Abrakidazzle Pty Ltd v Acacia Holdings Pty Ltd [2006] RSLT 8

[2006] RSLT 8 THE RETAIL SHOP LEASES ACT In the matter of Dispute No 2005/0062 ABRAKIDAZZLE PTY LTD (FORMERLY GOLD COAST FAMILY ACTIVITY CENTRE OPERATOR PTY LTD) - Claimant - and - ACACIA HOLDINGS PTY LTD - Respondent Coram: G Lee (CHAIRMAN) N Judge R Hourigan DECISION Given in Brisbane on Tuesday, 9 May 2006. -- 1 of 12 -- Decision 2 On 27 May 2005 Abrakidazzle Pty Ltd as lessee (“the claimant “) filed a notice of dispute seeking certain relief against Acacia Holdings Pty Ltd as lessor (“the respondent”) in the following terms: 1. Order that the rent review provisions of the lease with respect to the first option period is void or voidable as they fail to comply with the provisions of the Retail Shop Leases Act. 2. Order for compensation to lessee for loss or damage suffered by lessee pursuant to section 43 of the Retail Shop Leases Act. The parties could not resolve the matter at a mediation conducted in accordance with the provisions of the Retail Shop Leases Act 1994 (“the Act”). A directions hearing was then held on 22 August 2005. Various orders were made and the matter was set down for hearing. By letter from the claimant’s solicitors dated 7 November 2005 the claimant refined the orders sought as follows: 1. An order that the Retail Shop Leases Act 1994 (Qld) applies to the claimant’s lease with the respondents. 2. An order that the rent review provisions in the first option to renew contained in the claimant’s lease with the respondents are inconsistent with section 27 and section 36(e) of the Retail Shop Leases Act 1994 (Qld), and are void. 3. An order that the claimant is entitled pursuant to section 27(7)(b), or alternatively section 27(7)(c), of the Retail Shop Leases Act 1994 (Qld), to elect between which of the two bases for review identified in the rent review provisions in the first option to renew in the claimant’s lease with the respondents is to apply to determine the rent payable for the rental period after 1 September 2005 under the claimant’s lease with the respondents. 4. Such other order or orders as the Tribunal deems appropriate. 5. Costs. That letter indicated that the claim for compensation pursuant to section 43 of the Act as set out in the notice of dispute filed 27 May 2005 was abandoned. Brief History and Background In late 2000 the claimant (under its former name) and another party which shall be described as the former lessor entered into a lease of the subject premises for the period 1 September 2000 to 31 August 2005. The demised premises are part of the ground floor of a building located at Southport and are described as “Tenancy 2B & C”. The claimant conducts a family activity centre from the demised premises. -- 2 of 12 -- Decision 3 In about February 2005 the claimant contracted to sell its business conducted from the demised premises. This sale is said to have fallen through in or about May 2005. The former lessors were advised by letter from the claimant’s solicitors dated 16 March 2005 that the claimant was exercising the option to renew the lease for a further term of 5 years from 1 September 2005. A “Notice of Exercise of Option to Renew Lease” dated 5 March 2005 was enclosed with that letter. On 11 April 2005 the respondent bought the property which included the demised premises. A notice (Attornment of Notice to Tenant) dated 11 April 2005 was given to the claimant. During interlocutory stages of these proceedings, after both parties had served each other with their materials in accordance with directions, the respondent says that it became aware that the claimant was selling clothing and accessories in its family activity centre and that this was not a permitted use. This is one major factor forming the basis of the respondent’s submissions. Prior to hearing substantive argument at the hearing the parties agreed on four factual concessions: 1. The claimant makes no suggestion that the sale of clothing and accessories was not a “use” of the premises. 2. The claimant makes no suggestion that the clothes and accessories were for use in the family activities carried on at the centre. 3. The claimant accepts that the sale of clothing and accessories was taking place at the end of the term of the original lease. 4. The respondent makes no suggestion that the claimant did not validly give the written notice contemplated by the option to renew. Issues • The respondent challenges the Tribunal’s jurisdiction on two grounds which will be outlined shortly. • If the Tribunal has jurisdiction, then was the exercise of the option to renew the lease for a further term valid? • If valid, in establishing a rent for the first year of the further term, do the provisions in the option to renew infringe the rent review provisions of the Act? Relevant lease clauses For “Use” of demised premises clause 1(b) in the First Schedule to the lease provides: (b) TO USE the demised premises for the purpose specified in the Second Schedule hereto as the permitted use and not otherwise ….. -- 3 of 12 -- Decision 4 The Second Schedule then provides for “The permitted use” as follows: Family Activity Centre including coffee shop/café, multipurpose function room, children’s drama, speech and music programs, games and paraphernalia intended for use as part of a family activity centre operation and all other activities related to or associated with the operation of a family activity centre. There appears to be no definition of “Family Activity Centre” in the lease. In respect of options, clause 3 (k) in the First Schedule of the lease provides: In the event that the Lessee has an option to take a further lease …for a further term from the date of …expiration of the initial term calculated by this lease the same shall be specified in the Second Schedule ..and the option shall be exercised and the provisions of the additional term including the rental payable shall be in accordance with …the Second Schedule… Relevantly, the Second Schedule then provides: If at the date of exercise of the option for renewal of the term hereby created …the lessee shall have paid the rent ..and providing there shall not be any subsisting or outstanding breach or breaches of the covenants terms and conditions and stimulations [sic] on the lessee’s part .. at the expiration of the term .. and providing the lessee shall have given to the lessor during the last year of the term hereby created at lease [sic] three calendar months notice in writing of his desire to take a further term of FIVE years THEN the lessor agrees to grant to the lessee a further lease of the demised premises for a further term of FIVE years from the expiry date of the term hereby created at a rental hereinafter mentioned and otherwise upon the same terms and conditions as herein contained ….. AND IT IS HEREBY DELCARED that the intention of the parties is that the total period of lease available... to the lessee if these options are exercised shall not exceed the 31st day of August 2010. The rental for the first year of the further term of the lease to be created by the exercise of the option in this clause ..shall be such sum as is mutually agreed on between the parties ..or failing agreement then as fixed by a member of the Real Estate Institute of Queensland nominated for this purpose by the President ..of the Institute at the instance of either party as the market rental for the demised premises AND the parties hereby agree that the rental fixed shall in any event not be less than the rental fixed for the last year of the original term …… The annual rental payable for the first year of the further term of the lease created by the exercise of the option aforesaid as determined in the manner herein before provided shall be reviewed at each anniversary of the date of commencement of the further term and on each such date the rental shall be increased and the new rental shall be calculated by multiplying the annual rental hereinbefore determined for the first year of the further term by -- 4 of 12 -- Decision 5 the Consumer Price Index (all groups) for Brisbane as determined immediately prior to the commencement of the further term PROVIDED HOWEVER that the rental payable …shall not be less than 103% in any year during the further term than the highest rental payable ..during the previous year of the further term. …… Jurisdiction of the Tribunal The respondent submits that the Tribunal lacks jurisdiction to hear and determine this matter on two grounds. First, the value of the relief sought exceeds rental of $250,000 over a five year period starting 1 September 2005. It is argued this exceeds the monetary jurisdiction of the Tribunal. Secondly, as the original lease was not a “retail shop lease” the current dispute is not a “retail tenancy dispute”. In considering the scheme of the Act establishing the Tribunal and providing for its jurisdiction, one first looks at sections 108 and 109 (in Subdivision 2 Division 2 of Part 9 of the Act). Section 108 provides: 108 Tribunals' function A tribunal's function is to hear retail tenancy disputes that-- (a) are within a tribunal's jurisdiction; and (b) it is appointed to hear. The validity of appointment of this Tribunal to hear and determine this dispute is not disputed (paragraph (b) of section108). Then section 109 relevantly provides: 109 Tribunals' jurisdiction (1) A tribunal has jurisdiction to hear retail tenancy disputes, other than a retail tenancy dispute— ……….. (c) if the amount, value or damages in dispute is more than the monetary limit within the meaning of the District Court of Queensland Act 1967, section 68; or ……… (3) However, a tribunal has jurisdiction to hear a retail tenancy dispute about-- (a) the procedure for the determination of rent payable under a retail shop lease, but not the actual amount of the rent; or ……… The opening sentence of subsection 109(1) is a general conferral of jurisdiction on the Tribunal to hear “retail tenancy disputes” followed by four specified exceptions in subsection 109(1). One such exception in paragraph (c) is to the effect that the amount or value in dispute exceeds $250,000 in accordance with section 68 of the District Court of Queensland Act 1967. -- 5 of 12 -- Decision 6 The phrase “retail shop dispute” and other related definitions are contained in section 5 of the Act – “retail tenancy dispute” means any dispute under or about a retail shop lease, or about the use or occupation of a leased shop under a retail shop lease, regardless of when the lease was entered into. “retail shop lease” means a lease of a retail shop, other than a lease of-- (a) a retail shop with a floor area of more than 1000m2 by a public corporation or a public corporation's subsidiary; or (b) a retail shop within the South Bank corporation area if the lease is a perpetual lease or another lease for a term, including renewal options, of at least 100 years entered into or granted by the South Bank Corporation; or (c) premises in a theme or amusement park; or (d) premises at a flea market, including an arts and crafts market; or (e) a temporary retail stall at-- (i) an agricultural or trade show; or (ii) a carnival, festival or cultural event; or (f) another type of premises prescribed by regulation. “retail shop” means premises that are-- (a) ….. (b) used wholly or predominantly for the carrying on of 1 or more retail businesses. “retail business” means a business prescribed by regulation as a retail business. “lease” means an agreement under which a person gives or agrees to give to someone else for valuable consideration a right to occupy premises whether or not the right is-- (a) ……. (b) for a term or by way of a periodic tenancy or tenancy at will. Regulation 2 of the Retail Shop Leases Regulation 1994 (“the regulations”) relevantly provides: 2 Businesses prescribed as retail businesses (1) A business whose whole or predominant activity is, or is a combination of, the sale, hire or supply of goods or services mentioned in the Schedule is a retail business. The schedule to those regulations provides for a range of activities that are retail businesses under the Act. Relevantly, these include “bread and cake retailing”, “clothing”, “costume wear sale or hire”, “café”, “coffee lounges”, “snack bars”, amusement parlours” and ”children’s amusements”. The respondent’s first submission on jurisdiction is that the amount in dispute -- 6 of 12 -- Decision 7 exceeds the monetary jurisdiction of the Tribunal by virtue of subsection 109(1) (c). Respondent’s first jurisdictional ground First ground – exceed monetary jurisdiction First, it is argued that there was no fresh grant of a lease because the option was not validly exercised. The claimant, it is said, only has a monthly tenancy and the difference between rent under a five year lease as opposed to a monthly tenancy is greater than $250,000. The option was not validly exercised because a condition precedent had not been met namely that the claimant was in breach of a covenant of the lease at the expiration of the original term i.e. 30 August 2005. Various authorities were cited including Gilbert J. McCaul (Aust.) Pty Ltd. v. Pitt Club Ltd. [1959] S.R.(N.S.W.) 122 (Court of Appeal). The alleged breach is the selling of discounted women’s and children’s clothing contrary to the “permitted use” clauses under the lease (cited earlier). It is submitted that, in the context of the permitted use clause, there must be “a necessary connection to the operation of the premises as a ‘family activity centre’”. To adopt a different construction would mean that the claimant could legitimately operate a jewellery shop or a grocery store. The clothes here are not sold to facilitate the operation of the “family activity centre”. As the option was not valid, a new lease for a term does not exist. On the other hand the claimant says “family activity centre” is not limited to children. It includes parents and other responsible relatives. The word “activity” is of wide import as to the types of activities that may appeal to various members of families who attend and the permitted use is intended to cater for all members of families. A coffee shop is expressly included as a permitted use and is provided as a service to parents and guardians while the children play. It is a condition of entry that children must be accompanied by an adult. It is part of a wider service to customers to enhance overall “entertainment satisfaction”. The retailing of clothing is also within the inclusive definition of “permitted use”. It contributes to the overall entertainment experience for adults who must accompany children there and who are also a target group for the business. The Tribunal is of the view that the permitted use clause in the lease is drafted in such wide terms so as to encompass activities that tend to support the overall amusement activity in the demised premises. Parents or accompanying guardians are also the focus of the business and their entertainment is encompassed in that definition. Entertainment of accompanying adults does not, in the Tribunal’s view, have to be intrinsically tied up with the activities offered to children. Before the Tribunal are internal photographs of the premises showing the wide range of activities offered by the “family activity centre”. The amount of clothing on display in those photographs is not consistent with the running of a serious clothing outlet. -- 7 of 12 -- Decision 8 Indeed, it suggests as the claimant has submitted, that this service is offered as one segment of a much wider picture. The Tribunal finds that in offering clothing for sale in the manner and extent described, the claimants were not in breach of the “permitted use” covenant in the lease. As the claimant was not in breach of this covenant, this condition precedent had been met with the result that the option was validly exercised. Second ground – exceed monetary jurisdiction The respondent’s second basis for submitting that the amount in dispute exceeds the monetary jurisdiction of the Tribunal is simply that the difference in rent between the positions of the parties would still exceed $250,000. The respondent conceded that section 109(3) (a) cited earlier “may answer” this ground. However, it was submitted that it does not answer the first ground relating to whether the option was valid or not. The claimant on the other hand submits that section 109(3) (a) is independent of section 109(1) and that section 109(1) is subject to it. Thus, this case is a dispute about the procedure for the determination of rent payable under a retail shop lease. The orders sought define the boundaries of the dispute. These are that the rent review provisions in the first option to renew are inconsistent with sections 27 and 36(e) of the Act. The Tribunal agrees with the claimant’s submissions on this point. The matter before the Tribunal is precisely about determining the procedure in determining rent payable under a retail shop lease. If one were to adopt a construction contended for by the respondent, it would place too much of a restriction on when section 109(3) (a) would apply. The Tribunal is of the view that the intention of the Act is to enable the Tribunal to examine retail tenancy disputes that include an examination of whether the rent review provisions in Division 4 Part 6 of the Act 1 have been complied with. Obviously, consequences follow from such an examination but this does not affect the Tribunals’ jurisdiction. Respondent’s second jurisdictional ground Was the original lease a “retail shop lease”? The relevant provisions have been cited above. The definition of “retail shop” includes “premises …are used wholly or predominantly for the carrying on of one or more retail business”. The submissions focussed on the word “predominate” meaning “to be the stronger or leading element”. Reference was also made to the definition of “retail business” in section 5 of the Act, clause 2 of the regulations, and the “permitted use” clause in the lease (all 1 Entitled “Rent review”; -- 8 of 12 -- Decision 9 cited above). The thrust of the respondent’s submission is that the predominant use of the demised premises is as a “family activity centre”. This is something different from “amusement parlour” and “children’s amusements” in listed as a retail business in the schedule of the regulations. Further, while the activity of café is carried on, it is not the predominant business of the premises. “Café” is also listed as a retail business in the schedule to the regulations. The claimant submits that the nature of its business is such that it carries on a combination of businesses listed in the schedule to the regulations. These include “café”, “clothing”, “snack bars”, “amusement parlours” and children’s amusements”. Therefore, the claimant’s use is “wholly or predominantly for the carrying on of one or more retail businesses”. The Tribunal is of the view that each and every activity conducted by the claimant should not be considered in isolation. Given the nature of the business itself, their combined effect has to be considered. While the phrase “family activity centre” is not itself defined in the lease, in looking at its overall operation, the Tribunal accepts the claimant’s submission that it predominantly carries on either a retail business or a number of retail businesses. In the Tribunal’s view, “family activity centre” most likely does fall within the purview of what might be considered to be “amusement parlours” and “children’s amusements”. It has a café and, as the Tribunal has concluded elsewhere, “clothing” is a permitted use. This was the respondent’s sole ground on which it based its submission that the original lease was not a “retail shop lease”. The conclusion therefore is that the original lease was a retail shop lease within the meaning of the Act. The Tribunal finds that it has jurisdiction to hear and determine this matter. The next question is whether or not the rent review provisions in the lease offend against sections 27 and 36(e) of the Act. Are sections 27 and 36(e) of the Act infringed? Section 27 relevantly provides: 27 Timing and bases of rent reviews (1) If, under a retail shop lease, the rent payable under the lease or any renewal or extension of the lease is to be reviewed during the term of the lease or under an option to renew or extend the lease, the lease must state the timing of the reviews and the basis on which each review is to be made. (2) The rent may not be reviewed more than once in each year of the lease. -- 9 of 12 -- Decision 10 (3) Subsection (2) does not apply to the first year of the lease. (4) The rent may be reviewed using different bases during the term of the lease, but each review must be made using only 1 basis. (5) The basis for a rent review must be a single basis consisting of 1 of the following-- (a) the current market rent of the leased shop; (b) an independently published index of prices, costs or wages; (c) a fixed percentage of the base rent; (d) a fixed actual amount; (e) another basis prescribed by regulation; (f) a single basis formed by a combination of 2 or more bases mentioned in paragraphs (b) to (e). ……… (7) If, under a retail shop lease, the rent is to be reviewed during the term of the lease or any renewal or extension of the lease, the rent payable for the rental period after the timing of an invalid review is-- (a) ….. (b) for an invalid review mentioned in subsection (9), definition invalid review, paragraph (b)--the rent worked out on 1 of the bases, chosen by the lessee, on which the review was made; or (c) for an invalid review mentioned in subsection (9), definition invalid review, paragraph (c)--the rent worked out on 1 of the bases, chosen by the lessee, on which the review was to be made under the void provision. ….. (9) In this section-- “invalid review”, of rent under the lease, means-- (a) a review in a year of the lease, other than the first year, in which the rent is to be reviewed under the lease more than once; or (b) a review made under the lease using more than 1 basis; or (c) a review under a provision of a lease that is void under section 36(d) or (e). “year”, of the lease, means a period of 12 months starting on-- (a) the day the lease is entered into; or (b) an anniversary of the day the lease was entered into; or (c) if, for a particular 12 month period, there is not an anniversary of the day the lease was entered into--the last day of the month corresponding to the month the lease was entered into. Section 36(e) provides: 36 Certain rent review provisions of leases void A provision of a retail shop lease is void to the extent that it-- …… -- 10 of 12 -- Decision 11 (e) provides for the rent of the leased shop to change on a particular review of the rent in accordance with whichever of 2 or more methods of calculating the change would result in the higher or highest rent. The respondent does not dispute that “the option for renewal in the lease offends against section 27 and section 36(e): see paragraph 4.1 of written submissions. That is it provides for two bases in determining rent. The thrust of the respondent’s submissions are that in the first instance the option creates a fresh grant of lease. The option has two separate functions. First, it provides how the rent for the fresh grant is to be ascertained. Secondly, it provides for rent reviews of subsequent years in the further term created by the fresh grant. In respect of ascertaining rent for the first year of the further term, the respondent says it is not a review of rent. Rather, it merely provides a mechanism for striking a rent for the fresh grant of a new lease. That part of the option for renewal for establishing a rent for the fresh lease is not “an occasion for review of an existing rent under the grant, as no rent exists to be reviewed from”. The respondent concedes that the method for ascertaining the rent for the second and subsequent years of the further term infringes sections 27 and 36(e) as they are reviews of an exiting rent. But the question at issue in this case is that relating to the first year of the further term. The effect of the claimant’s submission is that the entire option clause relating to ascertainment of rent infringes sections 27 and 36(e). This includes the first year of the further term. The case Oz Sushi Pty Ltd v. Lloyd Bennett & Associates Pty Ltd [2002] QDC 220 per Brabazon Q.C., D.C.J. was cited. The wording of the option in respect of ascertaining the rent for the first year of the further term does not use the word “review”. Rather, the words used are “mutually agreed” or “fixed”. In contrast, for the second and subsequent years the word “reviewed” is used. Nothing turns on this in the Tribunal’s view. While this argument might have merit in respect of the first year of the original lease, once the lease is entered into, the lease itself provides for the method in fixing rent in the first year of the further period of five years. The Tribunal is of the view that the Act contemplates that the fixing of rent for a first year of a further term granted pursuant to the exercise of an option is a review of rent. Rent is reviewed in an agreed way. It provides an opportunity for the parties to review rent that has been paid in the original term. This is supported in this case by the fact that the method for ascertaining rent for the first year of the further term cannot be less than the “rental fixed for the last year of the original term”. The Tribunal rejects the respondent’s submissions. -- 11 of 12 -- Decision 12 Summary In summary the Tribunal finds: (a) The original lease was a retail shop lease as defined in the Act. (b) The dispute before the Tribunal is a retail tenancy dispute within the meaning of the Act. (c) The dispute before the Tribunal is about the procedure for the determination of rent. (d) Accordingly, the Tribunal has jurisdiction to hear and determine the dispute. (e) The claimant validly exercised the option to renew the lease for a further term of five years starting 1 September 2005. (f) The provision in the second schedule to the Act relating to the exercise of the first option to renew provides for rent for a further term to be reviewed on more than one basis contrary to sections 27 and 36(e) of the Act and is therefore void to that extent. The Tribunal therefore orders that pursuant to subsection 27(7)(c) of the Act the claimant is entitled to elect between which of the two bases for review in the rent review provisions is to apply for the first year of the renewed term of the lease. Costs The claimant seeks costs. Subject to the limited exceptions set out in subsection 91(3) of the Act , the standard rule provided for in subsection 91(2) is that each party must bear their own costs. No submissions were made by the claimant as to whether the case fell within one of the exceptions set out in subsection 91(3). In any event, Tribunal is not satisfied that it should make any order as to costs in this case. G Lee Chairman -- 12 of 12 --