Bella Fruita Pty Ltd v Nyrang Holdings Pty Ltd [2000] ACTSC 16

24 By letter 8 March 2010 to the Applicant the solicitors for the Respondent noted that the Applicant "did not exercise the option for renewal of your lease, for the above-mentioned premises, in accordance with the terms of the existing lease. Accordingly (the Respondent) has instructed us that she will not renew the lease. She has instructed us further, that she intends to sell the shop". Thereafter followed some discussion/ confirmation of the proposed purchase price and there was some suggestion in the evidence that the Applicant was attempting to organise finance for that purpose. Nothing, however, seems to have come from all of that.

25 Before embarking on this thorny issue it is worthwhile referring to a number of important aspects. Firstly, no party was cross-examined. All material was allowed into evidence without challenge. I reject the Respondent's submission that because the option letter was not received therefore it was not sent. Logically, that does not follow. The evidence shows quite plainly that the Applicant sent the option letter and that it was not received by the Respondent.

26 Secondly, reference should be made to cl.20.08 set out in full above at [16]. It is plain from that clause that the letter, once posted, "shall be deemed to be duly served at the expiration of forty eight (48) hours after the time of posting". Therefore, on those words, it is plain that the letter would have been deemed, as a matter of contract, to have been received on Sunday 17 January 2010. If I am wrong about that interpretation, then at least it would have been deemed to have been received by Tuesday 19 January 2010, two working days later. Thus, once it is proved that the letter had been sent (and I am so satisfied on the evidence) then it is plain that the letter had in fact been received as a matter of contract.

27 Thirdly, clause 20.08 requires the Applicant, as lessee, to not only send a notice by pre-paid letter appropriately mailed but also to provide a copy of that notice to be delivered personally to any management office located within the Cremorne Town Centre. There was no evidence of the existence or location of any management office in the Centre, but no party seemed to want to argue that there wasn't. Having regard to such implied acceptance then it was never explained by the Applicant why she did not deliver a copy of the option letter to the management office.

28 Fourthly, cl.20.08 requires the prepaid letter to be addressed "to the lessor at its registered office" - clearly this is a reference to the original lessor Cremorne Town Centre Pty Limited; but, and by the operation of the terms of the lease where the lessee is not a corporation (see above at [10]), and I take this to mean an assignee of the lessee, then clearly the lease has to be "construed as having similar meaning but with reference to a natural person", thus the reference to the "registered office" must be taken to be a reference to the private home address of the Respondent.

29 Fifthly, it is plain that whatever view one takes of the rental payments, as at 15 January, or 17 January or 19 January, there were arrears under the lease. Having regard to Exhibit 4 and the discussions that flowed at the hearing as a consequence of that Exhibit, it appears plain that as at any of those dates the arrears were $2,630.50.

30 More importantly, in order to reach that arrears position the Applicant had proposed, and the Respondent had accepted, that the bank guarantee be called up. Thus, as at any of those dates, there was a breach of cl.8.03 and Item 11(b) of the Reference Schedule, in that there was in fact no existing bank guarantee for an amount equal to two months rent plus GST. It will also be remembered that this clause was an essential term of the lease (cl. 19.06).

31 Thus it must follow that, even if one excludes outstanding interest, as at the date of the option letter, whensoever deemed to be received, there were rental arrears, a failure to re-instate the bank guarantee, and a breach of an essential term of the lease contract.

32 The answer to the question of whether the Applicant in fact exercised the option is not easily reached. I can firstly dispose of one argument raised by the Applicant, and that is that the offer to pay by instalments was (I infer) somehow a stay of any claim that could be made by the Respondent. The Applicant on a number of occasions referred to Regulation 6.17 of the Uniform Civil Procedure Rules 2005 and to the Form thereunder. She asserted that the letter 30 October 2009 not only covered the period to that date but also "future rent"; she referred to the recession, slow trade and hardship and relied upon UCPR 6.17. It is plain, however, that that regulation "applies to proceedings in which the plaintiff makes a liquidated claim, but makes no claim of any other kind". This is clearly not the case here. No claim is actually agitated, by separate Application or Cross-Application, by the Respondent. What we have in these proceedings is simply a defence by the Respondent to the prayer of the Applicant in her Application filed 28 April 2010. This is not the same as Hardy v. Fou (No 105008 ), decided ex-tempore on 11 March 2010, where both parties had put before the Tribunal all the material upon which they both relied and, although there was no cross-claim or separate application by the Respondent, it was convenient, proper, a saving in costs, and with no prejudice to the Applicant, for the Tribunal to simply (in that case) dismiss the application and make orders in favour of the Respondent with regard to outstanding rent.

33 I now seek to deal with the submission that the option letter in its terms does not itself exercise the option. The Respondent seized upon the words "I confirm my intention to exercise the option " and the words in the Applicant's letter to the strata managers 5 March 2010 "with possible 5 years option to stay". It was submitted that this was not an exercise of option, but rather an indication that the Applicant proposed or intended to exercise the option. I reject that submission. That avoids the clear intent of the option letter and the statement "the new lease will start from 1 May 2010 to 30 April 2015 with a new structure of rent" (my italics). The last sentence "Please inform me about progress in this matter" clearly refers to the preparation of the new lease and the assessment of market rent. All other things being equal, in my opinion, the option letter operates to exercise the option.

34 It was then submitted that because of the words written on the letter from the strata manager, (see above at [23])and/or the letter 5 March 2010 (see also above at [23]) the Tribunal should conclude that there was a waiver, alternatively some form of non-assertion, of any exercise of option. But it is plain to me that the Applicant's words have got nothing to do with the option; rather what she is addressing is the downlights not being installed by her, but rather something that she "acquired" when she originally leased the premises.

35 It seems to me the biggest hurdles to be overcome by the Applicant relate to her failure to deliver a copy of the option letter to "the management office"; her failure to bring her rental payments up to date as at the date of the option letter (or the date of its receipt); and the failure to re-instate the bank guarantee. In addition, there is the thorny question of interest on the arrears which, at least on the Respondent's case, amount to something in the order of $7,183.45 (at April 2010), or $5,021.94 (at January 2010) (figures derived from Exhibit 4). Pausing again, there was no satisfactory argument raised by the Applicant that would persuade me that the figures set out in Exhibit 4 were not correct.

36 I gave leave to both parties to file and serve Written Submissions relating to the option letter. The Respondent did so, making reference to some important cases. The Applicant filed Written Submissions, but primarily by photocopying some of the documents that were already in evidence.

37 During the course of the hearing, and avoiding (if that is possible) the failure to re-instate the bank guarantee and the outstanding interest on the arrears, I was concerned about whether or not there could be an argument advanced on behalf of the Applicant for relief against forfeiture, perhaps along the lines that although the rent had not been paid strictly in accordance with the lease the Applicant had made payments as best she could from time to time, did not deliberately fall into arrears, but did her best such that at the date of the option letter the arrears were (only) $2,630.50. Perhaps, in those circumstances, there may have been an argument that, applying the "relief against forfeiture principle" there was not in effect any arrears at the date of the option letter.

38 These sorts of questions were touched upon by His Honour Young J in Leads Plus Pty Limited v. Kowho Intercontinental Pty Limited [2000] NSWSC 459, particularly at [14-28]. His Honour made the point that even in a case where "time was essential with respect to the exercise of the option" (as in the case before him) His Honour thought that there may be some circumstances where the Courts "would be prepared to go a little further" and even "if there is a condition which is essential not only in law but essential in equity, and even though equity would not grant specific performance because of a time condition which is essential … it will do this only in exceptional circumstances … (where the) "case hinges on the existence of unconscionable conduct (at [19]). His Honour found, "tentatively" that "equity does have jurisdiction to make such an order but one must find that there is unconscionable conduct before one can exercise that discretion" (at [21]). The circumstances have to be "exceptional" and must be "connected with the existence of unconscionable conduct" and His Honour observed [24] that there "will be some cases where it will be unconscionable for a landlord to take advantage of a small mistake on behalf of a tenant to obtain a windfall".

39 His Honour asked a number of questions at [25] and, in the case before him answered the questions adversely to the lessee, even though the lessee (at [26]) did "indeed stand to lose everything by its failure" to exercise the option. His Honour observed at [28], that the "failure to exercise the option was purely a matter of the tenant failing with reasonable diligence in managing its own affairs. It was in no way the fault of the landlord nor is the landlord going to gain a windfall of any great moment at a result of what happened. Even if the facts are found in the plaintiff's (lessee's) favour the chances of the plaintiff being successful at the trial to my mind appear to be merely speculative. Furthermore, to grant an injunction will have the effect of compelling the landlord to have the plaintiff in its premises after the agreed period for the lease to come to an end, so that it will be more than merely preserving the status quo".

40 As I read this decision, what Young J is saying is that in the circumstance posited by me above at [37] the circumstances would need to be exceptional for this Tribunal to entertain an argument that somehow the relief against forfeiture principle should apply where there are arrears and where the lessee is doing her best to pay those arrears and comply with the terms of the lease.

41 The difficulty in the case now before the Tribunal is that, although the relief against forfeiture principle may apply to the arrears simpliciter, that fails to address the fact that there was no re-instatement of the bank guarantee; it also fails to address the interest payable on the arrears from time to time. In my view, and notwithstanding the assertions by the Applicant that the delays in payments and the instalments proposed arose out of "the recession - slow trade and hardship", having regard to the other matters it seems to me that the situation in which the Applicant finds herself is not the fault of the Respondent and that the breaches, when taken as a whole, are not trivial or slight and that the Respondent is in fact suffering damage as a consequence of the Applicant's continuing breaches.

42 I agree with the Respondent's submission that the leading Australian case on condition precedent to an option to renew a lease is Gilbert J McCaul (Aust) Pty Ltd v. Pitt Club Ltd (1954) 76 WM (NSW)72 at 74, where the Full Court made the following pronouncement: "In the present the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer".

43 This decision was referred to in detail in the NSW Law Reform Commission's Report 5 (1968) - Options in Leases. The Commission concluded that the "result of the judgment of the Full Court would appear to be that a breach of covenant howsoever trivial and however long before the time for exercise of the option the breach may have occurred, prevents the exercise of the option although the lessor may have waived the breach so far as concerns forfeiture of the original term". The Commission felt that such "a condition could operate harshly". The Commission referred to Conveyancing Act, 1919, s.129 (which relates to rights of re-entry or forfeiture) and proposed certain new sections (ss.133C - 133G), that would extend relief "in regard to options and like rights of renewal or purchase … but only upon application to the Court". I shall refer to these sections later in this Decision.

44 McCaul was referred to in Bowman v. Durham Holdings Pty Limited [1973] HCA 55, at [19]; but it seems to me that the observations in McCaul, unless ameliorated by statute or a subsequent decision, must stand. It is based upon the most basic of contractual assumptions, ie. that an option is a contract; its terms are those that have been agreed between the parties; and absent a countervailing equity or remedial legislation the terms of the contract must be adhered to and enforced. Thus it is necessary to consider the terms of the option clause (cl.25, above at [17]). Firstly, it is plain that the written notice was given to the Respondent within time. However, a copy was not "delivered personally to (the) management office" as was a quite specific requirement of cl.20.08 above at [16]. There is good reason for that requirement (and there was no satisfactory, or any, explanation by the Applicant of her failure to provide such a copy to the management office): by providing such a copy firstly, it avoids the problem now confronted by the parties when the letter was not received by the Respondent/lessor, and, secondly, it provides a back-up notice to the Centre Management and would create a flag so that the management, and the Respondent, would become aware of the notice of exercise of option. Both the lessor and lessee have an interest in the smooth conduct and promotion of the activities of the retail shopping centre and that is yet another reason why, I think, a copy of the notice was required to be "delivered personally to (the) management office located in the shopping centre".

45 Nextly, cl.25 makes it plain, that in order to exercise the option "the lessee shall neither at the date of such exercise of option or at the date of expiry of the Term of this Lease be in default in respect of the performance of the terms, covenants, conditions, by and on the part of the Lessee …" contained in the lease. It must follow, having regard to the findings that I have made above relating to the arrears of rent, the failure to pay interest on the arrears and, perhaps even more importantly, the failure to reinstate the bank guarantee, that the Applicant was in fact in default at all relevant times. Thus, and following McCaul, the Applicant could not have validly exercised the option. Pausing here, there seems to be an essential conflict within cl.25, where the notice, if given in time is regarded as "an exercise of option" yet, in the same breath, such "exercise of option" is not a valid exercise of option where there is default - this is probably a matter of academic semantics, because the intent is quite clear.

46 Counsel for the Respondent also referred to Bella Fruita Pty Limited v. Nyrang Holdings Pty Limited [2000] ACTSC 16. Here the appellant was a lessee of premises within a shopping centre; the lease was for a term of four years expiring 13 December 1998 and which contained an option for a further term of four years. The appellant by letter dated 11 August 1998, purported to exercise its option for a further term; and the ACT Supreme Court found that the option had not been exercised. The Supreme Court referred to the decision of the ACT Tenancy Tribunal, which relied upon McCaul and the passage quoted above, in circumstances where there was a "failure to pay rent punctually" such that the appellant had breached the contractual terms "regularly". The primary argument advanced was that the conduct of the Respondent was harsh and oppressive and the decision of the Tribunal to the contrary was an error of law. The decision primarily depended upon the terms of the ACT Commercial and Retail Leases Code of Practice, Rule 13 of which prohibits unconscionable, coercive, harsh or oppressive conduct. In the case before the Supreme Court the evidence supported the conclusions that the lessee's "breaches of the leases were not spasmodic but persistent"; that the "breaches of the lease were not accidental, but were made deliberately with full knowledge and appreciation of the requirements of the lease"; that the lessee "did not take its responsibility seriously. It consistent made no effort pay rent in a timely fashion, it could reasonably have paid on time. Its rental payments were in arrears even at the time of the hearing" (as is the case in the matter now before this Tribunal) and the lessor "was not in breach of the lease and was … entitled to pursue its own commercial interests".

47 There are some similarities between Bella Fruita and the case now before the Tribunal; but there are significant differences of fact and law such that I do not think I can put too much reliance upon Bella Fruita. However, the Respondent called it in aid (I think) of the observations of Young J in Leeds Plus.

48 I have reference above [43] to the report of the Law Reform Commission. This report resulted in legislative changes whereby the Conveyancing Act 1919 was amended by the addition of s.133C - 133G. I made reference during the hearing to these sections, and the decision of Fox JM in Subway Realty v. The Investment #1 Pty Limited [2010] NSWADT 123. I was concerned that these sections may have force and effect, thus depriving the Respondent of arguing that the various defaults I have enumerated above negatived the legal effect of the option letter.

49 There is no doubt that these sections apply "any stipulation to the contrary" (s 133D(2)(a)), and apply to circumstances where there is granted to a lessee a right of renewal and the entitlement of its exercise "is made to depend upon performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised" (s.133E(1)).

50 S.133(2) makes it plain that no breach by the lessee of any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing anything, precludes the lessee's entitlement to the option unless: a) the prescribed notice has been served on the lessee in respect of the breach, and (b) the lessee's rights are extinguished in relation to the notice.

51 Such a notice must comply with sub-section (3) must specify "the lessee's breach of the relevant obligation" and must be served on the lessee: "(i) within fourteen days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or (ii) within fourteen days after the breach, if the breach occurred after the giving of that notice, and (iii) states that, subject to any order of the court under section 133(F), the lessor proposes to treat the breach as precluding the lessee from entitlement to the option."

52 S.133E goes on to make this provision: "(4) For the purposes of sub-section (2)(b), the lessee's rights are extinguished in relation to a prescribed notice: a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief other than by granting relief, or, c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose".

53 In order to obtain the benefit of s.133E relief may be sought under s.133F: "a) in proceedings instituted in the Court for the purpose; or b) in proceedings in the Court in which: i) the existence of an alleged breach by the lessee of the lessee's obligations under the lease; or ii) the effect of the breach from which relief is sought is in issue."

54 Pausing at this point, it is plain to me that these various sections apply as a legislative overlay to the terms of a retail lease in the same way that the Retail Leases Act itself applies, such that any provision in the lease contract to the contrary is overridden by these sections of the Conveyancing Act, and, if I am correct in my appreciation of the width/breadth of the powers given to this Tribunal as I have sought to express in Chronopoulos v Carossel Pty Ltd [2010] NSWADT 191 then at the very least this Tribunal has power to make binding declarations declaring the rights and liabilities of the parties, under law, whether any consequential relief is or could be claimed or not, pursuant to Retail Leases Act Section 72(1)(f)(iii).

55 The difficulty confronting the Tribunal is the plain fact that, although it has accepted that the option letter was sent, it was clearly not received. In addition, it was not delivered to the Centre Management office. It is plain, in my view, that the delivery to the Centre Management office is an "obligation" within s.133E(3), because it is certainly a covenant, condition or stipulation. But the difficulty is, as I see it, that although the option letter amounted to "the giving of a notice by which the option is exercised" there was no opportunity given to the Respondent to herself issue a "prescribed notice", simply because she never knew that the option letter had been sent - remembering that it has in fact been sent and was deemed to be received under cl.20.08.

56 The next problem that confronts this Tribunal is the phraseology used in s.133F. There is no doubt that the proceedings in this Tribunal have raised as an issue "the existence of an alleged breach of the lessee of the lessee's obligations under the lease, (and) the effect of the breach from which relief is sought"; but the odd thing is that the Applicant has not sought any relief under s.133E pursuant to s.133F. And, in any event, relief can only be sought in, or granted by, "the court" which, by Conveyancing Act (s.7(1)) means the "Supreme Court".

57 In any event, it seems to me from looking at s.133F(3), and having regard to the nature and extent of the breaches which I have endeavoured to enumerate above, it would seem unlikely that the Supreme Court would in fact grant relief to the Applicant.

58 There was some evidence referred to by the Applicant relating to promotional levies. This evidence, it seems to me, is rather irrelevant having regard to the case as agitated by her.

59 Furthermore, it seems to me, and although I have considerable sympathy for the Applicant in the financial circumstances which she now finds herself, the defaults and breaches of contractual obligations, for which there have been no remedy and no persuasive material has been led that would encourage me to believe somehow or other, and in a short period of time, the Applicant could put her financial house in order and bring all her arrears/contractual obligations up-to-date (even if all of that was relevant to the granting of relief, which I think it is not), I am forced to the conclusion that the application must fail. That means that I am not satisfied that the option has been validly exercised and, consequently, the lease in fact has terminated on 30 April 2010.

60 During the course of various Directions Hearings various interlocutory orders were made with a view to preserving the status quo consistent with the principles that I sought to enunciate in Spuds Surf Chatswood Pty Limited v. PT Limited [2007] NSWADT 130 in particular at [59-69] with special reference to [60]. Having regard to the conclusions that I have formed I propose to vacate all the previous injunctions/urgent interim orders.

61 Finally, the Respondent has, as I have observed above, simply defended the current proceedings instituted by the Applicant. It will be a matter now for the parties to resolve their issues as a consequence of the dismissal of these proceedings, either by agreement, mediation or through this Tribunal. One would, of course, urge upon the parties a commonsense approach even if that results in some form of compromise.

1. I vacate all injunctions and urgent interim orders made 6 May 2010, 20 May 2010 and 9 June 2010.

2. I dismiss the Application for Original Decision and the Application for Urgent Interim Orders, both filed 28 April 2010.

3. I declare that the Applicant has not exercised the option.

4. No order as to costs; save that should either party file and serve an Application for costs coupled by appropriate submissions, within 14 days, then the other party is to file and serve its reply within a further 14 days; and the Tribunal will make a decision on the papers as permitted by the Administrative Decisions Tribunal Act 1997, s.76, unless persuaded that there should be oral submissions.

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