Arglen Pty Ltd v Jacarta Pty Ltd [2015] QDC 162

DISTRICT COURT OF QUEENSLAND CITATION: Arglen Pty Ltd v Jacarta Pty Ltd [2015] QDC 162 PARTIES: ARGLEN PTY LTD (plaintiff) v JACARTA PTY LTD (defendant) FILE NO: 31/2014 DIVISION: Civil PROCEEDING: Claim - Declaration ORIGINATING COURT: District Court, Beenleigh DELIVERED ON: 24 June 2015 DELIVERED AT: Beenleigh HEARING DATE: 3 June 2015 JUDGE: Dearden DCJ ORDER: The court makes the following declarations: 1. The letter dated 13 February 2013 [actually 13 March, 2013] from the defendant to the plaintiff was not a valid notice under clause 3.3 of the lease between the defendant and the plaintiff which commenced 3 March 2008. 2. The plaintiff is entitled to negotiate the rent for the renewed term of the lease and if those negotiations fail, to invoke the provisions of clause 3.4 of the lease regarding the appointment of a valuer to establish the rent for the renewed term. CATCHWORDS: LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENT – CONSTRUCTION AND INTERPRETATION – where the plaintiff exercised its option under a retail shop lease to extend the lease term – where the plaintiff and defendant are in dispute as to the rent applicable to the premises for the extended term – where the lease provides a mechanism for rent review – where the defendant’s letter to the plaintiff did not constitute a valid notice pursuant to clause 3.3 of the lease – where the parties remain in dispute as to the quantum of rent payable – where the Retail Shop Leases Act 1994 sets out a regime for parties -- 1 of 9 -- 2 who cannot agree – whether to make order for declaration that the plaintiff is entitled to negotiate the rent for the renewed term of the lease LEGISLATION Retail Shop Leases Act 1994 s.28 COUNSEL: Dr C Jensen (Sol) for the plaintiff A Martin (Sol) for the defendant SOLICITORS: Dr Craig Jensen, lawyers for the plaintiff David K Lawyers for the defendant Introduction [1] The plaintiff lessee, Arglen Pty Ltd, entered a lease with the defendant lessor, Jacarta Pty Ltd, for Suite 22, Jimboomba Junction Shopping Centre on 3 March 2008 for a period of five years, with an option to extend the lease for a further period of three years. The plaintiff, who remains in possession of the premises, exercised its option under the lease to extend the term of the lease for a further three years. The plaintiff and defendant are in dispute as to the rent applicable to those premises for the extended term. [2] The plaintiff, by claim, seeks declarations that: (a) a letter dated [erroneously] 13 February 2013 [actually written 13 March 2013] from the defendant to the plaintiff was not a valid notice under clause 3.3 of the lease [entered into between the plaintiff and the defendant and commencing 3 March 2008]; (b) the plaintiff is entitled to negotiate the rent for the renewed term of the lease and if those negotiations fail, to invoke the provisions of clause 3.4 of the lease regarding the appointment of a valuer to establish the rent for the renewed term. Background [3] The plaintiff and the defendant executed a five year lease commencing 3 March 2008 for premises identified as Suite 22, Jimboomba Junction Shopping Centre comprising either 53 m2 1 or 542 2. [4] The dispute arises from the steps taken by the plaintiff to exercise the option for a three year extension to the lease, and the subsequent negotiations in respect of the applicable rent for that extended three year term. [5] Clause 3.3 of the lease titled “Market Rent Review” provides as follows3:- 1 Exhibit 8, p. 2 “item 3”. 2 Exhibit 1, letter Tobin King Lateef (solicitors for the defendant) to Arglen Pty Ltd 29 October 2008 – attachment. 3 Exhibit 8, p. 10, clause 3.3. -- 2 of 9 -- 3 “(a) At any time not earlier than three (3) months (in which regard time is of the essence) prior to each date stated in Item 5 of the Reference Data (“Market Review Date”), the Lessor may notify the Lessee in writing of the amount in which the Lessor considers to be the current market rent appropriate to the Premises as from the Market Review Date. (b) If the Lessee disagrees with the Lessor’s notice of proposed rent given under clause 3.3(a), the Lessee must give written notice to the Lessor within twenty one (21) days of the delivery of the Lessor’s notice given under clause 3.3(a) that it disputes the rent proposed. (c) Unless notice is given by the Lessee within the time specified in this clause, the amount stated in the Lessor’s notice given under clause 3.3(a) becomes the Annual Rent reserved by this Lease on and from the Market Review Date in substitution for the amount of Annual Rent previously determined.” [6] Paragraph 3.4 of the lease titled “Dispute as to Rent/Expert Determination Procedure” goes on to set out a detailed dispute resolution process, should the lessor and lessee be unable to agree on the rent to apply from a particular Market Review Date, within one month after that date.4 [7] In a letter dated 21 January 2013, the plaintiff wrote to the defendant in the following terms:5 “Re: Jimboomba Junction Shopping Centre – Dr Craig Jensen Lawyers We refer to the exercise of the option in the lease of our office. We need to agree on the rent for the extended term. There is obviously an oversupply of retail space in Jimboomba and we propose a 15% decrease in the rent. Please advise your response.” [8] In reply, the defendant wrote to the plaintiff in the following terms:6 “Re: Lease from Jacarta Pty Ltd to Arglen Pty Ltd Shop 22, Jimboomba Junction, Jimboomba Lease Option We refer to your correspondence dated 21 January 2013 and advise we do not consider a 15% decrease in rent as the current market rental. In considering the rentals recently being achieved in the market we propose the gross rental of $460.00 psm. As per the correspondence you would have received last month, Coast Commercial has been appointed as mangers (sic) for the centre. However, in the interest of finalising this matter as quickly as possible, Jacarta Pty Ltd will remain your contact for the market rental and as 4 Exhibit 8, p. 10, clause 3.4. 5 Exhibit 2 6 Exhibit 3 -- 3 of 9 -- 4 such your response should be directed to the undersigned. All other matters are to be referred to Coast Commercial.” [9] It is common ground that there was no response to the defendant’s letter of 13 February 2013. The next piece of correspondence is a letter purportedly dated 13 February 2013, but noted by the plaintiff as having been received 14 March 2013 and acknowledged by the defendant as having been sent on 13 March 2013.7 This letter stated:8 “Re: Lease from Jacarta Pty Ltd to Arglen Pty Ltd Shop 22, Jimboomba Junction, Jimboomba Lease Option Market Rent Review We refer to our correspondence date [sic] 13 February 2013 [sic] proposing the market rental of $460.00 psm for your Option Term commencing 3 March 2013. We have not received written correspondence from you indicating you disagree with this rental. As per clause 3.3(b) of your lease a written notice of dispute was required within 21 days of the Lessor’s notice. As such notice has not been received your rental will be adjusted to $460.00 psm from 3 March 2013. This adjustment will be reflected in your April tax invoice. Should you have any queries regarding this matter, please contact the undersigned.”9 [10] By letter dated 15 March 2013 the plaintiff wrote to the defendant in the following terms:10 “Re: Lease We refer to your recent letter dated 13 February but received here on 14 March and presumably written in March. Your earlier letter of 13 February was not a valid notice of the amount which you considered to be the current market rent. It suggested “$460.00 psm” but that was ambiguous as: (a) It did not state whether GST was included or not; and (b) You seem to think that area is 54 sqm (you said that to Jill Jensen on 3 March) but the Lease says 53 sqm and this also muddied the waters as to what figure you actually mean. We remain in dispute about the rent and the dispute needs to be resolved by 3 April (sub-cl.20.1(d)). But having said that, we would 7 Exhibit 10 – outline of defendant’s submissions, p. 2, para 5. 8 Exhibit 4 9 Exhibit 4. 10 Exhibit 5 -- 4 of 9 -- 5 like to resolve the matter. Please advise within the next seven days what sum excluding GST you say is the amount payable for the rent each month. We will then respond promptly.”11 [11] The defendant in a letter dated 18 March 2013 then responded as follows:12 “Re: Lease from Jacarta Pty Ltd to Arglen Pty Ltd Shop 22, Jimboomba Junction, Jimboomba Lease Option Market Rent Review We refer to your correspondence dated 15 March 2013 and apologise for the typing error with regards to the date, the letter you refer to should have been dated 13 March 2013 and not 13 February 2013. Regardless you did not dispute the rental proposed within the required timeframe as per clause 3.3(b) even after my phone discussion with Jill Jensen on 20 February 2013. I don’t recall speaking with Jill on 3 March 2013. The rental of $460 psm is excluding GST in line with your lease document which also expresses your rental as an exclusive of GST amount. Further, I confirm your tenancy is 54 m2, the lease states 53 m2 subject to survey. As per the enclosed survey plan your tenancy area was surveyed as 54 m2 (referred to in the enclosed as B22). Hence your new rental effective 3 March 2013 is: $460.00 psm x 54 m2 = $24,840.00 + GST per annum or $2,070.00 + GST per month. Should you have any queries regarding this matter please contact the undersigned.” [12] I note in passing that the Jimboomba Junction Shopping Centre has subsequently been sold by the defendant to a third party, who is aware of the proceedings, but has not been joined in the litigation, and (it appears) does not seek to be joined in the litigation, although it is being kept informed of the progress of the litigation.13 [13] This litigation squarely raises two issues: (a) whether the defendant’s letter (purportedly dated 13 February 2013, actually 13 March 2013) was a valid notice pursuant to clause 3.3 of the lease; and 11 Exhibit 5. 12 Exhibit 6 13 Transcript 1-5. -- 5 of 9 -- 6 (b) whether or not the defendant and the plaintiff are parties who cannot agree within 28 days of the rent review date of a retail shop lease and are therefore subject to the provisions of s. 28 of the Retail Shop Leases Act 1994 (which sets a mechanism for the appointment of a valuer in the event of the lessor and lessee being unable to agree on a rent within 28 days of the rent review date). Was the defendant’s letter of (purportedly) 13 February 2013 (actually 13 March 2013) a valid notice pursuant to clause 3.3 of the Lease? [14] The key operative sentence from the defendant’s letter (purportedly 13 February 2013 but actually 13 March 2013) is in the following terms:- “In considering the rentals recently being achieved in the market we propose the gross rental of $460.00 psm.” [15] Mr Martin, who appears for the defendant, asserts that “this statement can only be taken as the defendant providing notice of the amount which the defendant considered to be the current market rent appropriate to the premises as from the market review date”14, and submits further that, given that clause 23.2 of the lease15 states: “It is agreed that rent and all other amounts agreed to be paid by the lessee to the lessor, being the consideration for the supply expressed in this lease, exclusive of GST.” then the reference to a “gross rental of $460.00 psm” was a GST exclusive reference. Mr Martin further submits that any potential issue about the ambiguity of the area the subject of the lease (noted at item 3 under the heading “Reference Data”16 as “Area: Fifty-three (53) m2 subject to survey) was resolved by the subsequent correspondence from the defendant to the plaintiff dated 29 October 200817 which attached a surveyor’s sketch plan of the premises the subject of the lease and identified the relevant premises (“lease B22”) as 54 m2. In that context, Mr Martin submits that there is no ambiguity as to the area (and consequently the gross lease rental) but submits further that if there was any uncertainty as to the rent being proposed, clarification could have been sought by the plaintiff from the defendant, but no such clarification was sought. [16] Dr Jensen, for the plaintiff, submits that clause 3.3 of the lease, as a self-executing deeming provision, should be construed strictly, with any ambiguity decided in favour of the tenant i.e in accordance with the contra proferentem rule. In that respect, he submits, the terms of Exhibit 4 (the defendant’s letter purportedly dated 13 February 2013, actually dated 13 March 2013) does not satisfy the obligation of the lessor to “notify the lessee in writing of the amount which the lessor considers to be the current market rent appropriate to the premises as from the market review date.”18 Mr Martin on behalf of the defendant frankly conceded that the correspondence was not the 14 Exhibit 10 – outline of defendant’s submissions, p. 4, para 8(a). 15 Exhibit 8, p. 38. 16 Exhibit 8, p. 2. 17 Exhibit 1. 18 Transcript 1-18. -- 6 of 9 -- 7 clearest, but nonetheless argues that it was sufficient to satisfy the provisions of clause 3.3(a).19 [17] Dr Jensen, on the other hand, argues that there is a distinction between a “statement of what the landlord considers to be the current market rent on the one hand, and a contractual offer on the other.”20 Dr Jensen acknowledges that although a clause 3.3 notice could legitimately state both the lessor’s opinion as to “current market rent appropriate to the premises” and a contractual offer for rent, the notice in Exhibit 3 contains only the offer, with no opinion from the lessee as to “the current market rent appropriate to the premises”. [18] Clause 3.3(b) then goes on to state: “If the lessee disagrees with the lessor’s notice of proposed rent given under clause 3.3(a)”, but Dr Jensen submits, the drafter of the lease failed to appreciate and identify that a statement of the amount which the lessor considers to be ‘the current market rent appropriate to the premises’ may not be the same as the lessor’s new ‘proposed rent’ referred to in clause 3.3(b).21 [19] Dr Jensen then argues that the notice was ambiguous and uncertain, and could, for example, have been expressed simply in these terms: “In our view the current market rent appropriate to the premises is $2,277.00 per month plus GST.”22 Conclusion [20] Given the self-executing deemed consequences of clause 3.3 of the lease, and the contra profenterem rule (the defendant having produced the lease), I accept the plaintiff’s submission that the clause should be construed strictly and the obvious ambiguity between clause 3.3(b) and clause 3.3(a) should be construed in favour of the lessee. [21] It is unsafe to parse the critical sentence, which commences “In considering the rentals recently being achieved in the market…”23 and then concludes “we propose the gross rental of $460psm”.24 I accept the submission that a strict construction of the sentence, as parsed, does not compel a conclusion that the figure of “460psm” is “the amount which the lessor considers to be the current market rent applicable to the premises”. Any ambiguity should be construed strictly against the party who benefits from the clause (in this case, the lessee). [22] Accordingly I conclude that the defendant’s letter of 13 February 2013 does not satisfy the lessor’s obligation to “notify the lessee in writing of the amount which the lessor considers to be the current market rent appropriate to the premises as from the 19 Transcript 1-7. 20 Exhibit 9 – submissions by the plaintiff, p. 2, para 10. 21 Exhibit 9, p.2, para’s 9-10. 22 Exhibit 9, p.2, para 16. 23 Exhibit 3. 24 Exhibit 3. -- 7 of 9 -- 8 market review date”. Consequently, the admitted failure by the lessee to give written notice by the lessor within 21 days of the delivery of the letter of 13 February 2013 from the defendant to the plaintiff does not trigger the provisions of cl 3.3(c), and accordingly the parties remain in dispute as to the quantum of the rent payable on the three year option term of the lease. Applicability of Retail Shop Leases Act s. 28 [23] It is common ground that the premises leased by the plaintiff constitute a “retail shop lease” as defined by the Retail Shop Leases Act 1994, and consequently this court should consider whether s. 28 of that Act titled “Rent Review on the Basis of Current Market Rent” is applicable. That section provides:- “(1) This section applies if – (a) rent under a retail shop lease is to be reviewed on the basis of the current market rent of the leased shops; (b) the lessor and lessee cannot agree on the current market rent within one month after the review date. (2) The current market rent is to be determined by a specialist retail valuer agreed by the lessor and lessee, or failing agreement, nominated by the Chief Executive. (3) The valuer may carry out the determination only if the valuer is independent of the interests of the lessor and lessee.” [24] Given the conclusion that I have reached in respect of the interpretation of cl 3.3 of the lease, it is not strictly necessary to decide whether the deeming mechanism of cl 3.3 of the lease, which specifies that the lessor’s notice of proposed rent, if not disputed within 21 days of the delivery of the lessor’s notice under clause 3.3(a), is a deemed agreement as to “annual rent” from the “market review date”. [25] Both Dr Jensen for the plaintiff, and Mr Martin for the defendant, have conducted exhaustive citation searches, but neither have been unable to locate any authority which assists in the interpretation of s. 28 of the Retail Shop Leases Act. Mr Martin submits that the deeming provisions of cl 3.3, which effectively mandate the new annual rent figure in the absence of disputation within 21 days of the lessor’s notice, amounts to a deemed agreement such that the lessor and lessee were not parties falling within the purview of a provision which states “(s. 28(1)(b)) the lessor and lessee cannot agree on the current market rent within one month after the review date”. Dr Jensen on the other hand submits that it could not be asserted that the “the lessor and lessee cannot agree” where any such “agreement” is the deemed outcome of a self- executing clause such as cl 3.3 in Exhibit 8. Conclusion [26] Were it necessary to decide this issue, I consider that the plain language of the provision is broad enough to cover a lessee caught by the deeming provisions of cl 3.3, whether because of oversight, a failure to receive the relevant notice because of an absence from the premises, illness or otherwise. Accordingly, I would have -- 8 of 9 -- 9 concluded that the plaintiff was entitled to the rent review mechanism set out in s 28 of the Retail Shop Leases Act, had I not concluded that the defendant’s letter dated 13 February 201325 was not a valid notice pursuant to clause 3.3 of the lease. Declarations [27] I make the following declarations:- (a) The letter dated 13 February 2013 [actually 13 March, 2013] from the defendant to the plaintiff was not a valid notice under clause 3.3 of the lease between the defendant and the plaintiff which commenced 3 March 2008. (b) The plaintiff is entitled to negotiate the rent for the renewed term of the lease and if those negotiations fail, to invoke the provisions of clause 3.4 of the lease regarding the appointment of a valuer to establish the rent for the renewed term. [28] I will give the parties liberty to apply in respect of any consequent orders that are necessary to resolve outstanding issues. Costs [29] I will hear the parties on costs. 25 Exhibit 3. -- 9 of 9 --