Dentview Pty Ltd v Foremost Properties Pty Ltd [2004] RSLT 31

[2004] RSLT 31 THE RETAIL SHOP LEASES ACT In the matter of Dispute 116/03 DENTVIEW PTY LTD - Claimant and FOREMOST PROPERTIES PTY LTD - Respondent DECISION Given in Brisbane on 2 September 2004 -- 1 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 2 This matter was commenced by a Notice of Dispute filed in the registry on 2 December 2003. It was referred to mediation and then referred by the mediator to a Tribunal for determination. The claimant is the current lessee and the respondent is the lessor. It came before another Tribunal Legal Member at a directions hearing held on 12 March 2004. At that hearing certain directions were made and on 25 May 2004 the Legal Member decided to determine, as a matter of law, the effect of item 6.1 in the Notice of Dispute after certain things were done by the parties and a further directions hearing was set for 28 June 2004. Prior to 28 June 2004, the matter was assigned to me as a Tribunal Legal Member and I chaired that directions hearing. Both parties had provided written submissions in support of the matter to be determined. Leave had previously been granted for the parties to be represented by lawyers. At the directions hearing on 28 June 2004 the claimant was represented by Ms P. Roberts of Woods Hatcher, solicitors. The respondent was represented by Mr. M. Smith of Michael A. Smith, solicitors. Brief History The original lease was between the respondent (“the lessor”) and the original lessee (not the claimant) for a term commencing 8 February 1996 to 14 June 1999. Paragraph 15.01(a) of the lease provided an option for the original lessee to renew the lease for a further three years upon certain conditions not presently relevant. It also provided for a mechanism for determining the rent payable in the first year of the further term. Paragraph 15.01(b) of the lease provided for the calculation of annual rent payable for the second and subsequent years of the further term. It is not disputed that the first option was duly exercised under paragraph 15.01 of the original lease. The further term was for three years from 15 June 1999 to 14 June 2002. On 8 October 2001 a Deed of Variation was executed between the respondent and original lessee. Among other things, it acknowledged that the first option had been duly exercised. The lease was varied by providing for a second and third option to renew the lease in clauses 15.02 and 15.03 respectively. Both clauses had provisions similar to those in clause 15.01 for the determination of rent. From the Deed of Variation it appears that there was an assignment of the lease to another lessee (“previous lessee”), the claimant’s predecessor in title. It is not disputed that the previous lessee duly exercised the second option pursuant to clause 15.02 inserted into the lease by the Deed of Variation. A Deed of Covenant dated 1 May 2002 referred to below shows that the new period is to expire on 4 March 2005. -- 2 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 3 Then, by Deed of Assignment dated 1 May 2002 the lease was assigned to the claimant as lessee. A Deed of Covenant between the respondent, the claimant and guarantors was executed on 1 May 2002. It recited that the previous lessee had duly exercised an option for a further term of the lease expiring on 4 March 2005. Nature of Dispute The main points of the dispute are set out in points 6.1, 6.2 and 6.3 of the Notice of Dispute as follows: 6.1 Lessee contends that Lessor is not entitled to increase the rental pursuant to Clause 15.01(a) of the Lease (page 33) from the amount of $1,915.56 per month to the amount of $4,000 per month. Lessee contends that the submission by the Lessor to the Lessee of a Tax Invoice following the review date, i.e. 15 th June 2002 in the same rental amount as the previous year without the appointment of a Specialist Retail Valuer constituted a representation/ agreement between the parties that the rent would not be reviewed therefore the Lessor is now precluded from purporting to review the rental some 12 months later. 6.2 Should the Tribunal find that the Lessor is entitled to review the rental pursuant to Clause 15.01 “Option for Renewal” then the Lessor is obliged to comply with Section 28(2) of the Retail Shop Leases Act, i.e. agreement as to the reviewed rent is to be reached between the parties within one month of the review date which was the 15 th June 2002 and failing agreement shall be determined by a Specialist Retail Valuer. 6.3 Lessee took an assignment of the existing Lease in or about April 2002 some two months prior to the market review date. Lessor failed to disclose that rental was to be reviewed at the market review date as such information of such intended conduct was information which should have been made known to the proposed assignee. The Lessee asks the Tribunal to find that the Lessor’s conduct is in breach of Section 46B of the Retail Shop Leases Act and as such is deemed unconscionable conduct and the Lessor is therefore estopped from increasing the rent pursuant to Clause 15.01 of the Lease. Items 6.2 and 6.3 are alternative grounds not the subject of this present inquiry. However, if I find in favour of the lessor under point 6.1 of the Notice of Dispute, the parties indicated at the directions hearing that there would be no dispute as to point 6.2 of the Notice of Dispute. In his decision dated 25 May 2004 the previous Legal Member observed that clause 15.01 (a) of the lease has no application as it only relates to the mechanism for determining rent in the first year of the first option for a further three years exercised pursuant to clause 15.01 of the lease i.e from 15 June -- 3 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 4 1999 to 14 June 2000. The rent for the remaining two years [15 June 2000 to 14 June 2002] of the three years is determined according to clause 15.01(b). I respectfully agree with that. The lease was assigned to the claimant by Deed of Assignment dated 1 May 2002 – just prior to the expiration of the first option for three years granted under clause 15.01 which ended 14 June 2002. Clause 15.02 provides for a second three year term from 15 June 2002. The Deed of Covenant dated 1 May 2002 provided the further term granted under clause 15.02 is to expire 4 March 2005. In my view clause 15.02(a) provides the manner in which rent is to be determined in the first year of this further term, not clause 15.01(a) as outlined in the Notice of Dispute. However, they appear to be identical in any event. Clause 15.02(b) provides for rent to be determined in the second and third years of the further term i.e the second year commencing 15 June 2003 and third year commencing 15 June 2004. While the previous Legal Member recognized that there is a possible dispute of facts, he decided, subject to a condition, to proceed to determine as a matter of law the matter raised as to whether the respondent is entitled to increase the rent as will be shortly outlined. I will approach it on this basis also. That is, I will determine as a question of law the effect of the rent determination clauses without reference to any conversations alleged to have occurred between the parties. Disputed questions of fact must be determined by a full Tribunal consisting of three members. Claimant’s Submissions After reciting the history of the matter the claimant’s submissions are as follows: • Clause 15.02 (a) prescribes the requirements for determining rent in the first year of the new three year term i.e. 15 June 2002 to 14 June 2003. It was to be market rental to be mutually agreed between the parties. • On or around 15 June 2002 the parties were obliged to agree the market rental for the firs year of the extended term. Failing agreement, rental was to be determined by two competent real estate agents. If a dispute arose between the real estate agents then a valuer would determine finally and conclusively the market rent payable. • The assignee to the claimant exercised an option. Te lease was assigned to the claimant by Deed of Assignment dated 1 May 2002 and Deed of Covenant dated 1 May 2002. • The respondent provided a number of tax invoices to the claimant after the assignment to it. Apart from one increase in outgoings and an increase of 2% in rental in the July 2002 invoice, the amounts claimed in the monthly invoices remained much the same up until the invoice dated 1 July 2003 when rental was increased to $4,000. It had previously been $1,915.56 per month. -- 4 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 5 • By virtue of submitting monthly invoices from 1 May 2002 with amount of rental claimed constitutes an agreement between the parties. The respondent submitted an invoice dated July 2002 with a 2% increase in rental which constitutes an offer that was accepted by the claimant by paying that new amount of $1,915.56. • By its conduct, the respondent represented that the increased amount of rental payable as reflected in the July 2002 invoice as being acceptable to it. This conduct ensued for the next 10 months. The respondent purports to review to market in July 2003 which is about 12 months after the lease provides for review opportunity. • The claimant has relied on and accepted the respondent’s conduct or offer as previously mentioned and therefore is estopped some 12 months later from reverting to its rights for a review. Good conscience dictates that the respondent is now estopped from asserting a right to review to market. Respondent’s Submissions • For a representation to found an estoppel it must be clear and unambiguous: Legione v, Hateley (1983) 152 CLR 406 and 435. • For an estoppel by representation to arise, the claimant must have acted to its detriment in reliance of the representation: The Commonwealth of Australia v. Verwayen (1990) 170 CLR 394. The claimant’s submissions make no allegation of acting to its detriment in reliance on any representation made by the respondent. • If the rendering of monthly invoices from 1 October 2002 onwards constitutes an offer, it is only an offer in respect of the ensuing month’s rental. As the respondent is not claiming for rental other than in accordance with the tax invoices delivered, this argument does not assist the claimant. • The rendering of invoices in the 12 month period from 1 June 2002 to 30 June 2003 and the payment thereof by the claimant, without more, does not mean that the respondent has abandoned its rights in relation to periods other than those the subject of the various invoices. For an estoppel to arise, the representation founding the estoppel must be clear and unambiguous: Legione v. Hateley. • Further, for an estoppel to arise, the claimant must have acted to its detriment in reliance upon the representation or conduct alleged to have founded the estoppel: Commonwealth v. Verwayen. No such allegation is made in the submissions of the claimant and it is difficult to see what detriment it could have suffered in reliance upon the alleged representation. Discussion -- 5 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 6 As outlined earlier, as a Legal Member sitting alone, pursuant to provisions in the Retail Shop Leases Act 1994 (“the Act”) I can only determine questions of law. Any question of disputed fact must be determined by a full Tribunal consisting of three members. Therefore, whether or not any discussion took place between the parties at a meeting in March 2002 as alleged by the claimant and the content of those discussions or any other discussions are matters of disputed fact. This is clear from the written submissions of both parties. Firstly, the rights invested in and the obligations imposed on the parties under the lease need to be examined. Clause 15.02 inserted into the lease by the Deed of Variation dated 8 October 2001 is entitled “Option For Second Renewal”. It effectively creates a right in the lessee to elect to take a further three year term. That option was exercised by the claimant’s predecessor in title. The lease was then assigned to the claimant. Paragraphs (a) and (b) of clause 15.02 provide for the determination of rent for the first year and second and subsequent years respectively of the further term. The relevant period under consideration is in the first year of the further term i.e. 15 June 2002 to 14 June 2003. Therefore, clause 15.02(a) is relevant here. The wording of that clause is important for what follows in this decision and the part relating to rent determination is as follows: ..the Lessor will … demise to the Lessee the said premises for a further term of THREE YEARS at an annual rental being the market rental for the first year of the further term for the demised premises to be mutually agreed upon by and between the Lessor and the Lessee and otherwise upon and subject to the same covenants agreements and provisos as are contained in this lease…. PROVDED ALWAYS … that should the Lessor and the Lessee fail to agree upon the amount of such annual rental then the amount thereof shall be determined by two competent real estate agents one of whom shall be appointed by the Lessor and the other by the Lessee PROVIDED FURTHER that if any dispute or difference shall arise between the said agents in the determination of such rent then the matter at issue shall be referred to the President for the time being of the Australian Institute of Valuers or to such other agent (not being an agent appointed by the Lessor and the Lessee) as he shall appoint for determination and in such event the determination of the said President or other agent appointed by him shall be final and conclusive and be absolutely binding upon both the Lessor and the Lessee and each of the parties hereto shall bear and pay their own costs in respect of such determination PROVIDED FURTHER that in no event shall the annual rental determined for such further term be less than the annual rental hereby reserved AND PROVIDED FURTHER that in making any -- 6 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 7 such determination every such agent and the said President shall be deemed to be acting as an expert and not as an arbitrator. The only time limitation in clause 15.02(a) for exercising a right (or any thing else for that matter) is that the lessee must give the lessor three months notice in writing for the exercise of the option to be valid. It does not stipulate a timeframe when the parties are to agree on a market rental for the first year. It does not provide for a timeframe for when the parties must each appoint a real estate agent. Nor is there a timeframe for referral to the President of the Australian Institute of Valuers in the event there is a dispute between the appointed real estate agents. Paragraph (b) of clause 15.02 simply fixes the rent for the second and subsequent years according to a formula based on the consumer price index. Where there are time limits expressed in a rent review clause, there is a rebuttable presumption of construction that time is not intended to be of the essence in relation to any exercise of that right. That is, a lessor who has failed to observe time limits specified in a rent review clause will lose his or her right to raise the rent only if such time limits are of the essence of the contract and that, in the absence of any indication in the lease to the contrary, the presumption is that the time limits prescribed by such clause are not of the essence of the contract: see United Scientific Holdings Ltd v. Burnley Borough Council [1978] A.C. 904; [1977] 1 All E.R. 62. The proposition of law in that case has been adopted in Australia: see for example G.R. Mailman & Associates Pty Ltd. v. Wormeld (Aust) Pty Ltd (1991) 24 NSWLR 80(C.A.); Louinder v. Leis (1982) 149 C.L.R. 509. If the presumption applies, it has been held that the other party may bring matters to a head after the stipulated time has expired by giving to the party who has not exercised the right in time a notice specifying a period within which he or she requires the right to be exercised, if at all; the period specified in that notice will, if it is reasonable, then become of the essence of the contract: see Trustees of Henry Smith’s Charity v. AWDA Trading & Promotional Services Ltd (1983) 47 P & CR 607 at 619 per Slade L.J. In this case there are no time limits in the rent review clause. No review date is specified in the lease. In Gollin & Co Ltd v. Karenlee Nominees Pty Ltd (1983) 153 C.L.R. 455; (1983) A.L.J.R. 711, there was no express obligation as to time in a rent review clause. The lessors in that case failed to activate effectively the rent review clause for over 2.5 years. It was held that as the rent review clause provided the only agreed means for ascertaining the rent, its provisions were not capable of being waived unilaterally by one party. Even delay and hardship to the tenant would not disentitle the lessor to exercise the right which he or she has, on a true construction of the contract unless the combination of circumstances amounted to an estoppel: see Amherst v. James Walker Goldsmith & Silversmith Ltd [1983] Ch 305. In the present case, the respondent had issued invoices for rent at a certain -- 7 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 8 level. The July 2002 invoice included a 2% rental increase. This is after the time when the lease had been assigned to the lessee on 1 May 2002. Invoices remained the same until July 2003 when the rent was significantly increased. After considering clause 15.02 of the lease in the light of the authorities, in my view, there is nothing in the lease preventing the lessor from exercising the right to seek market review under clause 15.02(a). Clauses 17.08 in the lease entitled “Time of The Essence” only relates to the lessee’s covenants agreements and stipulations. There is no reference to the lessor nor is there is no reference to the rent review clause. Clause 17.09 concerns the obligations of the lessor when selling the property and it does not apply in this case. Further, clause 17.07 entitled “Entire Agreement” says: The Lessee acknowledges that the terms and conditions set out in this Lease contain the enter agreement as concluded between the Lessor and the Lessee and that there are no other oral or collateral agreements between the parties relating to the demised premises or the Centre notwithstanding any negotiations or discussions between the parties prior to the execution hereof. No representation made by the Lessor, its servants or agents concerning the Centre or the demised premises shall be an implied term of this Lease or form the subject matter of a separate agreement subsidiary to or collateral with this Lease. The Lessee further acknowledges that it has not been induced to accept this lease by any representation oral or otherwise made by or on behalf of the Lessor, its servants or agents which is not included in this Lease. In the Deed of Covenant and Deed of Assignment both dated 1 May 2002 the claimant accepted all matters under the original lease as if it was the original lessee. I do not accept the claimant’s submission that by virtue of submitting invoices, an agreement was reached between the parties that there would not be a market rent review. The fact that the July 2002 invoice contained a 2% rental increase does not mean that the respondent agreed to forgo its rights for market rent review simply on the basis that the claimant paid those invoices. I agree with the respondent’s submissions in this respect. Indeed, the terms of clause 17.07 cited above support this conclusion. The claimant has raised estoppel. No authorities were cited in support. The gist of this submission is that the respondent sent monthly invoices over a period of time from 1 May 2002 to July 2002, and then invoices with a 2% rental increase thereafter until July 2003. It is asserted that by this conduct, the respondent is estopped from pursing its legal right under the lease for market rent review. The lease had already been assigned to the claimant on 1 May 2002. It is clear that for there to be an estoppel two essential ingredients must be -- 8 of 9 -- Dentview-v-Foremost Properties 116/03 Decision 9 met. First, the representation or promise is clear and unambiguous and second, that as a result of adopting the representation or promise, the other party must have placed himself or herself in a position of material disadvantage: Legione v. Hateley (1983) 152 C.L.R. 406; (1983) 46 A.L.R. 1. As to the first ingredient, I agree with the respondent’s submission that the representation or promise relied on here, viz the sending of invoices and payment thereof, is not clear and unambiguous. As to the second, the claimant was already bound by the covenants of the lease. I cannot identify, nor has there been pointed out in the claimants submissions, any other matter which can point to the claimant having acted to its detriment. Again, I agree with the respondent’s submissions on this point. The conclusion is that the respondent is not precluded from pursuing a market rental under clause 15.02 of the lease. It is not estopped from doing so. In its July 2003 invoice the respondent claimed $4,000 rent. Before that it was $1,915.56. It is not clear what the basis for that increase is. This is a matter for evidence. The quantum of the proposed rental increase is a factual matter which I cannot determine now even if I did have the evidence to do so. Likewise, I have not determined the question of whether the there were any conversations or representations made prior to the claimant becoming the lessee although I again reiterate the existence of clause 17.07 of the lease. But the question of law has been addressed in that the respondent can pursue market rent under clause 15.02. The parties had agreed at the telephone conference that in the event I find in favour of the lessor on this question of law, then point 6.2 in the Notice of Dispute is not in dispute. I encourage the parties to work collaboratively towards determining the rent in accordance thereof. In the event the parties cannot resolve the remaining issues between them, the matter can be brought back on with reasonable notice. In the meantime, the matter is adjourned to the registry. G. Lee Chairman -- 9 of 9 --