Banks v Wells [2010] QCAT 238

CITATION: Banks v Wells [2010] QCAT 238 PARTIES: Rosemarie and Malcolm Banks v Ms Diane E Wells APPLICATION NUMBER: RET016-09 MATTER TYPE: Retail shop leases matters HEARING DATE: 19 May 2010 HEARD AT: BRISBANE DECISION OF: Ms Anne Forbes Mr Neil Judge Mr Donald McBryde DELIVERED ON: 19 May 2010 DELIVERED AT: BRISBANE ORDERS MADE: DECLARATION: That the Respondent is not liable to offer the Tenants a new term of the lease. THE TRIBUNAL ORDERS THAT: 1. The Respondent is to permit the Applicants to remain in occupation of the subject premises as monthly tenants until 30 September 2010 provided that: (i) The Applicants continue to pay all instalments of rent and; (ii) The Respondent within five (5) days of this order provide the Applicants (iii) with an invoice indicating any arrears of building insurance and council rates and within five (5) days thereafter the Applicants pay such arrears and continue to pay building insurance instalments and council rates on a pro rata basis and all other outgoings until they vacate the premises. 2. The rent is the current rent as at the expiry of the 2006-2009 lease being $3009.43 net plus GST. 3. In default of any one (1) of the payments listed in Order 1, the Respondent is at liberty to terminate the monthly tenancy on one (1) month's notice. -- 1 of 6 -- «CaseCode» / Page 2 of 6 NOTE: We leave it to the parties to calculate the amount of refund, if any, owed to the tenants as at 1 October 2009, taking into account the errors in the parties' calculation of the CPI applicable to the rent. CATCHWORDS : Retail lease dispute option to renew lease – condition precedent that Tenant not be in breach of lease – tenant in breach – forfeiture of right to exercise option APPEARANCES and REPRESENTATION (if any): APPLICANT : Rosemarie and Malcolm Banks representing themselves RESPONDENT: Diane E Wells representing herself -- 2 of 6 -- «CaseCode» / Page 3 of 6 REASONS FOR DECISION 1. The Applicants are the Respondent’s tenants of premises on Bribie Island in which they conduct a retail furniture business. In an application lodged on 28 September 2009 in the former Retail Shop Leases Tribunal the Applicants complain that the landlord has unconscionably denied them the right to exercise an option for a further term of the premises. They seek an interpretation of the lease which commenced on 1 October 2006 and expired on 30 September 2009. In so far as can be determined from the somewhat confused material, the issues between the parties are as follows: (a) whether the tenants were in breach of the lease at the time they purported to exercise an option to renew the lease; (b) If ‘No’ then have the tenants a right to call on the Landlord to honour the option and grant them a new term? (c) if ‘Yes’, whether the breach consisted of failure to pay everything required under the lease; (d) whether the lease requires the tenants to pay local council rates applicable to the premises or merely annual increases in rates in the 2 nd and 3 rd years of the lease; (e) whether any other payment is required of the tenants under the lease. 2. A significant issue is the amount of rent applicable to any renewed term. On application by the parties the Principal Registrar appointed specialist retail valuer Mr Malcolm Macrae to conduct a market rent determination. In his report dated 5 May 2010 he determines the applicable market rent on a gross rental basis excluding GST of $40,000 per annum. The net rent is calculated by deducting all outgoings payable under the lease and subject to section 7 of the Retail Shop Leases Act 1994(“the Act”) THE LEASE 3. The lease and its predecessor (“the first lease”) were in the form of a commercial tenancy agreement despite a clear warning on the front page that it should not be used for premises covered by the Retail Shop Leases Act 1994 (“the Act”). The term was for three years with an option for a further three. Relevant provisions in the lease are as follows: (a) Rent $2971.25 per month due on 25 th each month in advance or $644.25 per week in advance Includes current year Caboolture Council Rates”: Item 6 Reference Schedule. The rent is to be reviewed “before 31 August in each year in line with CPI increases”: Clause 3.3. (b) Percentage of Outgoings 100% of all outgoings (includes interest rate and council rate increases): Item 9 Reference Schedule. (c) Outgoings...means the following charges levied or expenses payable in respect of the Premises ... (1) Rates and other charges levied pursuant to a law (other than land tax); -- 3 of 6 -- «CaseCode» / Page 4 of 6 (2) insurance premiums payable by the Landlord; (d) Holding over: If the tenants with the consent of the landlord continue to occupy the premises after the expiry of the term they do so as monthly tenants: Clause 2.2. (e) Default and termination: The Tenant defaults under this Tenancy if rent or any money payable by the Tenant is unpaid for 14 days: Clause 9.1. (f) Option for further Term: Three years: Reference Schedule Item 5. (g) Option for Further Tenancy: If a further term has been inserted in Item 5 of the Reference Schedule and the Tenant : (1) Wishes to lease the Premises for further term; and... (3) Has not breached this Tenancy: The Landlord must grant a further Tenancy ...on the same terms...except for the rent...Clause 14(1). Underlining added. 4. The lease expired in September 2009, but since then the Respondent has invoked Clause 2.2 and recognizes the Applicants only as monthly tenants. The Applicants say in their Notice of Dispute: "We signed the lease on the understanding that the rental increase [which was twice what we were already paying] was to include the annual rates to be paid by the Lessor. We agreed to pay the actual annual rate increases each year in addition to the CPI rent increase for the next three year period.” They say that in view of the substantial increase in rent (78%), that they understood the lease to mean that Lessor would waive the Council rates for the first year (described by the Applicants as “the base rates”), and that the Applicants would be liable in the second and third years only for the sum by which the rates had increased after the first year. The Applicants claim to have received legal advice to this effect and that this advice was reflected in the landlord’s own calculation of rent for the second year of the new term. 5. They say that during the term of the lease they tendered rent and instalments of outgoings and their annual calculations of monies due to the Respondent, who accepted them without querying their accuracy. Nor did the Respondent provide monthly invoices, receipts or annual estimates of outgoings as required under the Act. 6. The Applicants acknowledge that there were discrepancies between the bookkeeping of the respective parties, which were neither discussed nor reconciled. They say that the Landlord made many unjustified claims that they were in breach, when in fact she was receiving regular instalments of rent and outgoings. They have tendered spreadsheets to confirm their assertion. They say that the latest claim by the Respondent at the end of the lease was for $10,386.44 which they dispute, but have paid pending this tribunal’s determination. 7. Mrs Wells, the Respondent, says that in during the terms of the two leases the Applicants were frequently in arrears either of rent or the council rates. She says that in the last year of the first lease they were in arrears with the rates and that to finalise negotiations over terms of the second lease she agreed to -- 4 of 6 -- «CaseCode» / Page 5 of 6 waive the outstanding rates for the then current year (July 2006 to June 2007). She states that the second lease provided that in the second and third years the Applicants were liable to pay the council rates in full. Her evidence is corroborated in part by a statement from a Ms Costello who was present during negotiations for the second lease. Ms. Costello says council rates were waived for the first year, because the tenants complained that they would have difficulty paying the increased rent. 8. The Respondent says that the sum of $10,386.44 paid by the Applicants on the last day of the lease consists of arrears of outgoings, namely two years of council “base rates” and the building insurance levy for the first year of the term. Since the Applicants have been holding over, they have paid the rent but have ignored any obligation to pay rates and insurance. CONSIDERATION and FINDINGS 9. Items 6 and 9 of the Reference Schedule are infelicitously drafted but, given the acceptance by both parties that rates were waived at least for the first year, we find their meaning clear. Despite the parties’ subjective intentions during negotiation the words in the lease define their relationship. The Applicants had the option to pay their rent in weekly instalments and their spreadsheets of payments indicate that they chose to do this. The Respondent indicated when questioned by the Tribunal that she accepts the Applicants’ figures on these documents. The Applicants say that regular payment of rent was never a serious issue, and we find that the spreadsheets confirm this. 10. The real issue is the Applicants’ liability for rates in the last two years of the term and the building insurance instalments for the first year. The spreadsheets indicate that in the first year, October 2006-September 2007 the Applicants paid their rent but made no payments of outgoings. In the second and third years they paid rent and building insurance instalments each week, but paid only council rates increases, also by weekly instalments. 11. On questioning by a member of the Tribunal Mrs Banks for the Applicants claimed that they received no invoices from the Respondent for the first year’s insurance instalments until shortly before the lease ended. For her part, Mrs Wells insisted that she handed the invoice to Mrs Banks on 27 October 2006, that is, in the first month of the lease. We are unable to determine which of these accounts is reliable and are not able to conclude that the Applicants were in breach by their failure to pay the first year’s insurance on time. 12. The council rates are a different matter. In our view there is nothing in the lease to support the Applicant’s view that the Respondent had waived the rates for the entire term. It is agreed that the reference to “current year rates” in Item 6 Rent refers to the waived 2006-2007 rates. Item 9 of the Reference Schedule, although clumsily drawn, describes the percentage of outgoings as “100% of all outgoings (includes interest rates and council rates increases).” It does not say ONLY rates increases. Clause 4.2 clearly makes the Applicants liable for all rates without qualification other than the arrangement reflected in Item 6 Reference Schedule. We accept the evidence of the Respondent that she provided the Applicants with her assessment of the rates due for the -- 5 of 6 -- «CaseCode» / Page 6 of 6 second and third years by email when they became payable. She followed up the notification with a notice of breach in October 2007. Thereafter the Applicants ignored the full amount of the rates and paid only the increase for the relevant year. They sought no legal advice to clarify their obligations under the lease nor does the evidence suggest that they initiated proper accounting between themselves and the Respondent. 13. The Applicants tendered a one page letter of advice from a solicitor obtained shortly before they entered the lease, which they claim supports their view that they were not liable for rates. The advice consists of one sentence in which the solicitor says that the proposed lease is beneficial to the Applicants. We do not accept this letter as expressing a comprehensive professional advice on the terms of the lease. 14. A condition precedent for the exercise of an option to renew a lease is that the tenant is not in breach at the time. We find that at the time the Applicants purported to exercise the option to renew the term, they were aware that they were in default of payments under the lease, and in breach. We are not persuaded that it was reasonable in the circumstances for the Applicants to believe that their liability for the rates component of outgoings had been waived for the entire term. Consequently, we find that they have forfeited the right to exercise the option. 15. In Commercial Leases in Australia, W D Duncan: Thomson Lawbook Co 5 th Edn at 12-190 observes that the “material date for determining whether or not the conditions of the right to renew have been complied with depends upon a strict construction of the option conditions.” Clause 14.1 of the lease is in unequivocal terms regarding the condition precedent. The present facts do not indicate that the date of expiry of the term is the relevant date for this determination. 16. The Applicants are holding over in the premises as monthly tenants. We are of the view that they should be given a reasonable time to find alternative premises suitable for the nature of their business. It is unlikely that the Respondent will offer them a new lease. We find it just and reasonable that she permit the Applicants to remain in the premises on the present monthly terms until 30 September 2010 provided that the Applicants make up any arrears of rent and/or outgoings and that they make timely payments of same until they vacate the premises. We will so order. 17. It does appear that the Applicants may have overpaid their arrears under the expired lease by approximately $1000. We leave the task of adjusting this to the parties and their financial advisors. 18. There is no evidence of unconscionable dealing by the Respondent. We dismiss the claim and make no orders for costs. 19. ORDERS AND DECLARATION follow. -- 6 of 6 --