Brisbane Comedy Pty Ltd t/as Albion Comedy Club & Restaurant v Malisano & Ors [2015] QCAT 340

CITATION: Brisbane Comedy Pty Ltd t/as Albion Comedy Club & Restaurant v Malisano & Ors [2015] QCAT 340 PARTIES: Brisbane Comedy Pty Ltd ACN 128 982 543 t/as Albion Comedy Club & Restaurant (Applicant) v Guglielmo Malisano Maria Malisano Lawrence Peitro Malisano Lucielle Malisano Leanne Malisano (Respondents) APPLICATION NUMBER: RSL071-14 MATTER TYPE: Retail shop leases matters HEARING DATE: On the papers; the Panel met to consider the matter on 14 July 2015 HEARD AT: Brisbane DECISION OF: Senior Member Brown Neil Judge Don McBryde DELIVERED ON: 21 August 2015 DELIVERED AT: Brisbane ORDERS MADE: 1. The determination dated 24 July 2014 does not comply with the Retail Shop Leases Act 1994. 2. The determination is set aside. 3. A further determination of current market rent is to be undertaken in compliance with the Retail Shop Leases Act 1994 by a different specialist retail valuer. 4. For the purpose of undertaking the further determination the specialist retail valuer is to be provided with a copy of these reasons. CATCHWORDS: RETAIL SHOP LEASES – DETERMINATION OF CURRENT MARKET RENT – whether determination by specialist retail valuer complies -- 1 of 8 -- 2 with requirements of Retail Shop Leases Act – whether valuer failed to take into consideration associated arrangements – whether valuer failed to specify the matters taken into account – whether reasons for decision adequate Acts Interpretations Act 1954 (Qld), s 27B Retail Shop Leases Act 1994 (Qld), s 29, s 31, Schedule Annandale Pharmacies (NQ) Pty Ltd t/as Terry White Pharmacy v The Angliss Estate (Annandale) Pty Ltd [2014] QCAT 171 Kumari v Gao [2008] RSLT 19 Vesco Nominees Pty Ltd v Stefan Hair Fashions P/L [2001] QSC 169 Silver Jewellery Shop & Piercing Planet v Telado Pty Ltd & G & J Drivas Pty Ltd [2013] QCAT 561 APPEARANCES: This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act). REASONS FOR DECISION Introduction [1] Brisbane Comedy Pty Ltd ACN 128 982 543 t/as Albion Comedy Club & Restaurant (‘Brisbane Comedy Club’) operates a restaurant and comedy club from premises it leases from Guglielmo Malisano, Maria Malisano, Lawrence Peitro Malisano, Lucielle Malisano, and Leanne Malisano (‘the Malisanos’). In accordance with the terms of the lease, a specialist retail valuer (‘SRV’) was appointed to undertake a determination of the current market rent. The SRV prepared a determination. Brisbane Comedy Club disagrees with the determination and seeks to have it set aside and a new determination undertaken by a different valuer. Issues for determination [2] Brisbane Comedy Club argues that the rental determination does not comply with the requirements of the Retail Shop Leases Act 1994 (Qld) (‘RSL Act’), is therefore invalid and that a further determination of the current market rent should be undertaken by another valuer. [3] In essence, Brisbane Comedy Club argues that the SRV: a) took into consideration matters beyond the scope of the RSL Act requirements; -- 2 of 8 -- 3 b) failed to consider matters which should have been considered under the RSL Act; c) failed to set out what matters he did in fact take into consideration in making the determination; and d) did not state detailed reasons for the determination. Did the SRV consider matters beyond the scope of the RSL Act? [4] The RSL Act clearly sets out the relevant requirements which an SRV must comply with when determining current market rent. [5] An SRV must determine the rent: on the basis of the rent which would reasonably be expected to be paid for the premises if it were unoccupied and offered for the same or substantially similar use under the lease;1 on the basis of gross rent less the lessor’s outgoings payable by the lessee;2 on an effective rent basis.3 [6] Effective rent basis is defined.4 [7] An SRV must not have regard to the value of goodwill of the lessee’s business or the lessee’s fixtures and fittings.5 However the SRV must have regard to the terms and conditions of the lease6 and submissions from the lessor and lessee about the market rent for the shop.7 [8] The requirements imposed by the RSL Act upon SRV’s undertaking current market rent determinations are mandatory. The effect of the RSL Act provisions is to effectively codify determinations of current market rent.8 [9] Once the SRV has considered the required matters, the determination itself must also meet specific requirements. Among other things, the determination must state the matters taken into consideration by the SRV in making the determination9 and state detailed reasons for the determination.10 [10] As a person required by the RSL Act to give written reasons for a determination, the SRV must also set out their findings on material questions of fact and refer to the evidence or other material on which those findings were based.11 [11] Brisbane Comedy Club argues that the SRV has, contrary to the requirements of the RSL Act, relied upon a definition of Market Rental not 1 RSL Act s 29(a)(i). 2 Ibid s 29(a)(ii). 3 Ibid s 29(a)(iii). 4 Ibid Schedule. 5 Ibid s 29(b). 6 Ibid s 29(c)(i). 7 Ibid s 29(c)(ii). 8 Kumari v Gao [2008] RSLT 19. 9 RSL Act s 31(1)(c). 10 RSL Act s 31(1)(d). 11 Acts Interpretation Act 1954 (Qld) s 27B. -- 3 of 8 -- 4 contained in the RSL Act when making the determination. The SRV refers in the determination to the term Market Rental as defined by the International Valuation Standards Council: The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arms length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.12 [12] Brisbane Comedy Club argues that evidence of this reliance can be found in the determination where the SRV states, when referring to the lessor and the lessee at the time the original lease was entered into: There is no sustainable evidence that either did not act knowledgeably, prudently and without compulsion.13 [13] The definition referred to in the determination both imports considerations beyond the scope of the RSL Act requirements and makes no reference to others. There is for example, no reference to premises being unoccupied, being used for the same or substantially similar use or whether the value of goodwill and fixtures and fittings are, or are not, taken into consideration. As noted, the requirements under the RSL Act are clearly set out and are mandatory in nature. [14] This direct reference by the SRV to the definition of Market Rental and the relevance of the statement and the circumstances relating to the negotiation of the original lease are not explained in the determination other than the observation by the SRV that the lessee may have benefitted from ‘more through (sic) due diligence and professional advice’ when relocating its business to the premises. [15] It is not immediately apparent how these issues are relevant to the requirements under the RSL Act and if there is any such relevance it is not explained in the determination. [16] We are of the view that it is more likely than not that the SRV took into consideration matters beyond the scope of the RSL Act in referring to the term Market Rental. [17] The SRV makes reference to the circumstances under which Brisbane Comedy Club originally entered into the lease of the premises. He notes that: the relevant rental should not be disregarded, albeit recognising that agreement occurred (sic) 2008 under these circumstances.14 [18] The SRV does not explain what is meant by this comment – what the ‘relevant rental’ is, and why it should not be disregarded. Indeed, given his specific observation that the ‘relevant rental’ was not to be disregarded, we 12 Determination, p 2. 13 Ibid, p 10. 14 Ibid. -- 4 of 8 -- 5 are of the view that the SRV likely did have regard to the ‘relevant rental’ (whatever he may have meant by the term) contrary to the requirements of the RSL Act. Did the SRV fail to consider matters which should have been considered under the RSL Act? [19] Brisbane Comedy Club says that the existence of a licence arrangement between it and the Malisanos in relation to additional car parking spaces on an adjoining parcel of land was a matter which the SRV failed to take into consideration in the determination. Brisbane Comedy Club says that the SRV should have taken into consideration the licence arrangement as an ‘associated arrangement’ under the definition in the RSL Act of ‘effective rent basis’.15 [20] Brisbane Comedy Club says that it made specific submissions to the SRV regarding the licence arrangement.16 [21] In his report, the SRV refers to the existence of the licence arrangement. The determination states: Whilst it does not form part of the Lease for Determination purposes, it indicates agreement between both parties that the carparking that forms part of the demised premises is insufficient.17 [22] The RSL Act requires the SRV to determine the rent on an effective rent basis.18 Effective rent basis means the determination of the rent having regard to all associated advantages and disadvantages under arrangements made between the lessor and lessee that reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements. [23] The meaning of ‘associated arrangements’ was considered in Vesco Nominees Pty Ltd v Stefan Hair Fashions P/L19 where Muir J observed: I see no reason why “arrangements” in the definition of “effective rent basis” should be confined to things which fall short of legally binding obligations. No sensible purpose would be served under the Act by taking into account only those “arrangements” which were not legally enforceable. [24] The manner in which the SRV deals with the issue of the licence in the determination suggests that it was disregarded in his determination in circumstances where it was a relevant ‘associated arrangement’. 15 RSL Act, Schedule. 16 Affidavit of David Stuart Brown filed 15 December 2014 at [28]. 17 Determination, p 9. 18 RSL Act s 29(a)(iii). 19 [2001] QSC 169. Muir J makes specific reference to the example of a licence to use land owned by a landlord for car parking by a tenant. ‘For example, a licence to use land owned by the landlord for car parking by the tenant and the tenant’s invitees and licencees for valuable consideration. What would be the point of catching such a transaction if not legally enforceable and disregarding it if legally enforceable’. -- 5 of 8 -- 6 [25] We are satisfied that the SRV has failed to properly consider the issue of the licence in his determination. Alternatively, if he did take it into consideration, his reasons do not reflect this. Did the SRV fail to set out what matters he did in fact take into consideration in making the determination? [26] The SRV identifies a range of sources of information upon which he relied in the formulation of his determination. [27] The SRV acknowledges the submissions received from the parties. The submissions are not attached to the determination nor are they referred to in any detail other than the statement that the determination ‘addresses the salient issues raised in a collective manner rather than a point by point discussion of matters presented by each party’.20 [28] The determination does not identify the ‘salient issues’ nor does it articulate what is meant by a ‘collective manner’. It is therefore not possible to identify whether the ‘salient issues’ have been dealt with and in what manner. [29] The SRV refers to ‘research undertaken’ which indicates that Brisbane Comedy Club is a ‘judicious operator of that business’.21 He does not identify the nature or content of that research. He does not explain the relevance of the comment regarding the observed business acumen of the lessee. It may be that the SRV has considered matters beyond the scope of the RSL Act requirements. The determination is unclear in this regard and we cannot be satisfied that the SRV has not done so. [30] The SRV notes that ‘It is apparent that the wedding venue/function room sector has undergone significant change over the past decade or so’.22 He does not identify the basis upon which he makes this assertion, why it is apparent such changes have occurred, why those changes are considered significant and the relevance of this to the determination. [31] The SRV goes on to state that the premises have limited viability for the purpose of ‘Reception Lounge, Function Centre’. Again, the basis upon which this statement is made is not explained in the determination or the relevance of the statement in the determination. [32] The SRV makes reference to comparable evidence. The determination makes reference to both parties having submitted ‘numerous examples of comparable evidence’.23 The determination refers to ‘separate independent research’ having been undertaken. The specific details of that research are not set out other than the observation that such research included ‘other lease transactions in the subject building’.24 20 Determination, p 9. 21 Ibid, p 10. 22 Ibid. 23 Ibid, p 11. 24 Ibid. -- 6 of 8 -- 7 [33] The determination refers to ‘many transactions’ having been ‘independently researched’ (presumably by the SRV) although, again, these are not detailed in the determination. [34] The SRV expresses the view that the most appropriate method of valuation is based upon annual rental and not ‘$ /square metre’ on the basis that the latter is an appropriate benchmark when comparing premises with similar size, location, physical characteristics and similar use. The SRV notes that this methodology is less useful when such characteristics do not exist and observes that the subject determination is ‘just such a circumstance’.25 [35] The SRV identifies three comparable premises with particular characteristics said to be referable to the subject premises. One is identified as ‘smaller, superior quality premises & location’; one as ‘much larger, vastly superior premises in all respects’; one as ‘smaller, inferior quality premises in far superior location’. The terminology is not consistently applied across the three premises, the second containing no reference to ‘location’. [36] Whilst the determination refers to the comparable premises as new leases, it is unclear from the comparisons whether the leases referred to were in respect of premises already occupied and from which established businesses were operating and new leases negotiated, or whether the comparable premises were previously unoccupied. The distinction is an important one. The former may involve factors irrelevant to a determination under the RSL Act.26 If the comparable premises referred to were in fact new leases of premises previously unoccupied by the identified lessees then this is not made clear in the determination. [37] We are not satisfied that the SRV has adequately set out the matters he took into consideration in making the determination. Did the SRV provide detailed reasons for the determination? [38] Brisbane Comedy Club says that the SRV has failed to provide detailed reasons for the determination. [39] In referring to the three comparable leased premises, the SRV notes that the ‘rental transactions described in the previous section illustrate a broad variance in quantum gross rent per annum’. He concludes his determination by noting ‘By direct comparison with available evidence having regard to the requirements of the Retail Shop Leases Act and the subject lease’, and he thereafter proceeds to state, without further explanation or reasons, his determination of the gross effective rent and net base rent. 25 Ibid. 26 Annandale Pharmacies (NQ) Pty Ltd t/as Terry White Pharmacy v The Angliss Estate (Annandale) Pty Ltd [2014] QCAT 171. -- 7 of 8 -- 8 [40] As observed previously, the SRV is required to provide detailed reasons for the determination. The valuer is required to weigh the evidence to arrive at a conclusion about how it is to be taken into account.27 [41] There is no detailed reasoning contained in the determination as to how the rent figure is arrived at. Indeed, apart from referring to the comparable premises identified by reference to the broad descriptions as outlined above, there is no way of discerning how the SRV arrived at his final determination. There is no adequate weighing of the evidence nor any adequate process of reasoning identified leading to the determination. Conclusion and orders [42] Brisbane Comedy Club has identified other grounds upon which it says that the determination does not comply with the RSL Act. We do not need to deal with those further grounds because, for the reasons outlined above, we are satisfied that the SRV has not, in the determination, complied with the requirements of the RSL Act. [43] We make the following orders: 1. The determination dated 24 July 2014 does not comply with the RSL Act. 2. The determination is set aside. 3. A further determination of current market rent is to be undertaken in compliance with the RSL Act by a different specialist retail valuer. 4. For the purpose of undertaking the further determination the specialist retail valuer is to be provided with a copy of these reasons. 27 Silver Jewellery Shop & Piercing Planet v Telado Pty Ltd & G & J Drivas Pty Ltd [2013] QCAT 561. -- 8 of 8 --