Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Executors of the Estate of the Late Joan Beatrice Aubrey v Deepwater Retirement Village Pty Limited [2014] NSWCATCD 184 Decision date: 30 September 2014 Before: G Meadows, Senior Member Decision: 1The respondent is pay the applicant the sum of $23,042.80 immediately. 2If the applicant maintains its claim for costs, the applicant is to provide written submissions in that regard no later than 14 days after the date of these reasons. 3The respondent is to provide any written submissions in reply to the application for costs no later than 28 days after the date of these reasons. 4A decision in relation to costs will be made in chambers on the basis of any written submissions received in compliance with the orders above. Legislation Cited: Civil and Administrative Tribunal Act 2013 Retirement Villages Act 1999 Category: Principal judgment Parties: Keith Charles Aubrey and Diane Joan Melville and Vicki Margaret Hewett as executors of the Estate of the Late Joan Beatrice Aubrey (applicant) Deepwater Retirement Village Pty Limited (respondent) File Number(s): RV 13/53679 Publication restriction: Unrestricted reasons for decision APPLICATION 1The application was filed on 15 October 2013, seeking the following orders: (1)An order under s. 128(1)(e) of the Act that the operator pay to the resident by way of refund the sum of $12,724.80 deducted from the proceeds of sale of the residence by the operator; (2)An order that the operator pay to the resident its share of the residents costs of sale calculated in accordance with s.170(1) of the Act (3)An order under s. 128(1)(e) of the Act that the operator pay to the resident by way of refund the sum of $10,318.00 deducted from the proceeds of sale for reinstatement work; (4)In the alternative to order 3, an order that the operator pay to the resident an amount that is deemed by the tribunal to be excessive costs of repairs within the meaning of s. 163(6) of the Act. (5)An order that a penalty of 50 unit points be imposed on the operator for breach of s. 169(1) of the Act. (6)An order that the operator pay interest to the resident on the aggregate of all monies ordered to be paid by the operator to the resident in accordance with the rate specified in Uniform Civil Procedure Rule 36.7 calculated from 26 August 2013 - the date on which the incoming resident wished to take possession and pay the incoming contribution. (7)Such further or other orders as the Tribunal deems fit. 2The reasons for seeking the above orders were as follows: (1)The village operator ('operator') has wrongfully charged the resident the sum of $12,724.80 for the "operator's costs of sale up to 30 June 2013 pursuant to s. 170(1) of the Act" in circumstances where: (a)the operator was not appointed as selling agent; (b)the operator has purported to divide "marketing costs attributed to Deepwater Court by the number of re-sales in the previous financial year" and then charge the resident this amount; (c)the charge made in (b) above is not a 'cost of sale' within the meaning of s. 170(1) of the Act; (d)the operator was not entitled at law to make the charge; and (e)the operator should in fact under s. 170(1) of the Act share the resident's costs of sale which were incurred by the resident in selling the premises. (2)The operator has wrongfully charged the resident the sum of $10,318.00 for "Reinstatement work under clause 16.3(b)(ix) of the lease" in circumstances where: (a)clause 16.3(b)(ix) permits the operator to charge the resident for "an amount to cover the cost of restoration under clause 13.5 if the resident has failed to do it"; (b)clause 13.5 obliges the resident to restore the Unit upon termination "where necessary due to unreasonable treatment by the Resident beyond fair wear and tear"; (c)there is no evidence that any purported damage was caused by "unreasonable treatment" of the resident; (d)there is no evidence that the damage restored was anything other than fair wear and tear in particular when the carpet was 10 years old; (e)on a proper construction of the lease, it is a condition precedent to liability under clause 16.3(b)(ix) that there be a request to restore the unit under clause 13.5 and a failure to restore the unit after such a request; (f)the resident was never requested to restore the unit under clause 13.5 (or at all) and therefore has not "failed to do (the restoration work)'Within the meaning of clause 16(3)(ix) of the lease and is therefore not liable for the cost of restoration; and (g)the cost of repairs is excessive within the meaning of section 163(6) of the Act. (3)The operator, who was not appointed selling agent, in breach of section 169(1) of the Act interfered with the resident's sale of the premises by: (a)refusing to issue lease documents until such time as the incoming lessee has an "unconditional exchange of contracts on her own home" when it had no entitlement at law to impose such a condition; and (b)requiring restoration work to be carried out when the incoming lessee had entered into an agreement with the resident that she would take the premises in its current state of repair and condition, thereby depriving the resident of part of the consideration for her sale. (4)The operator, in circumstances where it had not been appointed selling agent, failed to facilitate the contract for sale between the resident and her purchaser. 3The application arises from sale of the unit leased by the Late Mrs Joan Aubrey who had leased a unit in the Village on 4 April 2003. Mrs Aubrey died on 27 May 2013 and her executors thereupon commenced making arrangements for the "sale" of the unit. The procedure in this Village is the common method employed by which a resident paid an "ingoing contribution" from which is deducted, according to calculations provided for in the lease, any amounts due to the Village, the balance being paid to the estate. In this case, a "prepaid rental" component accruing to the operator at the rate of 3.5% per annum for the first 10 years of the lease and 0.25% per annum for the 11th to 30th year of the lease is deducted and then a series of further deductions made up of a "departure fee", any capital loss, various legal expenses, any outstanding recurrent charges and interest, costs of reinstatement work (restoring the premises to the condition they were in at the start of Mrs Aubrey's lease) and finally the operator's costs of sale of the unit. All the above provisions and calculations are according to the terms of the lease, except the final deduction for the operator's costs of sale of the unit which is stated to be pursuant to s170(1) of the Act. 4The main monetary components of the claim relate to the operator's costs of sale which were calculated in the sum of $12,724.80 and the reinstatement costs calculate in the sum of $10,318.00, plus interest on those amounts. Evidence and Submissions 5Both parties provided a large bundle of evidence, written submissions and statements. In my opinion, the factual history is largely agreed between the parties although each party asserts the other has not complied with the terms of the lease and has not understood the terms of the lease. Applicant 6The applicant's evidence consists of statements by Mr Keith Charles Aubrey, Ms Vicki Margaret Hewett and Ms Vicki Neal, the solicitor acting for the estate. As well as various annexures to each of those statements, the applicant also provided a paginated bundle of documents. These documents were admitted subject to some objections and deletions. The applicant also tendered the ATO Guide for Rental Properties 2013. 7At the hearing, Mr Hewett gave evidence and was cross-examined. Respondent 8The respondent tendered statement of Mr David Ian Grassby, a sales consultant with LCA Sales Pty Limited, and Mr Andrew John Dudley, the village manager of Deepwater Retirement Village, employed by Living Choice Australia Limited. The respondent also tendered a bundle of documents. Both Mr Grassby and Mr Dudney gave evidence at the hearing and were cross-examined. Consideration and Decision 9With great respect to the individuals concerned, although I found the witnesses to truthful and reasonable, their oral evidence, while to some extent explaining the documentary evidence, did not add to either party's case. 10Mr Hewett relied on his experience to cast some doubt as to the reasonableness of the respondent's reinstatement costs, but in my view he is not an independent expert who can give opinion evidence for that purpose. 11Mr Grassby and Mr Dudney did not add anything to their statements except that both stated their own recollection of the state of the premises accorded with the appearance shown in the respondent's photographs. 12What was significant, in my opinion, was the lack of evidence provided for the calculation of the costs of sale. As will become clear, this amount is stated by the respondent to be calculated by dividing the respondent's "marketing costs" for a period, by the number of villa sales completed in that period. How the marketing costs were calculated was not disclosed. 13Both parties provided considerable detail in relation to various discussions and events occurring during the relevant period (being between the death of Mrs Aubrey and the final repayment to the estate) which in my opinion help to explain the attitudes of the parties but do not impact on the resolution of this application. 14However, one issue is of importance, that being the date of vacant possession. 15It is agreed between the parties that the applicant did not use the services of LCA Sales (a company connected with but separate to the respondent) as agent for the sale of the property. At an early state the applicant made contact with the eventual purchaser, Mrs Coleman, and negotiated the sale directly with her. Mrs Coleman agreed to purchase the unit "as is", including purchasing some of Mrs Aubrey's furniture. The applicant therefore sought to leave that furniture in the premises and also did not make arrangements for any refurbishment works. There were some resulting disputes between the applicant and the respondent arising from that process, principally that the respondent was seeking vacant possession of the unit in order to assess the necessity of any reinstatement works and to complete those works. 16According to the respondent, the applicant was required by the terms of the lease to give vacant possession of the unit by 27 June 2013. In fact, vacant possession was not given until 20 August 2013. During that period there was considerable correspondence between the parties in relation to delays in obtaining probate, how failure to give vacant possession prevented inspections of the unit and delayed procedures relating to settlement and arrangements with the purchaser and so on. In my view, those events do not affect the outcome of this application. 17It is helpful to extract certain clauses from the lease in relation to the calculation of fees and deductions from the final payment to the estate, and certain sections of the Act. 18Clause 16.3 Refund of Payment to Resident - Capital Gain or Loss in subclause 16.3(b)(ix) states: "if applicable, an amount to cover the cost of restoration under clause 13.5 if the Resident has failed to do it". 19Clause 13.5 "Repair of Damage Beyond Fair Wear and Tear Upon Termination" states: "The resident must upon request remove the Fixtures, Fittings and Furnishings and restore the Unit on termination of this Lease where necessary due to unreasonable treatment by the Resident beyond fair wear and tear". 20S170 of the Act states: 170 Costs of sale (1) A resident of a retirement village who sells residential premises in the village and the operator of the village are to share the costs of the sale in the same proportion (if any) as they are to share any capital gains on the sale in accordance with a village contract. (2) However, if the resident appointed a person other than the operator or a person chosen by the operator as a selling agent, the resident is liable to pay the selling agent's commission. (3) The resident is not liable to pay commission to the operator or a person chosen by the operator if the premises are sold otherwise than as a result of the operator's (or person's) acting as the selling agent. (4) In this section, costs of sale includes (without limiting the ordinary meaning of that term) such costs relating to the sale of residential premises in a retirement village as may be prescribed by the regulations, but does not include such other costs relating to the sale of residential premises as may be prescribed by the regulations. 21In relation to the refurbishment costs, it is agreed between the parties that the respondent made numerous requests to the applicant to remove any "fixtures, fittings and furnishings" so as to permit the respondent to assess the premises and carry out any necessary reinstatement works. It is also agreed that vacant possession having been granted on 20 August 2013, the respondent advised the applicant on 22 August 2013 of the scope of reinstatement works required. These works consisted of replacing the carpet and repainting all the rooms at a cost of $10,310.00. The respondent then proceeded to commence those works on 26 August 2013. 22In my opinion, in doing so the respondent failed to comply with the terms of the lease. Clause 13.5 states with complete clarity that the applicant (as "resident") must restore the unit, "where necessary due to unreasonable treatment beyond fair wear and tear". In other words, it is a requirement of the lease that the premises must necessarily be inspected, their state compared to the condition report at the beginning of the lease, a decision made as to whether any likely deterioration is fair wear and tear (itself notoriously a matter of opinion) due to "unreasonable treatment" and an assessment of the reasonable costs of conducting those works found or agreed to come into that category. All this is the responsibility of the resident. 23Only if the resident has failed to do the restoration can the operator deduct the reasonable cost of restoring such damage as is beyond fair wear and tear and then deduct the costs of doing so from the repayment to the estate. 24Clearly the respondent has not followed that procedure. I am satisfied that the restoration work was done without any agreement between the parties as to what may have been the result of "unreasonable treatment" beyond fair wear and tear. The evidence of Mr Hewett, while not probative of the reasonable costs of restoration, do demonstrate the existence of a possible disagreement in that regard. The respondent's submission that "settlement was looming" does not remove the requirement for the respondent to comply with the terms of the lease. I am also persuaded that in the circumstances of this case, where the incoming resident agreed to purchase the premises "as is", which was known to the respondent, provides a further reason why the respondent should have consulted with the applicant prior to commencing and completing the repairs. 25(It may be that the respondent has an argument to the effect that even if the incoming resident had agreed to purchase the unit in its current condition, the respondent as operator may still have insisted that reinstatement was required under the lease, and the applicant and the incoming resident may have been required to renegotiate the terms of the sale. That is not at issue here). 26There is the further complication that the respondent, through Mr Grassby, had written to the applicant's solicitor a letter dated 06 June 2013 which stated in relation to reinstatement works: "Once approved by you, this document [an itemised and priced Scope of Works] gives permission for these works to proceed as soon as possible". Such approval was never given by the applicant. 27I note that the applicant advises that in fact the incoming resident did pay an additional $6,000.00 as the carpet was replaced. The applicant submits that that can be dealt with, in the event of a decision in favour of the applicant, by the applicant refunding the amount of $6,000.00 to Mrs Coleman. 28I find that the respondent has failed to comply with the terms of the lease in relation to obtaining approval of an itemised and priced scope of works for reinstatement costs, and has failed to prove the costs incurred were the result of "unreasonable treatment" beyond fair wear and tear, or are reasonable costs for the work done. 29In relation to the costs of sale of the unit, there is no doubt in my opinion that the applicant is responsible for all costs of sale pursuant to the lease provisions in relation to apportionment of capital gain (all of which was due to the applicant). I understand there to be no dispute in that regard. 30Neither the Act itself, nor s170 specifically, defines "costs of sale", but indicates, apart from possible regulations, it bears its ordinary meaning. There are no relevant regulations in that regard. 31As noted previously, the respondent has calculated this sum as stated in the letter of UKB Lawyers dated 4 October 2013 sent to the applicant's lawyers. Specifically, the letter states: Operator's Costs of Sale ... (iii) please see attached document headed "Sales Return - Central Coast. Our client has divided the marketing costs attributed to Deepwater Court by the number of re-sales in the previous financial year." There is no explanatory information in the attached document, either as to how "marketing costs" are made up nor as to how the figure of $12,724.80 is calculated. However, the total expenses allocated to "Deepwater" amounts to $63,624.00, while the number of resales for the 12 months to June 2013 in Deepwater is said to be 5. The result of dividing the first figure by the second is $12,724.80. The various "expenses" include items such as uniforms, "collateral material", equipment rental, "resident relations", sponsorship, TV and many others. Not all are expensed to Deepwater but the majority are. 32I cannot accept that these general costs can be regarded as "costs of sale" in regard to this specific unit. In my opinion, some items, such as "resident relations" cannot be regarded as a cost of sale at all. Uniforms, "VUL's", electricity and gas, "client entertainment" cannot be related to the sale of this unit on the information available. I also am not inclined to find it is reasonable that the marketing costs in any one period should even theoretically be allocated to "costs of sales". It must be a matter of coincidence, for example if any particular number of re-sales occurs in any particular period. Suppose, in this case, if Mrs Aubrey's unit was the only one sold in 2012/13 at Deepwater because no other resident happened to die or leave the village. Presumably, the operator would be claiming $63,624.00 from the applicant, having made decision in relation to marketing expenditure without regard to the actual number of sales in the period. That cannot be fair. 33I find that the costs of sale in section 170 of the Act in relation to this unit must be understood as being those particular costs associated with the sale of this particular unit, such as agent commissions, advertising of this unit, demonstrating this unit to prospective purchasers and any other such particularised costs. Therefore, I find the amount claimed by the respondent in the sum of $12,724.80 is not a cost of sale for the purposes of the Act. 34I am not satisfied that the respondent has relevantly "interfered with the sale of the unit" and in any case this Tribunal does not have the jurisdiction to impose a civil penalty pursuant to the Act: see "Part 11 Enforcement". 35The respondent is to pay the applicant the amount of $23,042.80 within 28 days of the date of these orders, plus interest pursuant to section 24(4)(b) of the Act. If the parties are unable to agree on the amount of interest payable, the applicant is to write to the Tribunal setting out the nature of any dispute for the Tribunal to calculate interest. 36The application is otherwise dismissed. Geoffrey Meadows Senior Member Civil and Administrative Tribunal of New South Wales 30 September 2014 Amended 2 October 2014 and further amended 21 October 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. 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: 26 November 2014