2FC Pty Limited v Sokkon Pty Limited

The Dispute 1The Applicant ("2FC") is the owner of premises known as Shop 39, Italian Forum, 23 Norton Street, Leichhardt NSW ("the premises"). 2Based upon the terms of the original lease agreement between 2FC and the First Respondent ("Sokkon") in respect of the premises as well as the terms of a new lease agreement claimed to have been entered into with one or more of the Respondents, 2FC seeks the following orders:- (a)that the First and Fifth Respondents pay compensation to the Applicant in the sum of $34,198.42 being the cost of rectifying the premises after they were vacated (b)a declaration that, pursuant to Section 8 of the Retail Leases Act 1994 , a lease existed between the Applicant and the First Respondent, the Second Respondent or the Fifth Respondent as and from 1 March 2009 (c)an order that the First and Fifth Respondents pay compensation for rent payable under the new lease entered into as and from 1 March 2009 at the rate of $17,160 per month for a period of 5 years less actual rent payments received (d)in the alternative to the orders sought in (c) above, the First Respondent pay compensation for unpaid rent at the rate of $19,596.43 per month for the period from 1 March 2009 to May 2010 less any amounts actually paid (e)that the First and Fifth Respondents pay interest upon any compensation ordered as duly payable by them 3Although orders were originally sought against the Third and Fourth Respondents as guarantors for Sokkon, such claims were withdrawn at the commencement of the hearing. 4The premises were used as a restaurant. There is no issue that the premises constitute a "retail shop" as defined by the Retail Leases Act 1994 . 5In summary, the Respondents contend that:- (a) neither the Second Respondent ("Thita") nor the Fifth Respondent Sam Bakas at any time entered into possession of the premises in their own right nor entered into any lease agreement with the Applicant and, accordingly, neither are responsible for any claimed loss (b)Sokkon is not liable for any compensation relating to claimed rectification of the premises (c)Sokkon did not enter into any new lease with 2FC but instead held over under the previous lease whereby it was responsible to pay rent at the rate of $19,596.43 per month; accordingly, Sokkon concedes that it is liable to 2FC for the shortfall in rent paid for the period 1 March 2009 and March 2010, but is not liable for payment of any rent thereafter. 6Mediation was attempted by the parties but was unsuccessful. Hearing of this matter then took place on 14 September 2011. On behalf of the Applicant, affidavits of Christofer Fratzia sworn 15 June 2011 and 14 September 2011, an affidavit of Leo Dick sworn 28 June 2011, and an affidavit of Gail Marshall sworn 12 July 2011, were admitted into evidence. Each of these deponents also gave evidence and were cross examined. On behalf of the Respondents, affidavits of Anthony Elias sworn 8 September 2011, Sam Bakas sworn 8 September 2011, Konstantine Bakafoukas sworn 8 September 2011 and Sokratis Bakafoukas sworn 8 September 2011 were admitted into evidence; Anthony Elias and Sam Bakas also gave evidence in person and were cross examined. Factual Background 7The lease agreement which originally determined the respective rights and liabilities of the parties to these proceedings ("the original lease agreement") was entered into between the previous owner of the premises Chase (No 1) Property Investment Pty Limited as lessor and Dante S.P.A Pty Limited ("Dante") as lessee, and commenced on 6 December 1999 for a period of 5 years with an option period of a further 5 years. On 27 November 2002, the same parties entered into an agreement for variation of the lease whereby the term of the lease was extended to 12 August 2007 with a 5 year option period thereafter. 8On 10 February 2004, 2FC purchased the premises. 9On 26 August 2005, Dante sold the restaurant business conducted at the premises to Sokkon and the lease was subsequently assigned on 14 October 2005. 10Upon expiry of the term of the lease on 12 August 2007, the option to renew had not been exercised by Sokkon and so it remained in possession upon a holding over basis, as provided for by clause 3.3 of the original lease agreement. 11There is no evidence of any direct communication between the parties over the following months. Eventually, by letter dated 10 November 2008, 2FC advised Sokkon that: "Given that the existing lease has expired and you now occupy the premises on a month-by-month basis we wish to advise you that we will be seeking to finalise a new lease in the near future. We will seek to sign a 7 x 5 x 5 year lease that will be commensurate with the existing lease conditions, including the current rental. We wish to offer Sokkon Pty Ltd the opportunity to sign such a lease by 1 December 2008, after which date we will be engaging a leasing agent to find a tenant willing to sign a new lease. Until a new lease is signed, we are willing for Sokkon to remain in the premises on a month-by-month basis as long as all existing lease requirements are met, including timely rental payments." 12The above letter provoked a series of communications between the parties involving negotiations as to the terms of any new lease. 13A letter from Mr Sam Bakas, on behalf of Sokkon, was sent to 2FC on 26 November 2008. This letter referred to some earlier attempts at negotiation, expressed Sokkon's need to now have a reduced rental due to depressed conditions, and proposed that if negotiations were unsuccessful the premises would be vacated on 1 January 2009. This letter further stated that: "In accordance with Clause 8.2 of the lease, we propose to remove all fixtures, fittings and chattels in the premises and ensure that the premises are, following our vacation, left as an empty shell (as they were on commencement of the lease). Alternately, we are prepared to enter into an agreement with you whereby we sell to you the fixtures and fittings in the premises at the price of $200,000." 14By letter dated 27 November 2008, 2FC indicated that it was not interested in purchasing fixtures and fittings. 15A further series of negotiations then transpired between the parties without success following which, in accordance with its previous advice, 2FC appointed an agent Metro Commercial Partners ("Metro Commercial") to manage the property. 16On 30 January 2009, Metro Commercial sent a letter to Sokkon's solicitors ( VA Lawyers) in the following terms: "Re: 2FC Pty Ltd lease to Sam Bakas Ppty: Shop 39, Italian Forum, 23 Norton Street, Leichhardt NSW 2040 With regard to the above we are now pleased to confirm agreement in principal (sic) of all parties in relation to this lease which is subject to formal exchange. Relevant terms are included in the attached leasing advice notice for your information. Accordingly, we have instructed the lessor's solicitor to prepare relevant documents and forward same direct to your office for execution by your client ..." 17The Leasing Advice Notice itself also referred to a lease being given to Sam Bakas for a 5 year term and 5 year option at an annual rental of $187,200 gross plus GST, with the commencement date expressed to be "upon execution of lease". It was further stated that agreement was "subject to receipt of: ... satisfactory executed documentation." The Leasing Advice Notice also provided for execution by 2FC and by Sam Bakas as confirmation of the terms of the agreement reached, but it appears that this document was never executed. 18Metro Commercial was subsequently contacted by or on behalf of Sam Bakas, following which the agent sent an email to the solicitors for 2FC ( Georgiadis & Baker) asking that the base year for calculation of outgoings be set as 2008, that the actual leasing entity be "Phita Hospitality Pty Ltd", and advising that personal guarantees would be given by "Themis Bakasoukis and Kathy Bakasoukis". It is apparent that there were a couple of spelling errors in this communication, as it is common ground that the proposed new lessee was in fact the Second Respondent Thita Hospitality Pty Ltd and the proposed guarantors were the Fifth Respondent Sam Bakas (also known as Themis Bakafoukis) and his wife Kathy. 19The firm VA Lawyers who were acting on behalf of Sokkon were also nominated as the solicitors to act for the new proposed lessee Thita. The solicitors for 2FC sent a letter to VA Lawyers on 25 February 2009 enclosing relevant documentation including a retail tenancy guide, the lessor's disclosure statement and the proposed lease agreement to be entered into by Thita. 20The new rent for the premises which had been negotiated between the parties, according to the Leasing Advice Notice, was to be a monthly sum of $17,160 inclusive of GST. Payment of rent in this sum was subsequently made by Sokkon on 1 March 2009. 21In letters dated 18 March 2009 and 15 April 2009, the solicitors for 2FC asked VA Lawyers to return the lease documents executed by Thita. 22VA Lawyers eventually replied on 21 May 2009 and advised that, although the documents had been executed by Thita, certain financial advice had been provided as a result of which the proposed lessee was now again to be Sokkon. The question was asked whether the existing lease documents should merely be amended with the name of Sokkon endorsed thereon, or whether fresh lease documents should now be issued. 23The solicitors for 2FC, Georgiadis & Baker, then replied that fresh lease documents should re-issue, and confirmation was sought as to the identity of the proposed guarantors for Sokkon. Subsequently, by letter dated 29 May 2009, VA Lawyers advised that the guarantors would be Sam Bakas (that is, Themis Bakafoukis) and Kathy Bakafoukis. 24Fresh lease documentation, with Sokkon Pty Ltd as lessee and the new guarantors as above, was then sent by letter dated 5 June 2009 from Georgiadis & Baker. It was later asserted by VA Lawyers that this letter and its documents had not arrived, and so a fresh set of documents were sent on 8 July 2009. 25Another letter was then sent by Georgiadis & Baker to VA Lawyers on 15 July 2009 indicating that, unless duly executed lease documents were received within 7 days, the offer to lease the premises would be withdrawn and Sokkon would therefore remain upon a month to month tenancy as before, at a rental of $19,320.69 per month. 26A further series of negotiations then occurred, whereby Sokkon initially proposed that it would pay the existing lower rental figure of $17,160 for a 3 month period whilst the premises were re-configured; this proposal was then met with a counter proposal from 2FC. What then followed were a series of proposals and counter proposals, none of which were accepted. It should be here noted that one consistent feature of the correspondence which ensued between the solicitors over this period was the acknowledgement that there was no new lease and that Sokkon was holding over. 27Eventually, as the negotiations broke down, VA Lawyers advised that the property would be vacated. The date for vacation was originally set at 28 February 2010, then at 7 March 2010, and finally at 14 March 2010. Contractors were engaged by Mr Sam Bakas during March 2010 to remove all fixtures, fittings and chattels removed such that the premises were returned to a bare state and certain finishes applied. This work was not completed until 31 March 2010, when stud and track gyprock was installed, and certain patching and repair work undertaken by a business known as "CT Building", as set out within its invoice of the same date.