianne Verdi (Third Respondent) Representation: Counsel Mr G A Rich (Applicants) Sterling Legal (Applicants) Mr Kennedy (Respondents) File Number(s): 105113, 115032

REASONS FOR DECISION 1This decision arises out of an unusual situation. Following a hearing, which commenced on 25 March 2011 and extended over 5 days until 11 May, I published reasons for decision on 22 September 2011. 2The matter concerned a Retail Lease from Metin and Cetin Uckan (the Applicants) to A & J Verdi Pty Ltd (the lessee) of premises being 16/54-58 Cliff Road, Wollongong (the premises). The obligations of the lessee were guaranteed by Alexander Verdi and Julianne Verdi (hereafter together the Respondents). In the reasons published on 22 September last after making a number of findings of both fact and law, I made an order abating the rent by 30% from 9 November 2009 and indicated that I would grant relief against forfeiture conditional upon payment of rent outstanding. I directed that at 9.30am on 13 October 2011 the parties bring in Short Minutes of Order reflecting my reasons. 3On 13 October 2011 both parties were represented and I was informed that in the period while the matter was under decision the lessee had vacated possession of the premises and, as a consequence, the Applicants were seeking damages in respect of lost rent, in restoring or repairing the premises, and for breaches of other covenants. Although these matters seemed to constitute an entirely new claim, the Respondents agreed to them, in effect, being dealt with as part of the proceedings which I had previously heard. 4I therefore made directions in respect of the filing of evidence and fixed the matter for further hearing on 2 December. On that date the parties were not ready to proceed and I made further directions, including a direction that the Applicants file and serve a Further Amended Application and that the Respondents file and serve a Defence. 5Eventually the matter was listed for further hearing on 20 April this year. On that day, Mr Rich, counsel, appeared for the Applicants and Mr Kennedy, solicitor, for the Respondents. 6In the meantime, on 16 December, the Applicants filed an Amended Application. That application added the following particulars to the Application that was previously before me: 25. Following the conclusion of evidence and prior to judgement herein the Respondent: "a. ceased paying rental contrary to the Lease and/or Order of the Tribunal; b. abandoned the leased premises on or about 4 August 2011; c. caused damage to the premises and failed to make good the premises." 26. By abandoning the premises and/or the failure to pay rental in accordance with the Lease or at all the Respondents were in breach of the Lease and repudiated the Lease and/or wrongfully terminated the lease. 27. Further and as a result of the operation of the premises by the Respondent the insurance premium payable by the Owners Corporation in respect of the compulsory Strata insurance and in respect of which the demised premises are a part were increased. 28. Proceedings were commenced in the Fair Trading NSW for the recovery of increased premium and costs. As a result the applicant incurred a liability of $15,078. Pursuant to the Lease the Applicant is entitled to an indemnity in respect of this liability. 29. The Applicant has sustained loss and damage and claims damages pursuant to the Lease including and in respect to: "a. the non payment of rental and outgoings and including future rental; b. the wrongful termination of the Lease; c. the damage occasioned to the premises and the failure to make good; d. indemnity for liability incurred for insurance costs and liabilities e. legal costs." 7The Amended Application also amended the relief originally sought by adding: "13. Declaration that on or about 4 August 2011 the Respondent(s) in breach of the Lease abandoned the premises and thereby repudiated the Lease and/or wrongfully terminated the said Lease. 14. Damages against each of the Respondents jointly and severally. 15. Interest. 16. Further or other Order." 8Mr Rich read the affidavit of Mr Cetin Uckan sworn 14 December 2011. In paragraph 2 he deposed: "2) At about approximately 3pm on 23 July 2011, I got a telephone call from Alex Verdi asking me to meet him at the Premises. I attended at about 4pm and the following conversation took place: Alex: "Look here, I'll give you the keys back. You run the shop as is but you must release me from all court action including the ADT action, Land and Environment Court case as well as the Lease." Cetin: "I can't say anything as I need to speak to my solicitor as we are in court." Alex: "If I don't get an answer by this weekend, I'm leaving. I'm going. If you want to find other ways, chase me, find me. I'm telling you what I'm doing. That's me. I'm telling you. Do what you like." Cetin: "I need to talk my brother (sic) and solicitor." I then walked away." 9Thereafter there was an exchange of correspondence between the Solicitors for the parties concerning both the retail lease dispute and the resolution of proceedings still pending in the Land and Environment Court. The exchange culminated in the letter from the Solicitors for the Applicants to the Solicitors for the Respondents dated 5 August 2011: "We refer to you (sic) letter of 4 August 2011 and make the following comments: 1. At no time has our client agreed that your client was to abandon the premises; 2. Our client reserves their rights in the Lease and will be seeking to enforce their rights against your client. Yours (sic) client is significantly in arrears and this will not be tolerated. 3. Our client collected the keys so as to mitigate his losses in an attempt to re let to another entity; 4. Our client does not consent to you (sic) client being removed as a named party in the Land and Environment Court proceedings; 5. Our client intends to comply with the directions made by that Court; and 6. We are at a loss to understand what orders you can seek on behalf of the party who is a named respondent." 10Mr Uckan annexed to his affidavit a copy of a "Settlement Agreement to a Dispute under the Strata Schemes Management Act 1996". The Agreement dated 28 July 2011 purports to be made between "Geoff Pickford and Don Pickford" seemingly representing the Owners Corporation and the Applicants. The terms of the agreement are stated to be: "1. The Owners Corporation (69822) would consider this matter settled today, 28.7.2011, after notification by the Adjudicator under section 131.1. * The owners of Lot 16 and 17 pay in full the excess insurance premium of $11,078 on or before C.O.B. 27.1.2012. * The owners of Lot 16 and 17 will pay the excess insurance premium relating to 23 April 2011 to 23 October 2011 up to a maximum of $4,000 as estimated by insurance broker David Stott, in full by COB 27 April 2012." * 11According to Mr Uckan's affidavit, as a consequence of this agreement: "I became liable for $15,078.00 in respect of an increase in the insurance premium as well as the legal cost incurred by the Body Corporate. This resulted from the actions of the Respondent." 12It does not seem to be disputed that the lessee vacated the premises on or about 1 August 2011 and returned the keys to the Applicants. Mr Uckan testified in para 5 of his affidavit: "On the night of the 4th August 2011, my brother and I inspected the Premises and the shop was bare and there was substantial damage to the premises. No action to make good the premises had occurred. The Respondent had taken everything of any value from the shop including the taps." 13Mr Uckan annexed to the affidavit a spreadsheet "outlining the losses incurred in relation to rent due to me". He also annexed a number of photographs said to be "taken by me immediately after the Respondents vacated the premises". Paragraph 9 of his affidavit deposed: "9. We observed the following damage to the premises. i) Damage to walls including: (1) Holes punched into side walls; (2) Indents in the walls; ii) Ceiling tiles damages above toilets; iii) Ventilation system (in toilet) clogged with grease and unusable; iv) Painted surfaces damaged and in need of washing, sealing and repainting; v) Damage to plumbing, including: (1) Blocked toilet; (2) Blocked sink; vi) Wiring installed by Respondent after taking possession (without our consent) was discovered to be a fire risk and non compliant with the Building Code of Australia." 14Mr Uckan was cross-examined on his affidavit by Mr Kennedy. No affidavit by the Respondents was read but I permitted Mr Kennedy to call Mr Alexander Verdi to give oral evidence upon which he was cross-examined by Mr Rich. The cross-examination of Mr Uckan revealed that the photographs he took were not taken by him "immediately after the Respondents vacated the premises" as he deposed. Rather, they were taken some two weeks later, at a time when work had already commenced for the refurbishment of the premises. He also conceded that his solicitor's letter of 5 August 2011 made no reference to any damage caused by the Respondents. 15Mr Kennedy tendered as Exhibit 11 photographs which appear to be taken after the Respondents vacated the premises as they show that fixtures and fittings have been removed but they also show the premises to be clean and neat in contrast to the photographs annexed to the affidavit of Mr Uckan. 16Although as at August 2011 the circumstances which prompted me to order a 30% abatement of the rent still existed, the lessee's vacation of the premises and failure to pay rent seems to me to constitute an unlawful repudiation of the lease which the Applicants accepted. The Respondents adduced no evidence which tended towards a contrary conclusion and Mr Kennedy did not address upon the subject. It follows that the Applicants are entitled to damages. They claim those damages under several heads, which I will need to consider separately. 17As to arrears of rent, it seems not to be in issue that nothing was paid by the lessee in rent during the period November 2009 to August 2010 when an order was made by this Tribunal. Thereafter the lessee paid $5,364.94 per month. Exhibit 12 (a single sheet of difficult to follow handwritten calculations) claims that 12 such payments were made but the Applicants give credit in the spreadsheet annexed to Mr Uckan's affidavit for only 10. In my view the spreadsheet should be regarded as more reliable and I accept it. On that basis $53,649.40 was paid by the lessee in the period from August 2010 to the date of repudiation. 18The rent payable under the lease as at 9 November 2009 was $5,364.93 per calendar month. That was reduced to $3,755.45 by my abatement order. Accordingly the rent payable by the lessee up to 9 August 2011, a period of 21 months, was $78,864.45 against which the lessee is entitled to a credit for the amount paid of $53,649.40, leaving a balance due of $25,215.05. For the purpose of that calculation I have assumed, in the absence of evidence to the contrary, that rent was paid up to date as at 9 November 2009. 19The Applicants next claim relates to alleged unpaid outgoings due under clauses 1.19; 23.01 and Item 12 of the schedule to the lease. Mr Uckan deals with the matter of unpaid outgoings in paragraphs 12 to 14 of his affidavit. The amount claimed is $13,502.52 and, in the absence of any evidence or submission to the contrary, this sum should be allowed. It relates to strata levies, water rates and Council rates levied in respect of Lot 16 SP 69822. 20A large part of the Applicant's claim concerned the alleged cost of rectifying damage caused to the premises by the Respondents. 21The obligation of the Respondents in respect of the maintenance of the premises was contained in clause 7.06: "Maintenance of Demised Premises. The Tenant shall at its own cost keep and maintain the demised premises, appurtenances and any Landlord's fixtures and fittings in good and tenantable repair and in good and efficient working order and condition, having due regard to the state of repair and condition at the commencement of the Lease, fair wear and tear and damage by fire storm flood earthquake tempest Act of God riots civil commotions or act of war alone excepted PROVIDED ALWAYS that this exception shall apply only if the Tenant takes all reasonable measures and precautions to ensure that any damage defect or dilapidation which may be so caused is minimised." 22Later provisions dealt with the obligations on termination of the lease: "17.01 Tenant to Yield Up - the Tenant shall upon termination of the Lease yield up the demised premises in the order and condition stipulated in the Lease. 17.02Tenant's Right To Remove Fittings - Provided the Tenant shall throughout the term of the Lease observe perform and fulfil all the covenants terms and conditions on its part expressed or implied in the Lease the Tenant may during the last fourteen (14) days of the term of the Lease remove from the demised premises all the Tenant's plant fittings and stock-in-trade provided that such removal can be effected without causing any substantial damage to the demised premises or the Building and provided further that the Tenant shall make good any damage whatsoever caused to the demised premises or the Building by such removal. 17.03Tenant's Obligations to Remove Fittings - The Tenant shall if required by the Landlord immediately remove from the demised premises after the termination of the Lease all the Tenant's fixtures fittings and stock-in-trade and will make good any damage whatsoever caused to the demised premises or the Building by such removal and if required by the Landlord shall re-alter any alterations made by the Tenant so that the demised premises shall be converted back to their original condition provided always that the Landlord may cause any such plant fixtures fittings and stock-in-trade to be removed and such damage to be made good and any such alterations to be so re-altered and may recover the costs thereof from the Tenant as a liquidated debt payable on demand." 23Apart from the statement made in paragraph 9 of Mr Uckan's affidavit, there is no evidence as to the state of the premises immediately after the lessee vacated them. As indicated earlier, I regard as misleading and unhelpful the photographs taken by Mr Uckan. 24Nor is there any evidence of the cost of rectifying any breach of the lease by the Respondents in relation to repairs and maintenance although, as I understand the position, the Respondents acknowledge that some rectification work was required as a result of the removal of fixtures. 25Mr Uckan annexed to his affidavit a tender by a building company, BRK Projects. The tender included these statements: SITE INSPECTION The entire shop has been stripped and gutted, and during this process extensive damage as (sic) been done throughout the shop, cosmetically and structurally. Description of such damages upon inspection include the following: * Holes and Indentations on vertical walls. * Cracked and Damaged tiles. * Scratched and Indented roof resulting from removal of large items and furnishings. * Damage to ducting and ventilation system in the toilet rooms. * Damages to electrical circuitry. * Damages to plumbing pipes through the process of disconnection. * SCOPE OF WORKS In my opinion the work that needs to be carried out to the premise to bring it to a condition where it can be let-able and ready for fit-out to an interested party, are as follows: * Allowed to supply & install steel stud frames to all vertical walls. * Allowed to supply & install FC sheeting (BLUE BOARD) to steel stud frames. * Allowed to set sand all vertical walls. * Allowed to replace and install new mechanical services to toilets. * Allowed to rewire and supply & install new lighting, smoke detectors, alarm system. * Allowed to remove existing window tints from front entry and replace as required. * Allowed to remove existing lock and replace due to the lock barrel being damaged. * Allowed to repair all damages to existing ceiling as required. * Allowed to water proof wet areas as required. * Allowed to supply & install broken/cracked/damaged floor tiles. * Allowed to repair damages (sic) roof sheeting & sealant to external roof. * Allowed to apply three coats of paint to walls & ceiling. * Allowed to remove all splash back tiles to kitchen area. * Allowed to relocate existing electrical switchboard from kitchen area to store room. * Allowed to reinstall hydraulic services as they have been severely damaged and will need to be upgraded. * Allowed to remove shelving from disable (sic) toilet and refit disable toilet to comply with Australian standards. * Allowed for builders clean (sic). 26The tender amount was $106,700 and according to Mr Uckan's evidence the work has been done. However I am not satisfied that the work tendered for by BRK properly addresses the obligation of the lessee under the lease to repair and reinstate the premises following vacation. Rather, as it seems to me, the tender on the face of it involves the complete refurbishment of the premises. I discount any evidentiary value of the statement "the entire shop has been stripped and gutted" as there is no evidence that the Respondent did this. It is noteworthy that it vacated the premises at the beginning of August whereas the report of BRK Projects is dated 5 November. As the Respondents concede that some damage was caused by the removal of the fittings and fixtures in respect of which the lessee has an obligation and doing the best I can I would allow $10,000 on this account. 27In his affidavit, Mr Uckan testified that as at 14 December 2011, fresh lessees had not been found and, indeed, at that time the rectification work was still in progress. In oral evidence, he said that a fresh lease commenced on 2 January 2012. That fresh lease was not put in evidence. If, as presumably it was, the new lease was for the purpose of a café there must have been a rather miraculous resolution of the proceedings involving Wollongong Council in the Land and Environment Court. 28In any event, the Applicants limited their claim for damages to the period up to 2 January 2012. Although possibly the premises would have been available for re-letting earlier if such extensive refurbishment had not been carried out in all the circumstances of this matter and, in the absence again of any evidence from the Respondents, I think it reasonable to allow damages for the period up to 2 January 2012. Those damages were quantified at $16,693.35, i.e. 5 times the rent of $3338.65. It is reasonable, I think, to allow that claim and also to allow the agent's fee of $8500 for securing a new tenant. 29I turn now to the Applicants' claim in respect of the increased insurance premium claimed by the Owners Corporation and referred to in the Settlement Agreement reproduced above. The matter of the insurance premium loomed quite large in the original hearing of these proceedings and is dealt with at some length in my previous reasons; see for instance paras [86] and [97]. 30The liability to pay increased insurance premiums is alleged to arise under cl 6.18 of the lease on the basis that the lessee did an act whereby the rate of premium on any insurance shall be liable to be increased. As indicated in my previous reasons, I am not persuaded that any act of the lessee caused the alleged increase in insurance premiums. If there was a legitimate reason for the increase it related in my opinion to the inadequacy of the ventilation system provided by the Owners Corporation rather than any act of the lessee. The lessee is not of course bound by the consent orders made in proceedings to which it was not a party. 31Finally, the Applicants seek damages in respect of the installation of an ATM machine on the premises by the lessee allegedly without the consent of the Applicants. In my opinion nothing in the lease prohibited the Respondent installing an ATM machine and nothing flows from the fact that this occurred. In any event, in my view, the issue was determined by the finding in paragraph 101 of my previous reasons. 32I think it fair to allow the Applicants interest on the total of the above sums, namely $73,910. The rate of interest payable upon overdue amounts is stipulated in the lease at 12% per annum. Of course the amounts I have decided to award accrued at various times. I think justice will be served if I allow the lump sum of $10,000 for interest. 33The Applicants seek orders against all three Respondents. Mr and Mrs Verdi were not parties to the original lease but became guarantors of the lessee's obligation by a Deed of Consent and Assignment of Lease dated 1 July 2005. The relevant operative provision of the deed provides: "5.1In consideration of the landlord agreeing to consent to the assignment of the lease to the assignee at the request of the guarantors, the guarantors enter into this guarantee in favour of the landlord on the following terms: 5.1.1the guarantors agree to guarantee the payment of rent and the observance and the performance of all the assignee's obligations as tenant under the lease throughout the balance of the term of the lease, including during any holding over as periodical tenant after the expiry of the term of the lease and during any renewal, variation or extension of the lease; 5.1.2this guarantee covers the whole period whilst the assignee occupies or is entitled to occupy the premises as the tenant, or whilst holding an equitable interest over the premises under an agreement for lease or as a periodical tenant; 5.1.3this guarantee is in favour of the landlord and its successors and assigns being the owner of the premises from time to time during the term of the lease; 5.1.4this guarantee extends to claims by the landlord for damages for breaches of the lease, for breaches of any essential terms of the lease and for repudiation of the lease or agreement for lease and to the landlord's reasonable legal and other expenses of seeking to enforce those obligations against the tenant or of recovering possession and of terminating the lease; 5.1.5this guarantee extends to the landlord' loss or damage in the event of the assignee abandoning or vacating the premises and also in the event of the landlord electing to re-enter the premises or to terminate the lease, including for the assignee's repudiation of the lease; 5.1.6the landlord shall be entitled to require the guarantors under this guarantee to pay to the landlord any outstanding rent or other amount or to compensate the landlord for any loss or damage under the lease without the landlord being required to institute and proceedings against the assignee in respect of such claims or breaches. 34In my opinion, the terms of the clause reproduced above are sufficiently wide to encompass the damages, which I propose to order in favour of the Applicants, and the order should therefore be made against all the Respondents. 35Mr Rich applied for the costs of the proceedings. His application is governed by s 88 of the Administrative Decisions Tribunal Act. 36Although the dispute between the parties is largely commercial in nature, the Applicants have had considerable success and the case was certainly difficult and complex I am not persuaded that it is fair within s.88A(1A) to order the Respondents to pay the Applicants' costs. In my view, the attitude of the Applicants towards the Respondents has been unreasonable. Perhaps the main cause of the problems has been what I regard as the intransigent attitude of the Owners Corporation but, nevertheless, as it seems to me the Applicants stood by without objection, or were even complicit with the Owners Corporation in what seemed to be its agenda of forcing the Respondents out of business. Moreover, the Applicants allowed the situation which caused me to abate the rent to continue from November 2009 until the lease was terminated in August 2011. I would decline to make an order for costs. 37In summary therefore, I would propose to make an order in favour of the Applicants in respect of the following sums: (1)Arrears of rent on termination of lease$25,215.05 (2)Arrears of outgoings $13,502.00 (3)Cost of rectification work $10,000 (4)Damages in respect of lost rent for period up to 2 January 2012$16,693.35. (5)Agents fee on re-letting$8,500 (6)Interest$10,000 TOTAL: $83,910. 40