Alexis & Ors v Maymann [2009] RSLT 9

[2008] RSLT 9 RETAIL SHOP LEASE TRIBUNAL In the matter of Dispute No. 2008/0096 JOB ALEXIS, ROSER ALEXIS, LESLEY K ELSSMANN - Claimant - and - FELICITY MAYMANN - Respondent Composition of Tribunal:- A Forbes(Chair) DECISION Given in Brisbane on this 13th day of February 2009 -- 1 of 10 -- Decision Dispute 2008/0096 2 1. This dispute raises two questions of interpretation of the subject lease. The first involves a covenant providing for a biennial rent review according to a fixed percentage. The second concerns liability for water rates. 2. At a directions hearing on 10 December 2008 the Claimants stated that they did not seek compensation in excess of $2000, so according to section 106(2) of the Retail Shop Leases Act 1994 this matter has been heard and determined by a legal member sitting alone. 3. Ms Lesley Elssmann represented the three Claimants, both before the Tribunal and in evidence filed on their behalf. Mr Glenn Maymann, is the spokesman for the Respondent who was represented at the hearing by solicitor Mr Glendon Young. First Issue: Rent Review 4. In November 2005 the Respondent as landlord and Bromini Pty Ltd and Dinh Quang Dinh as tenants [“the original tenants”] executed a lease of the subject premises for five years from 9 December 2005. The lease will expire on 8 December 2010. There is an option to renew for one five-year term. The contract is in the standard form prescribed by the Queensland Land Registry, to which the parties have added a list of particulars, Items 1- 12. 5. On 30 March 2006 the Claimants took an assignment of the balance of the term and completed the fit-out and commenced the business of a coffee shop/cafe known as “Coffee @ The Gabba.” 6. The lease permits use of the premises as a: "coffee shop, including preparation in [sic] sale of food and coffee related merchandise, together with any other use to which [a] coffee shop/cafe is customarily put." 7. Item 7 and Clause 3.4 of the Schedule deal with rent review. It is necessary to set out these provisions in detail: “PARTICULARS Item 7 Rent (a)… (b)… (c) Is the rent subject to review during the term of the lease? Yes. If yes, the Clauses of the Lease which provide for rent review are:… -- 2 of 10 -- Decision Dispute 2008/0096 3 If yes, when is the rent reviewable? BI-ANNUALLY [word struck out on original] BIENNIALLY (d) Rent reviews: Review type Comment Applicable date Market Review Yes 9/12/2010 In Consumer Price Index No Fixed % increase Yes 9/12/2007 9/12/2009 9/12/2012 9/12/2014 If fixed % increase applies the increase shall be; 4% pa” Schedule: Clause 3.4: Review Date of the lease: “On each Review Date for which a fixed percentage review is specified, the rent for the preceding period shall be increased by the fixed percentage stated in Item 7 to give the rent payable until the next Review.” 8. The original tenants gave an Assignor Disclosure Statement to the Claimants. In relation to rent review it stated: “Rent is to be increased by a fixed percentage of 4% on 9 December 2007 and thereafter biennially (other than on exercise of option where rent is reviewed to market)” History of this Dispute 9. Mr Maymann for the Respondent and Mr Ben Brown (representing the original tenants) opened negotiations about the lease in August 2005. On 10 August 2005 the Respondent emailed a response to an offer made by Brown on 9 August, agreeing that "the rent review for each 2nd year [will] be CPI or 4% -- whichever is the greater." 10. In September 2005 the Respondent delivered a Lessor Disclosure Statement and a draft lease to Brown. With respect to rent review the Disclosure Statement reads as follows: -- 3 of 10 -- Decision Dispute 2008/0096 4 “Is the rent subject to review during the term of the lease? Yes. If yes, the clauses of a lease which provide for rent review are: Second and each subsequent year -- 4% per annum. If yes, when is the rent reviewable? On each anniversary of the period of the lease. Applicable review date: 1/10/2006, 2007, 2008 and 2009” 11. Obviously these answers required clarification. On 29 September 2005 Brown’s solicitor wrote to the Respondent's solicitor: “... other than on the exercise of the option, rent is to be increased every second year of the term and the option term by 4%. Rent is not increased annually. Item 7(d) of the particulars should be amended to reflect the above ..." 12. The Respondent's evidence is that it agreed at that time that the rent would be increased every second year, provided that the increase be 4% per annum. 13. The original tenants withdrew their offer in October 2005. The Respondent then submitted another draft lease, which the parties duly executed. 14. The question of rent review did not arise again until the Respondent wrote to the Claimants in January 2008, pointing out that the date for the first rent review (9 December 2007) had come and gone, and claiming an increase of 4% for the first year (2006), plus 4% on the increased sum (that is, the original rent +4%) for the second year (2007). 15. On 11 February 2008 the Respondent's solicitor gave his client this advice: "... the rent reviews are a fixed percentage increase and they occur on 9 December 2007 and 9 December 2009 and that they are 4% per annum. Therefore, the initial rent should increase by 4% per year and for the 2006 year and increased by 4% again in the 2007 year." 16. By letter dated 17 February 2008 the Claimants challenged that interpretation of the lease, contending that the proper approach was to apply a 4% increase in 2007 and a 4% increase in 2009, and questioning the propriety of a retrospective review. 17. An inspection of the original lease document shows -- and this is not disputed -- that the word BI-ANNUALLY (i.e. twice yearly) in Item 7(c) was amended to read "BIENNIALLY”, and that this amendment was initialled by each party upon execution of the lease. -- 4 of 10 -- Decision Dispute 2008/0096 5 18. On 29 February 2008 the Respondent rejected the Claimants' interpretation, stating: "I am only repeating what I am told by my legal advisers. My understanding [is that the] CPI increase of 4% per year is calculated on the total including 4% taken from the previous year. It is only then implemented after two years are up or biennially". 19. Further correspondence between the parties and their solicitors failed to resolve this dispute. 20. On 23 July 2008 Mr Ben Brown, on behalf the original tenants, told the Claimants: "it was always the intention of [the original parties] to have the CPI rent reviews every second year -- the rent would [then be] increased by a maximum of 4% from the previous period. The suggestion that it will rise by 4% [per annum] is incorrect and has never been the case… [the original tenants] negotiated the lease on this basis.” 21. On 30 September 2008 the Respondent's solicitor issued a notice to remedy a breach of covenant, alleging arrears of rent. The Claimants responded by paying the disputed amount into the Respondent's account "without prejudice", pending a decision by this Tribunal. Mr Young stated that his client does not rely on the Claimants’ payment as an act of acceptance of liability, which he concedes was made under protest. Rent Review: The Respective Contentions 22. The Claimants argue that the Respondent’s interpretation, as set out above, is at odds with so much of the Assignor Disclosure Statement as deals with rent review. They submit that the letter of the Respondent’s solicitor dated 7 October 2005, in answer to one from the solicitor for the original tenants dated 29 September 2005, does not challenge the proposition that the rent was not to be increased annually. The Claimants further submit that no other correspondence prior to the signing of the lease challenges that proposition. However, the Claimants concede that the terms of the lease on the crucial point are not so clear as they well might be. 23. The Respondent submits that the correspondence in evidence is irrelevant, and that the parties are bound by the material terms of the lease. The Respondent says that negotiations subsequent to the letters of 29 September and 7 October 2005 altered the rent review provisions and that the combined effect of Clause 3.4 and Item 7 (c) and (d) are used to ensure a fixed increase of 4% per annum after the first two years of the term. -- 5 of 10 -- Decision Dispute 2008/0096 6 24. Neither party sought to cross-examine the other. Ms Elssmann gave brief oral evidence to clarify a matter in her statement, but Mr Young declined the invitation to cross examine her on that point. Consideration and findings 25. The dominant word in Item 7(c) is “biennially.” Naturally the parties do not dispute the ordinary dictionary meaning of that word, namely "happening once every two years". The fact that "biannually" was deleted from the draft in favour of "biennially" suggests that each party gave careful thought to this point. 26. Furthermore, the dates set out in Item 7(d), under the heading "applicable date" show a separation of 2 years between every review to the end of the term. The dates "9/12/2012” and "9/12/2014” are of course contingent upon a renewal of the lease. 27. The parties have chosen to review the rent at the commencement of the third and fifth years of the term by a fixed percentage of 4%, instead of relying on the CPI formula, and according to Clause 3.4 “the rent for the preceding period shall be increased by the fixed percentage … to give the rent payable until the next review date.” 28. On its face, the lease provides for no rent increase in the first two years of the term, so that the “rent for the preceding period,” namely the rent, payable as at 9 December 2007 is to be increased by 4% and to remain at this rate for years 3 and 4. At the commencement of year 5 the rent payable in years 3-4 is increased by 4%. Then comes the market review. 29. The terse reference in Item 7(d) to “4% pa” simply means, in my view, that the annual rent applying in each year of the preceding period of two years shall be increased biennially by 4%. The expression "per annum" might be interpreted differently if it stood alone, but that is not the case. It must, in my view, be read so as not to ignore, or to do violence to the capitalized word “BIENNIALLY” and the biennial intervals beneath the heading "applicable date". 30. Unfortunately Item 7(d) is infelicitously, not to say clumsily drafted, giving rise to an ambiguity upon which reasonable minds may differ. That brings into play the contra proferentem rule of construction, according to which an ambiguity is construed against the proferens -- in this case, the Respondent.1 1 W D Duncan Commercial Leases in Australia Law Book Co 2008 at [2.50], indicating that the rule is not confined to insurance cases. -- 6 of 10 -- Decision Dispute 2008/0096 7 ”If by reason of its own language … or by reason of the context or of conflicting or differing provisions elsewhere, a term when fairly read is doubtful or ambiguous and reasonably susceptible of two constructions, that construction should be adopted which is the more favourable to the [tenant] because that is of the two the more reasonable in the circumstances.”2 31. In plain language, he who controls the drafting should make the wording quite clear. 32. The rule, albeit one of last resort, is applicable even if the party relying upon it had some part in the drafting process, 3 although I would add that, in this case, there is little evidence on that point. In my opinion it is appropriate, indeed essential, to apply the rule in this case. 33. That suffices to dispose of the first issue, without any necessity to canvass the question whether, in a case of the present kind, resort can be had to pre-contractual or post-contractual communications. Nevertheless, evidence of that kind that has been tendered, particularly the evidence of one of the original tenants, fortifies me in the view that rent increases are to occur only in every second year, and then only by 4% of the annual amount that was payable in each of the previous two years. If the true intent of the parties had been otherwise, it might have been expected the draughtsman would simply have inserted the word "annually" in the column headed "applicable date", and omitted the list of biennial dates. The Respondent’s written submission 4 that “subsequent negotiations changed the rent review” is not supported in any part of the fairly extensive correspondence. Second Issue: Lease Outgoings 34. According to Item 19.7 of the lease, the expression "outgoings" comprises the “total of all amounts accrued paid or payable, levied assessed or charged on the Lessor”, including local authority charges and other items specified in sub-items 19.7(a)- q). In Appendix 1 to the Schedule the annual estimate of outgoings is left blank. 35. The Lessee is not required to contribute to the operating expenses of the premises (Item 8(a)) unless and until such services as water, electricity, gas and telephone, are directly supplied to the premises and separately metered: Service Charges Cl 4 .1. The Lessor Disclosure Statement 2 Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 per Isaacs ACJ; Transfield Services (Australia) v Hall; Hall v QBE Insurance (Australia )[2008] NSWCA 294 at [191]-[192]. 3 Halford v Price; (1960) 105 CLR 23 at 30 per Dixon CJ (with whom Menzies J agreed) 34 (per Fullagar J); Australian Aviation Underwriting Pty Ltd v Henry (1988) 12 NSWLR 121 at 126 per Hope JA. 4 In paragraph 2(c). -- 7 of 10 -- Decision Dispute 2008/0096 8 confirms that the lessee is not liable for the operating expenses of the centre: Clause 3. In fact electricity and telephone services are already separately metered, and are charged directly to the Claimants. The Respondent is at liberty to install a water meter at the Claimants’ expense but has not done so. 36. The Respondent complains that she was not aware of the nature of the Claimants’ fitout, that included what the Respondent calls “a working kitchen”, nor that the kitchen or toilet facilities would attract increased local authority charges. She says that Mr Brown, as spokesman for the original tenants, represented that food would be “brought in” rather than cooked on the premises. 37. Mr Maymann denies that he saw the schematic proposal of the intended fit- out until the lease had been executed. He claims that “the planned use of the premises changed significantly when the Claimants sought an assignment of the lease”: Statement paragraph 22. 38. The Respondent first raised the question of the Claimant’s liability to contribute to the water rates in August 2007, some 15 months after “Coffee @ The Gabba” had started to trade. Ms Elssmann says the Claimants knew the lease did not require them to pay outgoings, but to avoid falling out with their landlord they agreed to pay for water at the rate of $50/month for three months. In January 2008 when the Respondent sought further contribution to outgoings the Claimants ceased to make payments. Outgoings: Consideration and Findings 39. The Respondent lives in an apartment directly above the premises and I accept the evidence of the Claimants and Mr Brown that Mr Maymann was often on site during the fitout, and was well aware that toilet facilities for handicapped people were being installed. 40. The Respondent has provided no particulars of the “significant changes” to the use of the premises under the new tenants. The alleged changes are not borne out by the evidence. Copies of the schematic plans and line drawing of the fitout are attached to Mr Maymann’s statement. They were prepared for the original tenants and clearly show inter alia a small kitchen area and provision for a disabled access toilet. Ms Elssmann gave evidence that the Claimants followed the original tenants’ fit-out plans to the letter, and that the fit-out was supervised by Mr Brown. She was not challenged nor cross examined on this point. 41. The Brisbane City Council Audit report triggered by a complaint by the Respondent to the Council reveals that the Claimants use a toaster, a sandwich press, a gas griddle and frying pan for the preparation of light -- 8 of 10 -- Decision Dispute 2008/0096 9 meals. Ms Elssmann gave evidence that the café opens for breakfast and serves bacon and eggs. The kitchen contains no industrial cooking stove and no deep frying is carried out there. 42. The permitted use (see above) is widely expressed, allowing the preparation and sale of food and “any other use to which [a] coffee shop/cafe is customarily put." I am prepared to take judicial notice of the fact that cooking light meals is a customary activity of coffee shops cum cafes. 43. The Claimants have been making a voluntary contribution to water charges. The Respondent now wishes me to find that this is a contractual obligation in the nature of an oral variation to the lease -- a contention somewhat at odds with the Respondent's argument, on the first issue, that the lease must be strictly construed. I decline to make that finding. It will be contrary to an unambiguous provision of the lease, and if the Respondent relies on a collateral agreement, the answer is such an agreement may not contradict the terms of a contract wholly in writing 5 , as this lease purports to be, and as the Respondent, in relation to the first issue, has insisted. One cannot at one and the same time be a strict constructionist and a liberal interpretationist according to the interest of the moment. 44. The Claimants say and the Respondent (through Mr Maymann) admits, that prior to the hearing she reported them to the local authority alleging a relatively trivial breach of regulations. In the event an inspector found little of concern to the Council. The Claimants say that they wish to focus on their business, in harmony with their landlord, but have at times felt harassed by her or her representative. It is not the business of this Tribunal to adjudicate on such matters, and I decline to do so. However, I would suggest to the parties, with due respect, that in these difficult financial times, when many small businesses are failing, that a prudent landlord will ensure that his tenant receives every encouragement, and every reasonable accommodation to enable the tenant to continue a successful business operation. 5 Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507; Gatward v Kleem (1955) 72 WN (NSW) 354. -- 9 of 10 -- Decision Dispute 2008/0096 10 ORDERS: 1. It is declared that the true construction of the subject lease executed on 22 November 2005, and the deed of assignment executed on 30 March 2006, in so far as they or either of them deals with the subject of rent review is as follows :- The rent of the subject premises shall increase on 9 December 2007 and 9 December 2009 and (subject to the Tenants’ valid exercise of the option to renew) on 9 December 2012 and 9 December 2014. On each review date the annual rent for the previous year shall increase by 4% and shall apply at that rate until the next review date. Should the Tenants exercise the option to renew the lease, the rent for the first two years of the new term shall be subject to a market review as provided in the lease. [In order to avoid possible doubt, the intent of this declaration is that, upon a hypothetical annual base rent of $1,000.00, the rent for years 3 and 4 of the lease term shall be increased by 4% to $1,040.00 and thereafter ,the rent for year 5 shall be 104% x $1,040.00. In the event that the Claimants exercise the option for a new term, the rent for years 3 and 4, and year 5 of the new term shall increase by 4% in the same manner.] 2. The Respondent shall repay to the Claimants, or at their option shall credit to the Claimants, any moneys received by her as rent that is or was not payable according to Order (1) above. 3. It is declared that under the terms of the subject lease, the Respondent is not entitled to recover any amount from the Claimants for pedestal charges, trade waste charges or for water rates, unless, in the case of water rates, the Respondent installs a water meter which separately records the Claimants’ water usage. 4. It is further declared that no action of the parties subsequent to the execution or assignment of the said lease constitutes a collateral term or a valid variation of the wholly written lease. 5. Liberty to each party to apply for further directions on seven days' notice in writing to the other. 6. No order as to costs. Anne Forbes Chair -- 10 of 10 --