1. The application is dismissed.
2. The respondents' claim for damages is dismissed.
3. The application for an order for possession is dismissed.
4. I declare that the Applicants are monthly tenants of the shop and dwelling situated at and known as 65 Berry Avenue Chelsea.
5. Liberty to all parties to apply for such other orders or directions as may be appropriate to be made or given consequent upon these findings.
6. Costs reserved.

1. The Respondents ("the Landlords") are the owners of a shop and dwelling situated at and known as 65 Berry Avenue Chelsea ("the Premises"). The Premises comprise a shop used as a Milk Bar and a dwelling at the corner of two streets. The shop fronts one of the streets and the dwelling house, which is connected to the shop, fronts the other street. Both the shop and the dwelling are 60 or 70 years old.

1. By a lease dated 1 September 1995 ("the First Lease") the Landlords leased the Premises to one Haflen Pty Ltd for a period of three years from 1 September 1995 with two successive options of three years.
2. By a Deed of Assignment made 23 July 1996 Haflenn Pty Ltd assigned its leasehold interest in the Premises to the Applicants ("the Tenants").
3. On 5 May 1999 the First Respondent, Mr Conell, purported to lease the Premises to the Tenants for three years commencing on 1 September 1998 with two further terms of three years each ("the Second Lease").
4. In the document constituting the Second Lease the name of the Second Respondent has been deleted, the Tenants having been informed by the Landlords' then solicitor that Mr Conell was the sole proprietor of the Premises. This was not the case. The Premises are and have been at all material times registered in the names of both Landlords. At about the time the Second Lease was entered into it was contemplated by the Landlords that the Premises would be transferred into Mr Conell's sole name but this was never done. Nevertheless, in the course of her evidence Mrs Conell acknowledged that her husband had her authority to deal with the Tenants and let the Premises on behalf of them both and no submission has been made that anything flows from the absence of her name or signature on the Second Lease. Indeed, the case was argued on the basis that those leases were valid. The Second Lease was for three years commencing 1 September 1998 with options for two further terms of three years each.
5. The Second Lease was not simply a renewal because it provided for an additional further term.
6. On an unknown date a renewal of lease document was signed by Mr Conell and the Tenants for a three year term commencing on 1 August 2001 ("the Third Lease"). By item 6 of the schedule to the Third Lease, the Tenants had an option to renew the term for one period of three years.

1. On 16 March 2004 the Tenants' solicitor wrote to Mr Conell and to his solicitors seeking a renewal of the Third Lease. Paragraphs 2 and 3 of this letter are in the following terms:

"Pursuant to the lease our clients wish to exercise their right of option to renew the same for a further period of three years from 1 September, 2004.

Our client would be pleased if you would advise us whether you would be agreeable to grant him a further term of three years making a total of nine years."

1. The thing to note about this letter is that it purports to exercise an option for a three year period commencing from 1 September 2004 whereas the then current term would expire on 1 August 2004. The reason for the difference lies perhaps in the fact that the earlier terms all commenced on 1 September and the commencement date in the then current term might have been a mistake. Nevertheless it is clear that the Tenants are intending to exercise their option.
2. The Landlords' solicitor, Mr. Konidaris submits that this letter should not be interpreted as being an unequivocal exercise of the option for a further term because of the second paragraph set out above. I do not believe that is a fair interpretation of the letter. It is quite clear that the Tenants are notifying the landlord that they wish to exercise their rights for the further term and the second sentence is, as Mr Pitt submitted, an inquiry which does not detract from the preceding paragraph. Further, the letter was copied to Mr Conell's solicitor under cover of a letter that refers to the Tenants' desire to exercise their option but does not separately mention the request for the further term.

1. The immediate source of the right to renew that the letter purported to exercise is in the Third Lease. Apart from conferring the additional option, that document contains no detailed provision as to how the option is to be exercised. For that one must look to the Second Lease, the terms of which were incorporated into the Third Lease.
2. Clause 12 of the Second Lease provides that the Landlords must renew the lease for a further term (except in certain circumstances not relevant) if the Tenants have requested the renewal in writing not more than 6 months and not less than three months before the end of the term. That requirement was satisfied. Clause 12.2 provides that the starting rent is to be determined in accordance with Clause 11, which establishes an elaborate process for a valuer to assess the current market rent. Clause 11.4 provides that, until the determination is made by the valuer, the Tenants must pay the same rent as before the review date. Of course, there would have been nothing to prevent the parties from agreeing upon a rent but they ever did so. Mr Konidaris submitted that the agreement for lease arising from the exercise of the option was conditional upon the parties fixing a rent in accordance with Clause 11. I do not accept that submission. The machinery to fix the rent is available once the option has been exercised but the exercise of the option and the rights ensuing therefrom are not conditional upon it being used.
3. Nothing much then seems to have happened until 6 October 2004, when Mr Conell's solicitor wrote to the Tenants' solicitors, stating (where relevant):

"Our client is agreeable in renewing the lease for a further period of (3) years, making a total of 9 years, with the rental paid per calendar month at a sum of $1,450.00, with the right for rental review every (12) months.

If your client is agreeable with these terms we will commence preparing the renewal of lease" (sic.).

1. There appears to be something missing from the first of these paragraphs since one period of three years does not make a total of nine years. Perhaps the author intended to say that a further three years would be granted with two successive options of three years to follow as the Tenants' solicitor had requested. Of course, this would not be simply a renewal, because there is the introduction of a further option period. This letter is framed in terms of an offer to which there was no response.
2. On 15 November 2004 Mr Conell's solicitors forwarded to the Tenants' solicitors a renewal of lease document in duplicate but it was not signed and returned by the Tenants.
3. On 17 December 2004 the Tenants' solicitors wrote back enclosing a Notice pursuant to the Residential Tenancies Act 1997 complaining of the condition of the house. The last two paragraphs of this letter were as follows:

"We are instructed that our client agreed to the increased rent on the basis that the landlord will fix and repair the Premises urgently. The repairs have not yet been attended to.

Please advise when such works will be carried out as the consideration for the increase has not been fulfilled".

1. It should be noted that at the time this letter was sent, the Tenants were still paying only $1,400.00 per month and there was no signed lease document between the parties. The Landlords subsequently carried out extensive repairs to the house at a cost of some $12,000.00.
2. On 13 April 2005 the Tenants' solicitors forwarded to Mr Conell's solicitors a signed renewal of lease and requested a copy signed by Mr Conell in return. That never occurred. The document provides for a monthly rental of $1,450.00. Rental at that rate has never been paid.
3. On 19 May 2005 Mr Conell's solicitors wrote to the Tenants' solicitors complaining that the Tenants had moved out of the Premises and had handed them over to someone else. He also complained that the tenants had refused to pay the increased rent that had been agreed upon. The letter goes on to say that Mr Conell would only execute the renewal of lease on the following conditions:
   1. Assurance that the Tenants would regain the possession of the premises;
   2. Payment of a monthly rent of $1,600.00;
   3. Acknowledgement that the rent was to be reviewed thenceforth on an annual basis.
4. On about 1 June 2005 Mr Conell and Mr Awad met. According to Mr Conell they agreed that the rental would be increased to $1,500.00 per month up to September 2005 and was thenceforth to be adjusted annually. Mr Awad's version of the conversation was that the rental was to be fixed at $1,500.00 for two years. It is possible that each had a different idea of what was agreed and that no consensus was ever reached. In the absence of any corroboration it is not possible to spell out any agreement from the correspondence between the solicitors in that regard. I am unable to find that there was any agreement reached.
5. Further correspondence then passed between the solicitors. On 29 November 2005 Mr Conell's solicitors wrote to the Tenants' solicitors saying that:

"We understand that somebody is paying the rent to our client and that he is not poised to take any remedial action in regard to your clients' default at this stage".

From this I infer that the Landlords were not raising any objection to the sub-lease "at that stage".

1. On 3 June 2006 the Tenants' solicitors wrote to Mr Conell's solicitors alleging that the parties had negotiated directly for a further term of three years with options for three successive terms of three years. This does not appear to have come to anything and I am not satisfied that there was any agreement reached.
2. The conclusion to be drawn from all this is that the parties never reached agreement as to the terms of any new lease, the Tenants did not seek to enforce any rights to a renewal without an additional term and neither the Landlords nor the Tenants sought to implement the review machinery to fix a new rental. However, between the time that a letter exercising an option for a further term is sent and the execution of a formal lease, a lessee, although not having any legal interest, is entitled in equity to enforce the agreement to grant the further term. (see Halsbury: Laws of Australia para. 245-3610). The Tenants therefore had an equitable lease ("the Fourth Lease") in accordance with the provisions of the Second Lease as incorporated into the Fourth Lease by the Third Lease. The term of the Fourth Lease expired on 31 July 2004.

1. On 6 October 2006 the Tenants negotiated the sale of the milk bar business and sought a lease from Mr Conell. Certain information as to the purchasers was provided but, according to the Landlords, they considered the information to be unsatisfactory. There is insufficient evidence for me to rule as to the reasonableness or otherwise of the Landlord's conduct in this regard. Their solicitor Mr Konidaris queried whether it was a genuine sale but a contract for the sale of the business has been produced and I am not satisfied that it is a contrived document. No agreement for lease appears to have been reached and no documents were signed granting any further term. On 13 November 2006 Mr Conell's then solicitors ceased to act.
2. Thereafter there appear to have been a number of conversations between the parties and a number of proposals made but nothing out of which I can spell a firm agreement as to anything. At about this time it was discovered by the Tenants' solicitors that the land was still registered in the names of both Landlords.

1. In the meantime, on 1 January 2005 a company called Awad Pty Ltd leased the milk bar business in the shop to a Mr Milad Khoubar ("Michael"). It seems clear from the signatures attesting the common seal of that company on the written agreement that Awad Pty Ltd is a company controlled by the Tenants. By the terms of this agreement, which is before me, Michael was to purchase the whole of the stock in trade of the business from Awad Pty Ltd at valuation and was then to conduct the business in the Premises, devoting his whole time to it during usual business hours. The document provided for a "management rent" of $6,800.00 per month as well as various outgoings. The agreement specifically provides that the relationship between the parties is not that of master and servant. The document describes various circumstances in which the agreement might be determined and, in such an event, Awad Pty Ltd was to purchase the stock from Michael at valuation, less a "penalty" of $5,000.00.
2. No specific provision is made to the effect that Michael has any entitlement to occupy the Premises, either the house or the shop, but it is quite clear that he would be unable to run the business without occupying the shop and according to the evidence he is living in the house with his family. Indeed, the agreement requires him to keep both the shop and the dwelling clean and in good order. Michael is also to observe all of the covenants on the part of the Tenants contained in the lease of the Premises. Despite the submissions to the contrary, this is clearly a sub-lease.
3. Appended to the agreement is the unsigned renewal of lease form signed only by the Tenants and the renewal dated 5 May 1999 signed by the Tenants and Mr Conell.

1. On 10 October 2008 the Landlords' current solicitor, Mr Konidaris, wrote to the Tenants' solicitors referring to various matters including the fact that the Tenants had parted with possession of the Premises from at least May 2005 without the Landlords' consent and requiring the Tenants to vacate the Premises forthwith. Note that this is more than three years and ten months years after the sub-lease was entered into and about three years after the Landlords became aware of it.
2. In response to this the Tenants sought an order from the Tribunal restraining the Landlords from retaking possession of the Premises. On 31 October 2008, upon the Tenants giving the usual undertaking, I ordered that the Respondents be restrained until further order from interfering with the Tenants' possession of the Premises. A condition of the order was that the Tenants would continue to pay monthly rent at the rate of $1,400.00 per month and all outgoings in accordance with the Third Lease. Attempts have since been made to resolve the matter by agreement but they have been unsuccessful.

1. The matter finally came before me for hearing on 15 July 2009. Mr Pitt of Counsel represented the Tenants and the Landlords were represented by their solicitor, Mr Konidaris.
2. I heard evidence from Mr Awad and from Mr and Mrs Conell. I have concerns as to the truthfulness of Mr Awad's evidence. He said that, although the agreement with Michael provided for rental of $6,800.00 per month, in fact Michael actually paid only $2,800.00 per month. When I asked him why, if that were the case, the agreement provided for $6,800.00 per month, he said that the higher figure was put in simply to give him some security. That seems an unlikely explanation. He said that he had received one payment of $6,800.00 for one month and thereafter had received only $2,800.00 per month. He produced what purport to be photocopies of four receipts, each for a months rent of $2,800.00 inclusive of GST. If these are taken at face value then they indicate that that is the amount of the rent. Such documents are, of course, easily generated.
3. The evidence that the rent paid to the Tenants by Michael is only $2,800.00 does not make any sense. The Tenants were paying the rental of $1,400.00 per month to the Landlords and the takings of the business were, according to the agreement between the Tenants and Michael, to be kept at or above $13,500.00 per week, which, on a monthly basis, is $58,500.00. I do not believe Mr Awad's evidence in this regard.
4. The Landlords' actions are also difficult to understand. The rent had remained at $1,400.00 per month since 1995 which seems an extraordinary length of time for rent to remain unadjusted. Mr Conell said he was continually trying to increase it but Mr Awad refused to agree unless the Premises were either substantially renovated or rebuilt, which, Mr Conell said, he could not afford to do. When I asked him why he did not follow the procedure for a review of the rent set out in the various lease documents he said that he had been advised by his solicitor that he would have to go to the Supreme Court, spend a great deal of money and may have to rebuild the Premises. I find it difficult to believe that any solicitor would have given that advice.
5. It is quite clear that Mr Conell was most unhappy with the level of rent that the Tenants were paying and it seems strange why he never did anything about it. However, he struck me as being a very passive man and one who would be easily bullied by Mr Awad who seems to have a very forceful personality. That is a more likely explanation.

1. It is clear from the correspondence that the Tenants were attempting to maintain the rent at $1,400.00 a month and have the repairs to the Premises that they wanted done at the Landlords' expense. As to the latter, they succeeded and, despite Mr Conell's protests I cannot see that this money is recoverable by him. It is true that the Residential Tenancies Act did not apply to this tenancy and so the notice served on behalf of the Tenants pursuant to the Residential Tenancies Act was misconceived. However it is also clear from Mrs Conell's evidence that the reason they carried out the works was because the current sub-tenant, Michael, wanted it done and, despite Michael having been let into possession of the Premises without their knowledge or consent, they appear to be quite happy that he is there.
2. I am also satisfied that, in sub-letting the Premises to Michael, the Tenants breached the Fourth Lease which had incorporated into it the provisions of the Second Lease. Clause 4.1 of the Second Lease provides:

"The tenant must not transfer this lease or sub-let the Premises without the Landlords' written consent and s144 of the Property Law Act 1958 and clause 9.1 do not apply."

"The tenant must not give up possession or share occupancy of the Premises or grant a licence to anyone else without the Landlords' written consent, which may be given or withheld at the landlord's discretion."

1. Not only is Michael in possession of the Premises, he is there pursuant to an agreement that he entered into with a company called Awad Pty Ltd which purports to be the owner of the business that was leased to Michael. From that it would appear that, at some earlier time, occupancy of at least the shop and possibly the whole of the Premises passed to Awad Pty Ltd pursuant to some arrangement between it and the Tenants. In neither case have the Landlords assented to the sub-lease nor has their consent been sought.

1. For the foregoing reasons I find that the term of the Fourth Lease expired on 31 July 2007 because there was no agreement for any further term. The Tenants are not presently in possession of the demised Premises pursuant to any formal lease.
2. Mr Pitt submits that, by reason of the operation of the Retail Leases Act 2003 ("the Act"), the Tenants are entitled to a five year term. He relies upon the Tribunal's decision in Daco Enterprises Pty Ltd v The Golden Sultana Pty Ltd [2006] VCAT 2547 and adopts the reasoning to be found in the judgment in that case. That reasoning is as follows.
3. By s.3, the term "lease" means a lease, sub-lease or an agreement for a lease or sub-lease, whether or not in writing. The definition is wide enough to include periodic tenancies and it appears from other parts of the Act that they are included. If it is a lease of retail premises, it is a retail premises lease.
4. By s11, the Act applies to a retail premises lease that is either entered into after the commencement of that section, or renewed after the commencement of the section, whether it was entered into before or after that commencement. It should be noted that the term "retail premises lease" is not defined in the Act and, where used in the Act, they do not necessarily relate to a retail premises lease to which the Act applies.
5. Section 10 provides:

If, in accordance with a retail premises lease, the tenant continues to be in possession of the retail premises for a period after the lease has expired, the lease is taken to continue for the purposes of this Act while the tenant is in possession of the premises."

1. Section 12 provides (where relevant):

(1) This Act does not apply to a retail premises lease for a term of less than one year.

(2) However, if the term of a retail premises lease is less than one year and as a result of either or both of the following-

the tenant is continuously in possession of the retail premises for one year or more under the lease after the commencement of this section, this Act applies to the lease on and from the day on which the tenant has continuously been in possession of the retail premises for one year after that commencement."

(1) The term of a retail premises lease, including any further term or terms provided for by an option for the tenant to renew the lease, must be at least 5 years or, if the term remaining under any head lease under which the landlord holds the retail premises is 5 years or less, the length of that remaining term less one day.

Note The landlord or tenant may, in accordance with the lease or this Act, be able to terminate the lease before the end of the term if, for example, there has been default, relocation, demolition or damage to the retail premises.

(2) In applying subsection (1), an option conferred after the lease was entered into must be disregarded.

(2A) In applying subsection (1) to a retail premises lease to which this Act applies because of section 12(2), account must be taken of any period during which the tenant was continuously entitled to possession of the retail premises before the day on which this Act first applied to the lease.

Note Section 8 provides that an assignment of a retail premises lease is taken to be a continuation of that lease.

(3) This section does not apply to a renewal of a lease if there is no break in the tenant's entitlement to possession of the retail premises.

Note This means that a renewal of a lease is not required to be for 5 years because the minimum 5 year term requirement applied to the lease when it was entered into and the availability of the renewal will have been taken into account in determining the term of the lease."

1. At common law, if the term of a lease expires and the lessee remains in possession with the consent of the lessor with payment and acceptance of rent, there is an overholding and the lessee becomes a periodic tenant.
2. Because the term of the lease has expired, so has the lessee's interest in the demised premises. His rights as a periodic tenant do not arise until the overholding by the lessee with the consent of the lessor and the payment and acceptance of rent have occurred. The periodic tenancy is a separate and new tenancy. It is not simply a continuation of the period created by the lease. The authority for this latter proposition is the judgment of Herring CJ in Hamilton v. Porter [1958] VicRp 39; [1958] VR 247 at p. 250.

1. In Daco, the term of the lease expired on 8 September 2003, that is, after the commencement of the Act, but the lease itself, having been entered into before the commencement of the Act, was not a lease to which the Act applied (s.11). The lessee overheld with the consent of the lessor and there was payment and acceptance of rent. Consequently, the Tribunal held that a new tenancy, namely, a periodic tenancy from month to month, was created. Since the lessee remained in possession for more than a year after the commencement of the periodic tenancy, the Act applied from the moment that it had been in possession for a year, by virtue of s.12(2). The Tribunal found that, consequently, the new tenancy had to comply with s.21 and be for a minimum of 5 years. By s.21(2A), that period of five years commenced from the moment the periodic tenancy commenced.
2. The decision in Daco was referred to with approval in the Tribunal's decision in Bob Jane Corporation Pty Ltd v Commercial Road Developments Pty Ltd and Anor [2007] VCAT 2120, but in that case, because the tenancy from which the lessee overheld was a fixed term of only 6 months (ie, less than 12 months) it was not a retail premises lease to which the Act applied (s.12). Hence, adopting the reasoning in Daco, the common law position was held to apply and, because the periodic tenancy did not last for more than 12 months, the Act did not apply so as to entitle the lessee to a five year term.
3. Since I have found that the letter from the Tenants' solicitors of 16 March 2004 was an effective exercise of the option contained in the Third Lease, then that amounted to a renewal of the Third Lease as from the date the Third Lease expired. That was on 1 August 2004. Since that occurred after the commencement of the Act, the Act applied to the Fourth Lease because of s. 11.

1. The Fourth Lease was entered into after the commencement of the Act and so, by s.11, it is a retail tenancies lease to which the Act applies The essential difference between this case and the two cases referred to is that the overholding was from the Fourth Lease which, having been entered into, was a retail premises lease to which the Act applied.
2. There are two possible scenarios and I do not need to decide which is correct. The first is that, in order to satisfy s.21, the Fourth Lease ought to have been for 5 years whereas it was only for three years. A five year period from 1 August 2004 would have expired on 1 August 2009.
3. On the other hand, if s.21 was not effective to increase the term of the Fourth Lease to 5 years, the term of the Fourth Lease would have expired on 31 July 2007. However, because the Fourth Lease is caught by the Act, s. 10 applies. Therefore, the overholding was not a separate tenancy as it would have been at common law because s. 10 provides that the continued occupation by the Tenants is a continuation of the Fourth Lease. There is no new lease to which the 5 year minimum period can be applied.
4. It follows that, in either case, all the Tenants now have is a monthly tenancy.
5. For completeness I should add that I am by no means certain that the operation of s. 10 is confined to retail tenancies leases to which the Act already applies. The section appears in Part 1 of the Act which sets out the definitions and key concepts with which the Act operates. It is not in what one might describe as the operative part of the Act. I held in an earlier decision that s. 8 was not so confined (see Saratoga Pty v. Vision Australia Pty Ltd [2007] VCAT 1902 paras 26 to 32). However it is unnecessary to consider that point.

1. This proceeding was issued following receipt by the Tenants of a letter from the Landlords dated 10 October 2008 demanding that they vacate the Premises. On 19 June 2009 the Landlords served upon the Tenants a notice pursuant to s.146 of the Property Law Act 1958, setting out numerous alleged breaches of the various leases. Many of these alleged breaches were not substantiated by the evidence. Since there is no sufficient s.146 notice I shall not make an order for possession. If the Landlords wish to regain possession of the premises I think they should start again, proceed properly and rely upon sufficient grounds.

1. The Tenants' claim will be dismissed. As to the Landlords' claims
   • (a) The claim with respect to the low rental paid is dismissed.
   • (b) The claim for repayment of the $12,000 the Landlords claim to have spent in repairs following receipt of the notice under the Residential Tenancies Act is dismissed. Apart from the poor evidence given in support of it, the expense was incurred voluntarily. The Landlords could have disputed the notice. They might have been mistaken as to their legal position but the payment was not made to the Tenants but to repair their own property.
   • (c) The claims with respect to alleged violence on the part of the Tenants were not proven and so they will be dismissed.
   • (d) I am not prepared to make an order for possession on the evidence before me.
   • (e) I will declare that the Tenants are monthly tenants of the subject premises.
   • (f) Costs will be reserved but the parties will be aware that costs are generally not awarded in this List.
   • (g) Liberty to all parties to apply for such other orders or directions as may be appropriate to be made or given consequent upon these findings.