Burbridge v Vosedo Pty Ltd

REASONS FOR DECISION INTRODUCTION 1 The Applicant David Burbridge ("the tenant") seeks a declaration that a valid lease on certain terms exists between him and the Respondent Vosedo Pty Ltd ("the landlord") in respect of premises at Shop 12, 237-239 Oxford Street, Bondi Junction ("the premises"). 2 The tenant initially went into possession of the premises as proposed assignee under a lease of the premises which expired on 23 August 2004. 3 Negotiations took place between the tenant and the landlord for the granting of a new lease to commence from 24 August 2004. The Applicant contends that he is entitled to continue in possession of the premises under a lease for 3 years with a 3 year option commencing on 24 August 2004, the terms of such lease including a 6 week rent free period and a bond equivalent to one sixth of the annual rental. The respondent contends that a lease in such terms was never agreed to, and that in fact the landlord has since indicated that it does not wish to have the tenant as lessee of the premises at all. BACKGROUND 4 The premises were previously leased to Tree of Life (Retail) Pty Ltd ("TOL") for a period expiring on 23 August 2004. 5 Prior to 20 April 2004, the tenant had discussions with a Mr John Borthwick, apparently the manager of TOL, concerning the tenant taking possession of the premises. 6 On 20 April 2004, TOL exercised its option to renew its lease for a further period of 3 years from 24 August 2004. 7 Richardson & Wrench Bondi Junction are the landlord's agent responsible for the premises ("the agent"). The relevant person dealing with this matter was Mr Tony Reitano. On 17 May 2004 TOL advised the agent as to the amount which it wished to offer in respect of rent for the commencement of the option period, and its wish to assign the lease to the tenant. 8 On 21 May 2004 the tenant submitted a faxed document entitled "Application for Commercial Premises" to the agent. 9 Also in late May 2004, the tenant spoke to Mr Reitano concerning assignment of the lease of the premises. The agent says that during the course of that conversation, the tenant asked the agent if the landlord would give a rent-free period, the agent told him that it was not the landlord's practice to do so upon assignment of a lease, and that the tenant should look to TOL for any rent-free period; the tenant's version of this conversation does not include references to a rent-free period being discussed at this stage. 10 Nevertheless, the tenant certainly did wish the landlord to provide a rent-free period and continues to maintain that position. 11 On 9 June 2004 the tenant met the agent. The agent handed the tenant a letter from the agent dated 9 June 2004 which relevantly stated the following: "We refer to our discussions of earlier today in relation to the above-mentioned matter and can confirm that you have agreed to assign the current lease from Tree of Life (Retail) Pty Limited. The lessor … has approved this matter in principal and shall be pleased if you would consider the following offer: DATE OF ASSIGNMENT: 1st June 2004 ASSIGNMENT EXPIRY: 23rd August 2004 NEW LEASE TERM: Three (3) years COMMENCEMENT: 24th August 2004 EXPIRY: 23rd August 2007 RENT: $46,000.00 PA + GST BOND: Three (3) months gross rental ($11,500.00) OPTION: Three (3) years SPECIAL CONDITIONS: 1. Assignee (David Burbridge) to pay all legal expenses in relation to the preparation of all relevant legal documentation. 2. Six (6) month demolition clause to apply from the commencement of the new lease being 24th August 2004. 3. All terms and conditions to remain as per the current lease to Tree of Life (Retail) Pty Limited. Please sign where indicated below as acceptance of these terms and conditions and should you wish to discuss this matter further, please do not hesitate to contact the undersigned. Yours faithfully RICHARDSON & WRENCH BONDI JUNCTION TONY REITANO Commercial Property Manager" 12 The agent says that at the time of delivering the above letter, he advised the tenant that "this is our client's position and he will not move from that". 13 The tenant's evidence is that on or about 9 June 2004, and over the ensuing period, he was not specifically told that the landlord would not agree to a rent-free period, but rather that the agent did not believe that the landlord would do so. In any event, the tenant signed the letter of 9 June 2004 and returned it to the agent, indicating his acceptance of the terms as set out therein. 14 The tenant reached a separate agreement with TOL with the effect that TOL was to pay 50% of the rental due for the remaining assignment period up to 23 August 2004, and that the tenant would pay the remaining 50% due. The tenant obtained keys to the premises from someone; he initially swore in an affidavit that he was given the keys from the agent, but he resiled from this position when giving evidence in chief. He went into possession of the premises on either 15 June 2004 or 17 June 2004. By reason and effect of the agreement between the tenant and TOL, the rent due for the period until 24 August 2004 was paid to the agent in advance in two equal instalments. 15 On or about 9 June 2004, the agent instructed the landlord's solicitors (Reid & Vesely) to prepare documents relating to the assignment of the existing lease and to the new lease. The agent says that the instructions given were that the lease was not to include any allowance for a rent-free period and was to include a bond equivalent to 3 months' rental. The terms of the proposed lease which was subsequently drafted by Reid & Vesely, reflect those instructions having been given. 16 On or about 22 June 2004 (that is, about one week after the tenant had gone into possession of the premises), the agent delivered the Lessor's Disclosure Statement to the tenant, who read and signed it and returned it to the agent. That Disclosure Statement included, under the heading "Possible Occurrences", the following entry: "(g) The lessee is granted a six (6) week rent free period from lease commencement date." 17 The agent says that the above entry was a typographical error from within the agent's office, and that he had not been instructed by the landlord at any time to offer a rent-free period. 18 By letter dated 12 July 2004, Reid & Vesely sent documents relating to assignment of the existing lease, and the proposed new lease to the tenant's solicitors, David Trodden & Associates ("DTA"). 19 Shortly thereafter, the tenant and the agent had a further conversation concerning the disparity between the lessor's Disclosure Statement, and the lease, in that the lease did not include any provision for a rent-free period. The agent says that he advised the tenant that the reference to the rent-free period in the Lessor's Disclosure Statement was an error, and that there would be no rent-free period; on the other hand, the tenant's version of this conversation is that the agent said words to the effect of "I did not think that the owner agreed to that. I will get some legal advice and get back to you." 20 Reid & Vesely sent what might be termed a "follow-up" letter by fax to DTA on 11 August 2004, but received no response. 21 The agent says that in and during September and October 2004 he proceeded to have a number of conversations with the tenant in which the tenant asserted his entitlement to a 6 week rent-free period, and the agent continued to assert that the landlord would not grant any rent-free period. 22 Reid & Vesely sent a further letter by fax to DTA on 29 September 2004 reiterating that there was no rent-free period granted by the landlord, and insisting upon return of all completed and executed documents and cheques by 15 October 2004. 23 On the same day, DTA then faxed a letter to Reid & Vesely which, amongst other things, sought amendments to the lease including reduction of the bond to one sixth of the annual rental, reinstatement of Clause 76 so as to permit the 6 week rent free period, and deletion of Clause 77 which was the demolition clause in favour of the landlord, as set out in the agent's letter dated 9 June 2004. 24 By letter dated 30 September 2004, Reid & Vesely advised DTA that the landlord did not agree to the amendments which were being sought as set out in the preceding paragraph. 25 By letter dated 7 October 2004, DTA again asserted the tenant's claim to entitlement to the 6 week rent-free period, and returned the lease which had been unilaterally amended and executed by the tenant to incorporate those changes previously sought in the DTA letter of 29 September 2004 relating to provision of the rent-free period, and reduction of the bond. 26 By letter dated 12 October 2004, Reid & Vesely returned the amended lease documents to DTA. The letter advised that the lease was to be executed as originally drafted and then returned with all relevant other documents relating to both the new lease and to the assigned lease together with all due payments, by 15 October 2004, failing which the landlord would consider itself entitled to resume possession of the premises. That letter also advised that the inclusion of reference to a 6 week rent-free period in the Disclosure Statement was due to a mistake by a typist who had copied directly from a precedent in another file. 27 There was a further meeting and discussion between Mr Niall Chang a director of the agent company, Mr Reitano, and the tenant on 15 October 2004 during the course of which the tenant again insisted on a 6 week rent-free period and was told that this was not agreed to. 28 The tenant commenced these proceedings by filing the present application to the Tribunal on 18 October 2004. He claims entitlement to a valid and subsisting lease commencing 24 August 2004 for a period of 3 years with a 3 year option, incorporating the amendments made by him to the original lease document, namely a 6 week rent-free period and a reduced bond. 29 The tenant was subsequently locked out of the premises between 22 October 2004 and 24 October 2004, but eventually arranged to have a locksmith let him back into the premises without the benefit of any order from this Tribunal. The tenant did subsequently obtain an order for unrestricted access from Judicial Member Montgomery of this Tribunal on 26 October 2004, subject to payment in full of arrears of rent, and continuing payment of rent in accordance with the terms of the proposed lease, pending final determination of this matter. DOES THE TRIBUNAL HAVE JURISDICTION TO DETERMINE THIS APPLICATION? 30 The landlord submits that, based upon the evidence before the Tribunal, the substantial use of the premises is for provision of children's parties which is an activity not listed in Schedule 1 of the Retail Leases Act 1994 ("the Act"), accordingly the premises are not a "retail shop" as defined by Section 3 of the Act, and that accordingly this matter does not involve a "retail tenancy claim" in respect of which the Tribunal has power or jurisdiction pursuant to Section 72 of the Act. 31 The Permitted Use of the premises as set out in Item 1 of the proposed lease, and which was agreed to between the parties, is "party shop and retail sale of children's wear, and giftware". 32 The only other evidence as to use of the premises is the oral and affidavit evidence of the tenant that he had conducted about 3 children's parties per week at the premises since going into possession, that the premises had the capacity to have 6 parties conducted per week, that these parties used about 30% of the available floor space, that he spent some time arranging these parties, that as a result of the lockout from 22 October 2004 to 24 October 2004 he had lost 2 children's parties, and that he did not agree that a substantial part of the premises was being or would be used for parties. 33 Section 3 of the Act defines "retail shop" as premises that are "wholly or predominantly carrying on of one or more of the businesses specified in Schedule 1". 34 Schedule 1 includes such activities as gift shops, shops selling or engaging in the provision of accessories or clothing in relation to boys, girls and infants, general stores and fast food stores. On the evidence before this Tribunal, I am satisfied that the predominant use of the premises was for such activities. 35 The landlord further claims that this Tribunal does not have jurisdiction because the tenant claims to be in possession of the premises under a valid assignment of the lease. Alternatively, the landlord argues that this Tribunal does not have jurisdiction in this matter because the tenant is holding over under the previous lease on a month to month tenancy and therefore jurisdiction is precluded by the terms of Section 6(1)(a) of the Act. 36 The claim made to this Tribunal is for declaration of validity of a new lease for 3 years with a 3 year option commencing from 24 August 2004. It does not seek to assert any rights under an assigned lease nor does the current status of the applicant affect his ability to bring these proceedings. 37 In the circumstances, I am satisfied that this Tribunal does have jurisdiction to determine this application. IS THERE AN ENFORCEABLE AGREEMENT TO LEASE? 38 The tenant says that there is an enforceable agreement in terms of the amended lease because agreement between the parties was reached in the letter dated 9 June 2004 and that the amended lease relied upon by the tenant gives effect to the agreement set out in that letter. The tenant argues that at the time of commencement of the new lease, namely 24 August 2004, he reasonably and honestly believed that he had a rent-free period. I was referred to the decision of Hodgson CJ in Aspromonte Pty Limited v Zagari [1999] NSWSC 831 which was a case dealing with the issue of whether a tenant entering possession of retail premises under an oral agreement could gain the assistance of the deeming provisions of the Act as to term of lease, when a further written lease was prepared subsequently and contained a Section 16 certificate and thereby limited the term to 6 months. So far as the issue to be determined in that case was concerned, and of particular relevance to this matter, is the following passage in that judgment: "52. I remain of the view that s. 8(1) discloses an intention that there can be entry into a retail shop as lessee and payment of rent as lessee under a lease, where these events occur at a time when there is consensus as to the terms of such a lease but not yet any written lease entered into." 39 The letter from the agent dated 9 June 2004 was expressed to be "in principal" (sic). That letter also specified a bond equivalent to 3 months' rent, a condition which the tenant subsequently did not agree to and which was altered by the tenant in the lease document. That letter also included a demolition clause with which the tenant subsequently disagreed, but then acquiesced to at the last moment when returning the amended lease to the agent. There is no mention of any rent-free period in that letter, which the tenant says he sought at the outset and which he has maintained entitlement to throughout the subsequent course of events. 40 Having considered the evidence, I am satisfied that the agent orally advised the tenant in May 2004 that a rent-free period would not be given, that this advice was reiterated on 9 June 2004 when the agent's letter concerning the proposed lease and assignment of lease was delivered, and that this position was again emphasised in conversation in July 2004 after the lease documents had been sent to the tenant. 41 Of course, the lease documents prepared on behalf of the landlord contained no rent-free period, in fact specifically excluded any rent-free period, but included the bond of 3 months' rental and the demolition clause. 42 It is clear from the correspondence between the respective solicitors for the landlord and the tenant that there was no intention by the parties to be legally bound until such time as the documents relating to the initial assignment of the prior lease, and the document relating to the new proposed lease were executed. 43 That there was a lack of consensus as to the terms of the lease, is evidenced by the letter from DTA dated 29 September 2004, and the reply from Reid & Vesely dated 30 September 2004. This lack of agreement had been ongoing from May 2004. As stated by the Supreme Court in Arjay Investments Pty Ltd v Morrisson's Outdoor Catering Pty Ltd (Young J, 1 May 1995, Unreported): "Where one has a lease of commercial premises one normally expects that the lease will only come into existence after there has been an exchange of formal documents…. if one can see in the negotiations that the parties had in mind that the preparation of a more formal document by a solicitor, one tends to think that they did not intend to be bound until the formal document was produced and exchanged." 44 I am not satisfied that there was any consensus as to the terms of the lease to commence on 24 August 2004. There were matters of fundamental difference between the parties relating to the issues of rent-free period and amount of the bond. 45 The tenant did not enter into possession of the premises upon any assurance or expectation that he could be given a 6 week rent-free period by the landlord upon commencement of any new lease. 46 The relevant test to be applied is set out by the Court of Appeal in Long & Anor v Piper & Anor [2001] NSWCA 342 as follows: "49 Whether there was a concluded agreement for lease depends on the intention of the parties, prima facie to be determined objectively without regard to the subjective intention of one or other of the appellants and the respondents." 47 As I have stated above, I am satisfied that there was no agreement upon terms of the proposed lease. Agreement on terms which are legally necessary to constitute a contract is a fundamental first step to determination of whether or not a concluded agreement for lease has been reached. The second step is to determine whether it was the intention of the parties to make a concluded bargain without the necessity for anything more, such as execution by both parties of a formal lease (see the judgment of Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548). 48 It is clear from the evidence that even if the terms of the lease agreement had been agreed to, it was the intention of the landlord that it would not be bound until all relevant lease documents were executed. 49 The High Court in Masters v Cameron [1954] HCA72 laid down 3 categories into which agreements such as this may fall at page 360: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract." 50 The evidence in this matter indicates that the parties had not reached finality in arranging all the terms of their bargain, and I am therefore also satisfied that this agreement falls into the third category set out above, namely that it would not be a concluded bargain unless and until a formal lease was executed. ORDERS 51 For the reasons set out above, 1. I find that there has been no agreement for lease reached between the parties 2. The application is dismissed 3. If the landlord wishes to make any application in relation to costs, it must file and serve written submissions within 14 days. If written submissions are not filed and served within that period, there will be no order as to costs.