Cakirgoz v Crouch

Supreme Court of NSW|2008-10-24|Before: Palmer J

CITATION : Cakirgoz v Crouch [2008] NSWSC 1124

DECISION : Summons dismissed with costs; orders made on Cross Claim.

CATCHWORDS : LEASES - ABATEMENT OF RENT - Whether circumstances existed entitling lessee to abate rent until lessor effected repairs to premises. - HELD: No abatement justified either under lease or under s 36 Retail Leases Act.

PARTIES : Mahmut Cakirgoz (Plaintiff/Cross Defendant) Wayne Charles Crouch (Defendant/Cross Claimant)

COUNSEL : Plaintiff/Cross Defendant in person A.J. Grant (Defendant/Cross Claimant)

SOLICITORS : Thomas & Bisley (Defendant/Cross Claimant)

1 The Plaintiff, Mr Cakirgoz, is a litigant in person. He does not have a good command of English. His case is being conducted on his behalf by Mr Christopher Sharp, who has some financial interest, I gather, in the outcome, although that is not clearly explained. Mr Sharp is not a lawyer. Mr Grant of Counsel, who appears for the Defendant, does not oppose Mr Sharp conducting the case on Mr Cakirgoz's behalf. I make those remarks at the outset, because the case has been conducted in a rather ad hoc fashion in an endeavour by me to ensure that the real issues in the case emerge and are finally determined. 2 In his Summons, Mr Cakirgoz seeks relief in a form which the Court would not give in any event. However, the substance of Mr Cakirgoz's claim is clear enough. He contends that a lease under which he was a lessee has not been validly terminated by the Defendant. He also seeks an order that the Defendant carry out repairs to the leased premises to render them fit for occupation. 3 In order to determine the real issues in the case, I shall treat the Summons as seeking a declaration that the lease has not been validly terminated, and an order that the Defendant perform an alleged covenant to keep the premises in good repair by doing certain work.

4 The Defendant ("Mr Crouch") has filed a Cross Claim in which he seeks an order for possession of the premises upon the ground that the lease was validly terminated on 9 May 2008. The Cross Claim also seeks mesne profits from 9 May 2008 and damages, being unpaid rent from 14 January 2008 until judgment, and thereafter until the expiry of the lease in November 2008.

5 On 24 July 2006, Mr Cakirgoz entered into a lease with Mr Crouch whereby Mr Crouch leased to Mr Cakirgoz the ground floor of premises in Addison Street, Shellharbour, for use as a fish and chips shop. The term of the lease was to expire on 29 November 2008. Mr Cakirgoz had, in fact, traded in the shop since March 2000, although through a company as lessee. 6 On or about 14 October 2007, Mr Cakirgoz entered into an agreement with a company called Fish & Chips Shellharbour Pty Limited, to which I will refer as "the Purchaser". By that agreement, Mr Cakirgoz sold to the Purchaser the fish and chips business conducted in the premises for $150,000. The contract required settlement on 14 January 2008. On 2 January 2008, the Purchaser wrote to Mr Crouch requesting consent to an assignment of the lease from Mr Cakirgoz to it. 7 On 11 January 2008, the Purchaser obtained a building inspection report on the premises. The report showed that the building and the shop premises were old and dilapidated. The report listed many items which, it was recommended, ought to be repaired or replaced entirely. The cost of such repairs and replacements was quoted at $269,940. 8 On 12 January 2008, the Purchaser wrote to Mr Cakirgoz advising that it had obtained a building report and that that report concluded that some $270,000 had to be spent on making the building safe. The letter concluded: "Can you negotiate with Wayne Crouch to find a way to fix building or demolish and build new shop as the building is very unsafe." 9 On 14 January 2008 Mr Cakirgoz wrote to Mr Crouch as follows: "I have signed a contract to sell My business to Fish and Chip Shellharbour PTY LTD … .

Could you give us the final payments for out going to be paid by us for settlement.

They are ready to settle the contract today. we Received a letter to Compleat the sale.

The reason they cannot Settle is that Fish and Chip Shellharbour has had 3 inspection, a Building and a OH,S Safety inspection and Electrician In both reports are very Bad and condemn the building or to spend $270k to bring it up to standard. We are Not paying any more rent till the shop sale is Compleat and fixed up.

Can you go to your Solicitor as we wont to get our money and go

Yesterday the building flooded with the storm and is very dangerous Electrical inspection If you could come up with a plan with Fish and chip Shellharbour to fix the building so they can pay us and we can go.

This is not a job that can be silicon up its very Dangerous This is going to be sorted out in 14 days or we will be taking legal action." 10 On 15 January 2008, Mr Crouch arranged for a licensed plumber to fix water leaks and prevent water penetration to the shop. The cost of that job was some $280. Mr Crouch also made some temporary arrangements to make safe some electrical wiring in the premises and later arranged for an electrician to come and fix some of the wiring. Apart from some other very minor work, no further work was done by Mr Crouch on the premises. 11 On 24 January 2008, a solicitor instructed by Mrs Cakirgoz, apparently on behalf of her husband, wrote to Mr Crouch enclosing the building inspection report of 11 January 2008 and a report prepared by Secure Risk Assessments ("the OHS Report"). The letter stated: "Would you please attend to all required repairs to render the shop safe for your tenant and her customers.

We are further instructed that our client stopped paying rent on Wednesday 16 January 2008 and she will resume paying rent when all of the above mentioned matters are attended to.

The fact that your building has been allowed to fall into a terrible state of disrepair is preventing our client from selling her business and we will be commencing proceedings against you for damages if you do not make the repairs within the next twenty eight (28) days. It may well be that the current state of the building is going to costs Mrs Cakirgos $150,000.00 by way of prohibiting a sale that would otherwise proceed if your building was in a proper state of repair.

We look forward to your response or hearing from your solicitor as soon as possible." 12 I should observe at this point that many items in the building inspection report and in the OHS Report relate to work to a flat above the shop premises which is not part of the lease. Much of the work referred to in both reports is maintenance work and replacement work which was necessary, or at least highly desirable, by reason of deterioration due to the age of the building. The evidence is that the building was erected in the 1940s and has not been renovated since then. The work recommended in the building inspection report, if carried out in whole, clearly enough would have put the whole of the building in a far better condition than it was at the commencement of the lease in 2006. 13 It is pertinent to note that neither Mr Cakirgoz's letter of 14 January 2008 nor his solicitor's letter of 24 January 2008 specified which of the many items of work referred to in the inspection report and in the OHS Report was required to be done before Mr Cakirgoz would resume payment of rent. 14 It is also pertinent that the lease contains a covenant by Mr Cakirgoz, as lessee, to keep the premises in good and substantial repair, working order and condition having regard to their condition at the commencement of the term: see clause 11. 15 From a perusal of the building inspection report and the OHS Report, it appears to me that a considerable part of the work which is referred to in those reports falls within the classification of tenant's repair and maintenance work within the purview of clause 11 of the lease. Nevertheless, the position which seems to have been taken both by Mr Cakirgoz and his solicitors, as evidenced by their letters, was that all of the work referred to in the two reports, estimated to cost some $270,000, had to be done by Mr Crouch before Mr Cakirgoz would resume payment of rent. 16 On 28 February 2008, the Shellharbour City Council issued to Mr Cakirgoz a notice under s 58 of the Food Act 2003 (NSW) requiring him to do a great deal of work to the shop premises in order to make it compliant with the Food Standards Code. The terms of the notice and various photographs now in evidence strongly suggest that the interior of the shop premises was in a highly unsanitary condition. Mr Cakirgoz, as tenant, was responsible for that state of affairs. 17 On 17 March 2008 council officers inspected the shop premises. On 27 March 2008 the council issued to Mr Cakirgoz a final warning stating that none of the work required in the notice delivered on 28 February 2008 had been done, and advising that unless the work required by that notice was done within the next seven days the council would issue a penalty infringement notice and would proceed with a prohibition order under s 60 of the Food Act . 18 On 4 April 2008, Mr Cakirgoz ceased trading in the shop and it was closed. On 28 April 2008 Mr Cakirgoz commenced these proceedings. On 9 May 2008, Mr Crouch's solicitors wrote to Mr Cakirgoz giving notice of termination of the lease for non-payment of rent since 14 January 2008. On the same day, Mr Crouch entered the shop premises, then vacant, took possession and changed the locks. Mr Cakirgoz later that day broke into the shop premises and re-took possession. He has remained in possession since that time.

19 The issue for determination can be stated fairly simply. Was the Plaintiff entitled to abate the rent of the shop premises because of its condition as at 14 January 2008? If the shop was in such a condition as to entitle abatement of rent, either under the lease or under the Retail Leases Act 1994 (NSW), then Mr Cakirgoz was not in breach of his obligations to pay rent under the lease and the lease was not validly terminated.

20 Clause 5(d) of the memorandum which forms part of the lease provides as follows: "In the event that the whole or any part of the premises shall be destroyed or damaged by fire, flood, lightning, storm, tempest or other disabling cause so as to render the premises during the term substantially unfit for the use and occupation of the Lessee and also in the event of the premises or part thereof being resumed or taken for any public purpose or so as to deprive the Lessee of substantial use of the same or so as to render the rebuilding or reconstruction of the building in it previous form impracticable or undesirable in the opinion of the Lessor, then

(d) Upon the happening of any such damage or destruction or resumption as aforesaid, the rent hereby reserved or proportionate part thereof according to the nature and extent of the damage sustained or part resumed shall abate and all or any remedies for the recovery of such rent or such proportionate part thereof shall be suspended until (in the case of damage or destruction) the premises shall have been rebuilt or reinstated or made fit for the occupation and use of the Lessee or until this Lease shall be terminated pursuant to the provisions hereof." 21 I should say at once that the operation of Clause 5(d) depends upon the happening of a certain event, i.e. that at least part of the premises is destroyed or damaged by fire, flood, lightning, storm, tempest or other disabling cause. Mr Grant has pointed out - correctly, in my opinion - that there is no evidence that any damage or disrepair in the premises upon which Mr Cakirgoz relies was brought about by any of those events. There is certainly a complaint about water penetration, but water penetration may occur in any number of circumstances, including blocked guttering in normal rain. 22 Suffice it to say that the necessary condition precedent to the operation of Clause 5(d) of the lease has not been sufficiently made out on the evidence. 23 I should, however, add that even if such a preconditioning event had been proved, I am not satisfied on the evidence that the damage so caused was such as to render the premises substantially unfit for the use and occupation of the lessee from 14 January 2008 onwards. That is so because the evidence clearly shows that from the time that water penetration was first complained of, that is, in November 2007, until 4 April 2008 Mr Cakirgoz continued to trade in the shop premises. Obviously, during that time whatever the inconvenience in trading operations was caused by water penetration, Mr Cakirgoz was not so inconvenienced that he was unable to trade in the premises at all. 24 I accept the evidence proffered by the Defendant of admissions made by Mr Sharp and Mr Cakirgoz to Ms Crouch explaining why the shop premises were closed on 4 April 2008. Those admissions are to the effect that they closed the shop in order to avoid the Council enforcing the notice under the Food Act warning of a penalty and of forced closure of the shop. Mr Cakirgoz says that he moved out of the shop and ceased trading in order to effect repairs and because the premises generally were unsafe. I do not accept that evidence. I do not regard Mr Cakirgoz' evidence in that regard, or generally, as reliable. Mr Cakirgoz made no attempt at all to comply with the Council's notice, and did nothing of any consequence to effect repairs to the premises in accordance with his obligations under Clause 11 of the lease. I prefer to rely upon the contemporaneous documents, the evidence of Ms Crouch and the inherent probabilities. 25 The inherent probabilities are that when Mr Cakirgoz sold the business to the Purchaser for $150,000 in October 2007, he did not wish to spend any money on maintenance of the shop premises thereafter. If the Purchaser wished to obtain improvements to the shop before completing the purchase, then Mr Cakirgoz would endeavour to force compliance with the Purchaser's requirements by refusing to pay rent to Mr Crouch until Mr Crouch satisfied those requirements. 26 I emphasise, however, that neither Mr Cakirgoz nor the Purchaser ever identified to Mr Crouch what work referred to in the building inspection report or the OHS Report, being work for which the lessor, not the lessee, was liable, was to be done before of rent would be resumed. The attitude seems to have been taken that Mr Crouch was obliged to spend $270,000, or at least as much as the Purchaser wished to be expended on the premises, to put the Purchaser into possession of a shop very much better in condition than it was when the lease commenced. 27 In those circumstances, no ground for abatement of rent under the lease has been made out.

28 There is no dispute that the shop premises are retail premises within the scope of the Retail Leases Act . Section 36 of the Act provides: " Damaged premises

(1) A retail shop lease is taken to provide for the following if the shop or the building of which the shop forms part is damaged:

(a) The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage.

(b) If the shop is still useable under the lease but its useability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage.

(c) If the lessor notifies the lessee in writing that the lessor considers that the damage is such as to make its repair impracticable or undesirable, the lessor or the lessee may terminate the lease by giving not less than 7 days notice in writing to the other and no compensation is payable in respect of that termination.

(d) If the lessor fails to repair the damage within a reasonable time after the lessee requests the lessor in writing to do so, the lessee may terminate the lease by giving not less than 7 days notice in writing of termination to the lessor.

(e) Paragraphs (a)-(d) do not affect any right of the lessor to recover damages from the lessee in respect of any damage or destruction to which those paragraphs apply.

(2) A retail shop lease must not contain any provision the effect of which is to limit any liability of a party to the lease to pay compensation to another party to the lease in respect of damage to the shop or the building of which the shop forms part.

(3) Nothing in this section prevents the parties to a lease from terminating the lease by agreement if the shop or the building of which it forms part is damaged or destroyed." 29 A total abatement of rent occurs under s 36(1)(a) only during such period as the shop "cannot be used under the lease" . In the present case, the shop was, in fact, used at all times up to 4 April 2008. Accordingly, s 36(1)(a) cannot apply to abate rent between 14 January 2008 and 4 April 2008. It follows, in my view, that Mr Cakirgoz was not excused from paying rent from 14 January 2008 onwards by reason of s 36(1)(a) Retail Leases Act .

30 I am satisfied that the non-payment of rent by Mr Cakirgoz from 14 January 2008 is not justified either under the terms of the lease or under the terms of the Retail Leases Act . It follows that Mr Cakirgoz has, from 14 January 2008, been in continuing breach of the lease in failing to pay rent. The termination of the lease by Mr Crouch on 9 May 2008 was valid. Mr Crouch validly took possession of the premises on 9 May 2008. Mr Cakirgoz has been in wrongful possession since that time. 31 Mr Sharp advanced an argument founded upon what he says is an assignment of the business and an assignment of the lease to the Purchaser. I did not understand the legal basis for such an argument, but I will make the following observations. 32 The lease has not been assigned, either in law or in equity. The sale of the business by Mr Cakirgoz to the Purchaser has not been completed. There is no executed transfer of the lease to the Purchaser, let alone a registered transfer. The consent to the assignment which was supposedly given by Mr Crouch does not itself confer on the Purchaser the status, even in equity, of an assignee. Absent a registered transfer of the lease, the position of the Purchaser in terms of its right to occupy the premises could have been no better than the position of Mr Cakirgoz himself. 33 As I have said, Mr Cakirgoz has been in breach of the lease since 14 January 2008. The termination of the lease by Mr Crouch on 9 May 2008 was valid and effective against anyone deriving a right of occupation through Mr Cakirgoz. The Purchaser had, and presently has, no right of occupation of the premises. 34 For these reasons, Mr Cakirgoz's claim for a declaration that the lease is still on foot fails.

35 I should deal shortly with a claim made in the Summons for damages, being the rent paid by Mr Cakirgoz under a residential lease of other premises from 15 January 2008 onwards. 36 There is no evidence which demonstrates satisfactorily that the giving up of the flat premises above the shop was occasioned by any breach of the lease of the shop premises. Therefore, there can be no claim for damages under the shop lease in respect of rental paid under a lease of residential premises. That claim must also fail.

37 The Cross Claim must be allowed. Mr Crouch has proved the amount of rent unpaid since 14 January 2008. Therefore, Mr Crouch must have judgment for unpaid rent from 14 January 2008 at least until the date of termination on 9 May 2008. 38 I am satisfied that Mr Crouch is entitled to damages, being the amount of rent payable under the lease from the date of its termination until the date of judgment. That is because the shop has been occupied by Mr Cakirgoz and Mr Sharp, who re-took possession of it, and they remain in possession of it until today. Accordingly, Mr Crouch could not have re-let the shop as he might otherwise have done after 9 May 2008 in order to reduce the loss which would otherwise flow from the termination of the lease. 39 Mr Grant submits that, bearing in mind that there are only some four weeks to run between the date of judgment and the date of expiry of the term under the lease, it is not realistic to deduct anything from the damages that would otherwise be payable for rent unpaid up to the end of the term. He says it is unrealistic to suppose that another tenant could be found for the premises in the next four weeks. Mr Sharp does not put anything against that proposition. As Mr Grant says, and I think Mr Sharp recognises, that is a commercial reality. 40 Therefore I think that damages ought to include rent from the date of judgment up until the expiry of the term, that is, 29 November 2008. 41 The Writ of Possession should be issued forthwith in accordance with the Short Minutes of Order. 42 Mr Crouch seeks an order for costs. That order should be made. I will make orders in Chambers in terms of the Short Minutes to be brought in by the Defendant. - oOo -

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