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[2013] NSWDC 312
District Court of NSW
2013-11-22
Mr P
Original judgment source is linked above.
(1) INTRODUCTION 1Cardno ITC Pty Limited ("Cardno") was the lessee of premises owned by 33 York Street Pty Limited ("York"). After the leasing arrangement concluded, York called on a bank guarantee that Cardno had provided as security for the lease. Cardno disputed York's entitlement to do so and sued for return of the bank guarantee funds. York cross-claimed for unpaid rent and make good costs.
(2) THE FIRST LEASE 2Cardno, as tenant, and York, as landlord, entered a two-year lease in February 2008 commencing 1 April 2008. The lease provided for a two-month rent-free period. However, the previous outgoing tenant whose lease expired on 31 March 2008 failed to complete its make good obligations by that date. In the result, occupation for Cardno was not available on 1 April 2008 and works on the premises continued until at least 17 May 2008 for the purpose of allowing occupation to be given by York to Cardno in accordance with the lease. 3The Building Facilities Manager and Director of York, John Preston, in his affidavit stated that he "provided the Premises to the plaintiff about two months after their lease commencement date in June 2008." As the commencement date of the lease was 1 April 2008, I read this quoted statement with a comma after the word "date" so the plaintiff gained possession on 1 June 2008. Jason Varker-Miles, the Managing Director of Cardno, gave evidence to the same effect, and this is consistent with the pleadings where Cardno alleged, in paragraph 4 of the statement of claim, "However the tenancy was not available for occupation on 1 April 2008 and the Plaintiff was not able to take possession until 1 June 2008". This paragraph was admitted in the defence. 4There can be little doubt that the failure to provide exclusive occupation in April and May 2008 was a breach by York, the landlord, of cl 11.1 of the lease, which obliged the lessor (during the period of the lease) to "allow the lessee to possess and use the property...without interference from the lessor." Mr Varker-Miles says that he raised with Mr Preston the circumstances that Cardno had not "had access to the premises for two months into the lease" and deposed that Mr Preston said, "Well, strictly the lease doesn't make any provision for that, but I will abate a further two months and amortise it over the remaining lease term." 5Mr Preston admitted that Mr Varker-Miles did contact him and expressed his dissatisfaction but did not otherwise concede an arrangement being reached in terms of a further reduction of the rent. Generally, I found Mr Varker-Miles' evidence to be more satisfactory than Mr Preston's where there was a conflict but, in most cases, the difference between the parties could be resolved by the documentary evidence or the inferences to be drawn from it. 6Mr Preston suggested that Cardno received a rent-free period already under the lease as compensation for the lack of occupation on 1 April 2008. When it was pointed out that the lease was signed in February 2008, well before the failure of the outgoing tenant to make good by 31 March 2008, Mr Preston explained that he had long suspected that the outgoing tenants would not complete the make good in accordance with their obligation, as if to indicate that that suspicion was a reason for the two-month rent-free period under the lease. 7None of these matters appear in Mr Preston's affidavit. Rather, he asserts that he said in March 2008 (after the lease was signed), when this matter was raised, that, "The lease will commence but we won't charge you rent during this time of course." This apparent concession by Mr Preston is suggested to be no concession at all, referring only to the already-agreed rent-free period. Mr Varker-Miles sent an email to Mr Preston on 23 June 2008, some three weeks after the premises were "provided" by York and shortly after the conversation about the late provision of occupation. The email calculates a rental reduction based on the lost period of occupation in April and May 2008. Its terms - "if you agree with what I have worked out" - indicate an earlier in principle agreement. 8Mr Preston does not recall this email. Mr Varker-Miles said that, following the email, Mr Preston adjusted the calculation, which had the result of varying the rental calculated by Mr Varker-Miles upwards by a small amount. Invoices were received and paid in accordance with this new amount. These payments, confirmed by bank records, were not at any stage disputed by York to be the appropriate amount of rent, at least until the filing of a cross-claim in these proceedings on 4 December 2012. A new two-year lease had been agreed upon between the parties in April 2010. 9On the basis of this evidence, I conclude that an agreement was reached to reduce the rent by an amount of two months' rent amortised over the period of the lease, as Cardno contends. Mr Preston's suggestion that any rent reduction was reflected in the two-month rent-free period recorded in the lease is unconvincing. Even if I accept that the February 2008 lease was negotiated by Mr Preston in the belief that the then outgoing tenant would likely default on the make good, which I do not, there is no reason for it to be reflected in a rent-free period in Cardno's lease. Such a result is of no utility to York since Cardno obtaining a rent-free period under the lease does not absolve York of its failure to provide exclusive occupation to Cardno at commencement of the lease. Rather, if this belief of Mr Preston were to impact on the lease, it would require a postponement of the lease commencement. 10There is one further matter. York sued the former tenant for damages for failure to make good under the lease. In those proceedings, by a statement of claim verified by Mr Preston, York pleaded: "The defendant's failure to make good the premises on or before the termination date resulted in the plaintiff suffering loss and damage, whereby the plaintiff was compelled to abate the rent for the first two months of the new tenant's lease to pay for the general state of disrepair of the premises caused by the defendant. Particulars Pursuant to a lease between the plaintiff and ITC Group Pty Ltd [Cardno] dated 1 February 2008, the premises were lease for a term of three [sic] years commencing 1 April 2008 and terminating on 31 March 2010 to which rent was abated for two months in the total amount of $42,154." 11Again, it is apparent that a "failure to make good the premises on or before the termination date" on 31 March 2008 can only result in loss if that loss has occurred after 31 March 2008. As the Cardno lease was signed in February 2008, Cardno's entitlements under the lease cannot be a loss resulting from the later failure by the outgoing tenant to make good. Rather, in my view, that loss was the two months of rent payable under the lease which was abated over the term of the lease. 12Accordingly, I conclude that the plaintiff has paid the lease payments agreed on and invoiced by York under the first lease. 13York also submits that there was no consideration for this agreement. It concedes that Cardno had a chose in action arising from the breach by York of its obligation to provide exclusive possession on 1 April 2008, which, it concedes, would be good consideration for the reduced rent. However, it says that the chose in action lost its character because Mr Varker-Miles admitted that he did not intend to sue York for the breach. In my view, this intention of Mr Varker-Miles is irrelevant. 14An unwillingness to sue to enforce a right does not preclude the relinquishment of that right being good consideration for a contract. No authority was cited to support the contrary proposition. McDermott v Black (1940) 63 CLR 161 at 183 and 184 was relied upon, but this passage does not support York's submission. Rather, it confirms that the withdrawal of an allegation (in this case of breach) is sufficient consideration for a contract. 15In my view, York's submission misunderstands the nature of consideration, which requires some benefit, right or entitlement flowing from, or detriment incurred by, the promisee. It includes forbearance by the promisee. It does not depend upon the extent to which a promisee would otherwise go to defend a right. 16York also, somewhat faintly, submitted that there was no concluded agreement, referring to Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534, and Felthouse v Bindley (1862) 11 CBNS 869 at 875; (1862) 142 ER 1037 at 1040. But this is not a case like Felthouse where an offer was made purporting to deem silence to be acceptance. The conversation deposed by Mr Varker-Miles, which I have accepted, indicates a concluded agreement: Cardno requesting the need for two months' rent compensation and York accepting that proposal. This agreement is confirmed by York's conduct in invoicing the reduced rental and accepting the reduced payments.
(3) THE HOT WATER SYSTEM 17York says that it is entitled to $2,274 for a replaced Zip hot water system. The hot water system was accepted by the parties to be the landlord's property. York asserts that the lease, in cl 6.1, requires the tenant to keep the landlord's property in good repair, although I note this obligation has the proviso "excluding reasonable wear and tear". In addition, the lease also required, in cl 9.2, that the landlord keep the landlord's property in good and substantial repair. 18The invoice for $2,274 on which this claim is based suggests that work was done about six weeks after the conclusion of the renewed lease between the parties, which ran for two years from 1 April 2010 to 31 March 2012 and then, under the holding-over provisions, until 30 June 2012. The invoice also suggested that the work included fixing a blocked toilet on other premises, replacing "Econoboil", replacing "Zip filter" and servicing hot and cold tap. Thus, the invoice relied upon includes works unrelated to the claim. Further, it does not establish the replacement of the Zip hot water system, as distinct from replacement of a filter. And the invoice suggests that some of this work was done elsewhere than on the leased premises. 19Further, there was no evidence that any of the works and, in particular, the replacement of the hot water system was due to any failure by the tenant, even if the particular property was broken at the end of the tenancy, which was not established. There was no evidence to exclude "reasonable wear and tear." In these circumstances, I do not accept that the tenant was in breach in failing to replace the Zip hot water system, or that $2,274 represents the cost of that work.
(4) RENT AT THE END OF THE LEASE 20After the end of the initial two-year lease, a further lease, as I have mentioned, was agreed between the parties. During the course of the hearing, York abandoned any issue about the level of the agreed rent under the renewed lease which, in any event, was established by emails and by invoices for rent by York. 21At the end of the renewed lease, as I said earlier, Cardno continued in occupation for three months after the expiry date. Cardno did not complete the make good by the expiry date, which was accepted by the parties to be the "terminating date", namely, 31 March 2012. 22York's complaint was not that the make good was not completed by the expiry date, as the lease required in cl 14.1 but that it was not completed by 30 June 2012, the date Cardno ceased occupation. York accepted that Cardno continued in occupation by consent under the holding-over provisions in cl 15.5, with the parties implicitly agreeing that any make good would need to be done before occupation was relinquished rather than by the expiry date. 23In accordance with the lease terms, Cardno gave notice in early May 2012 that the tenancy would end on 30 June 2012. This notice was more than the minimum one-month's notice required by cl 15.5 of the lease. Cardno vacated by the end date specified. Communications between the parties indicated a common intention that Cardno would pay to York the cost of the make good but would not be required to complete the make good itself and that York would take responsibility for dealing with the subtenants. However, for reasons that follow, I did not reach a final view on this matter. 24The cost of the make good was part of the claim advanced by York. Although Cardno did not concede the cost of this make good, it had no evidence to the contrary and accepted that I must award those costs to York. 25But York also claimed rent for the period after 30 June 2012. 26York submits that, notwithstanding the terms of cl 15.5 and the notice given, the lease did not come to an end until the make good was completed and, therefore, sought to claim rent for an additional two and a half months. It relied upon cl 15.6 of the renewed lease. Clauses 15.5 and 15.6 provide as follows: "15.5 Holding Over If, with the Landlord's consent, the Tenant occupies the Premises after the Expiry Date or conversion of the Term to a monthly tenancy, the Tenant holds the Premises as tenant from month to month on the terms of this Lease as at the Expiry Date of this Lease except that: (a) the Landlord or the tenant may end the tenancy on any day by giving at least a month's notice to the other party; and (b) the Rent will be 104% of the Rent in the last year of the Term. 15.6 Covenants to Continue The provisions of this Lease continue after the expiry or termination of this Lease unless the contrary intention appears. If any party terminates this Lease before the Expiry Date, any rights arising before the termination are not affected." 27York relies upon the phrase that the "provisions of this Lease continue after the expiry". But this provision is not conditional on a breach or failure by the tenant to complete some obligation. 28In my view, cl 15.6 is of no assistance to York. On the argument of York, the lease would continue in perpetuity. That was obviously not intended. Further, the holding-over provision in cl 15.5 provides a clear contrary intention to the lease continuing in circumstances where the tenant has occupied the premises under the holding-over provisions and has provided the requisite notice. 29In my view, cl 15.6 expresses the ordinary rule that accrued rights are not disturbed by termination. The clause may have some additional application in respect of particular terms but does not alter the clear words of cl 15.5. As the lease was properly determined on 30 June 2012, there is no entitlement to rent after that date. 30When confronted with this difficulty, York sought to alter the claim for rent to a claim for damages for breach of the make good covenant. 31York sought to add to the claim for the cost of the make good the damages alleged to result from the cost opportunity to rent out the premises during the two and a half months after 30 June 2012 that it said represented the period York was engaged in making good the premises which it said Cardno was obliged to have done before the end of its lease. The problem for York is that no claim was advanced for these damages until part way through its closing submissions. There was no claim pleaded for damages for lost opportunity to secure a tenant by reason of the failure to make good, and there is authority to indicate the necessity for this (see State of South Australia & Anor v Peat Marwick Mitchell & Co & Ors [1997] SASC 6129 at [275]-[278]; Quadrant Constructions Pty Ltd v Morgan Stanley Smith Barney Australia Pty Ltd [2011] VSC 164 at [40]; Public Transport Ticketing Corporation v Integrated Transit Solutions Limited [2010] NSWSC 120 at [14], [15], [36]-[39]; and Sebastian Builders and Developers Pty Ltd v Floruit Holdings Pty Ltd & Currency Corporation Pty Ltd [2011] NSWSC 655 at [26]). 32Cardno argues that, had the claim been pleaded, Cardno would have resisted the claim by proving that the make good was not done before the end of the tenancy because York had requested that the fit-out remain in situ. Cardno also submitted it would have sought to prove that no tenant was available to take a lease of the premises in any event. 33There was no evidence before me to suggest that York was deprived of any profit because the make good was incomplete. There was no evidence of any interested prospective tenants. As I have mentioned, there was some evidence that York initially may have wanted the existing fit-out to remain. 34I note that no application to amend the cross-claim was ever made by York. Cardno initially contested the quantum of York's claim for the make good costs but, because Cardno failed to put on evidence, it was precluded from properly contesting that matter. It seems to me it would be unfair if I were to allow York to amend the claim for the make good to add additional damages and leave Cardno unable to put on evidence to deal with the make good costs or resist any lost profits said to arise from the failure of Cardno to complete the make good by the end of the tenancy. 35In my view, justice demands that the matter be decided on the pleadings and evidence before me, which would preclude York making out any claim for the lost opportunity. 36I note that, in respect of the make good costs, there was some correspondence between the parties as to the extent of those costs. Cardno had initially suggested that they were less than $20,000 but proposed that amount in lieu, whereas York suggested the costs were more likely to be around $35,000. As it turned out, the costs before me were evidenced to be $51,490.50 which, for reasons I have already outlined, were not able to be disputed by Cardno and which costs I allow. 37Cardno paid $22,796.88, an amount equal to a further month's rent, after the premises had been vacated and the tenancy had properly been ended by notice. That amount must be credited against the make good costs, leaving an amount of $28,693.62 owing to York. Cardno also conceded that there was a 4 per cent rent rise applicable under the holding-over provisions in cl 15.5(b) for the period 1 April 2012 to 30 June 2012 which had not been paid and which, on my calculation, totalled $2,735.63. 38But York received the $63,231 from the bank guarantee, so it must repay the net amount after taking off those two deductions, leaving the sum of $31,801.75 payable to Cardno together with interest. 39Interest on this sum from the date the bank guarantee was called upon on 15 August 2012 to today totals $2,240.93. 40Accordingly, the orders of this Court are: (1)Judgment for the plaintiff in the sum of $34,042.68. (2)Cross-claim otherwise dismissed. (3)Reserve the question of costs to allow the parties seven days to file written submissions no longer than three pages as to why some other order than the usual order, namely, that the defendant is to pay the plaintiff's costs, should be made.
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Cardno ITC Pty Ltd
33 York Street Pty Ltd