Cronulla Newsagency Pty Limited v Pizzata & Ors [2002] NSWADT 121 | Case summary

Background 1 This application arises in relation to a retail shop lease ("the Lease") for the property at 49 Cronulla Street, Cronulla ("the Property") entered between Cronulla Newsagency Pty Limited ("the Applicant") and Carmela Pizzata, Michael Pizzata and Angela Moniaci ("the Respondents"). On 1 July 1997 the Respondents purchased the property. On about 18 September 1997 the Applicant purchased the business of the previous lessees, Eligio Faragunas and Mariana Faraguna. On 31 October 1997 the Respondents gave the Applicant a disclosure statement which referred to such issues as option periods, rent calculations, insurance, land tax, water rates, council rates, and electricity charges. By a deed of Assignment dated 24 November 1997 the lessors consented to the assignment of the Faraguna's lease to the Applicant. 2 The Faraguna's Lease commenced on 1 December 1996 and was to expire on 30 November 2001. It contained an option to renew for 5 years. That option was exercised and on 31 October 1997 the Respondents gave the Applicant a disclosure statement referring to insurance, Land tax, Water rates, Council rates, electricity charges. 3 It is apparent that the relationship between the parties soured soon after the commencement of the Lease. The initial areas of dispute appear to have related to work which the Applicant undertook to the property and subletting of residential accommodation ("the upstairs flat") associated with the property. 4 The parties attended mediation in January 2001 in an effort to resolve their differences. Some resolution was achieved through this process but regrettably the agreement reached was not reduced to writing. This has subsequently proven to be significant as the parties are unable to agree on the terms of the agreement reached. The relationship again broke down and eventually, on 28 September 2001, the Applicant brought proceedings in this Tribunal under the Retail Leases Act 1994 (the Act"). The Respondents followed with a claim against the Applicant. On 5 October 2001 the Registrar of Retail Tenancy Disputes issued a certificate that mediation had failed. The Application 5 The Application sought the following Orders: "1. A declaration that the Applicant properly exercised the option on the 21st March 2001. 2. A declaration with the Respondent was not entitled to reduce the tenancy to a monthly tenancy. 3. A declaration that the Applicant has paid rent in accordance with the lease. 4. A declaration that the Respondent had not complied with section 27 of the Retail Leases Act in relation to land tax and that the Applicant is not obliged to pay land tax other than for the most recent assessment. 5. Alternatively relief against forfeiture." 6 On 1 March 2002, the Applicant informed the Respondents that it would be vacating the property in April 2002 and that therefore it would not be seeking specific performance. On that day the Applicant filed an Amended Application which sought the following orders: 1. A declaration that the Applicant is entitled to a credit from the Respondent in the sum of $2,139.14. 2. A declaration that the Respondent has not complied with s.27 of the Retail Leases Act and is precluded from recovering outgoings for the accounting periods commencing November 1998-2001. 3. A declaration that the Respondent is precluded from recovering any land tax, other than land tax for the year 1997/1998. 4. A declaration that the Applicant is entitled to recover from the Respondent, or to have credited to outstanding rent: Land tax paid pre October 2001 $6,815 Land tax paid October 2001 $16,394.50 Total $23,209.50 Less Land Tax 1997/98 $4,873 Balance due $18,336.50. Rates paid pursuant to demand 8/5/01$4,300.90. Total $22,637.40 5. An order that that Respondent deliver to the Applicant the bond from the Commonwealth Bank as security for the due performance of the lease. 6. Costs." 7 On 5 March 2002, the Respondents called up the bank guarantee that had been provided on behalf of the Applicant. As noted above, the Applicants had sought an order for the return of that guarantee. On 8 March 2002, the Applicant filed a further Amended Application which sought the following order in lieu of paragraph 5 in the Amended Application: "5. An order that the Respondent pay to the Applicant the sum of $30,742.45 plus damages, interest arising from the calling up of the guarantee." 8 The further Amended Application was allowed after argument on 21 March 2002. The Applicant proposed that the issue of damages and interest arising from the calling up of the guarantee be dealt with after findings were made on the matters already before the Tribunal. I agreed to that proposal. The Cross Application 9 On 26 November 2001 the Respondents filed an application with the Tribunal seeking the following orders: "A) A Declaration that the purported exercise of the Option by the Respondent on 21 November 2001 was invalid. B) A Declaration that if the purported exercise of the Option was valid, the notice exercising the Option was not properly served and therefore of no effect. C) A Declaration that the Respondent was entitled to reduce the unexpired term of the Lease to a monthly tenancy. D) A Declaration that the Respondent can terminate the existing monthly tenancy by one (1) months notice to the Applicant. E) A Declaration that the Applicant has not paid rent to the Respondent in accordance with the Lease and without affecting the generality of such Order in that: (i) the rent has not been paid and adjusted from time to time in accordance with the CPI adjustment of the rent. (ii) interest has not been paid in accordance with the Lease on late payments of rent and interest has not been paid on the CPI adjusted increases of rent. F) A Declaration that the Applicant has an obligation to pay Land Tax even if there has not been compliance with section 27 of the Retail Leases Act (which is not admitted). G) A Declaration that the Applicant is not entitled to any relief against forfeiture. H) A Declaration that the Applicant has from time to time been in breach of the Lease by its failure to pay Sutherland Shire Council rates and Sydney Water rates as they have fallen due. I) A Declaration as to whether the Mediation Conference held between the parties with one Mary Walker as Mediator on 30 January 2001 under the auspices of the Retail Tenancy Disputes Unit failed to resolve the dispute in view of the letter dated 6 February 2001 issued by the Mediator to the parties containing the sentence "I congratulate the parties on the settlement of this matter at mediation". J) A Declaration as to what were the terms and provisions of the settlement recorded and a Declaration as to whether the Applicant breached the terms and provisions of such settlement. K) A Declaration that the Applicant is in breach of Clauses 5(a), (b) and (c) of the Lease. L) A Declaration that the Applicant pay to the Respondent: (i) all amounts which the Respondent has paid because of the breach by the Applicant of Clauses 5(a), (b) and (c); (ii) all amounts due and owing for rent arising from the CPI adjustments to the rent; (iii) all amounts due and owing for interest on late payment of rental and on the amounts payable as the result of the CPI rent adjustments and arising from other breaches of the Lease; (iv) all legal costs incurred by the Respondent as the result of the breaches of the Lease by the Applicant." 10 The Respondents' submissions provided what I consider to be an accurate summary of the issues that have been raised for determination. The outcome of the Mediation Conference on 30 January 2001 is significant to these issues. In order to address that outcome it is necessary to give some consideration to the events that lead to the Mediation Conference. The Respondents expressed their summary of the issues in the following terms: (1) Has the option been validly exercised and if so, have there been subsequent breaches by the lessee which would justify conversion to a monthly tenancy and/or termination? (2) Has the lessee failed to pay rent (including CPI increases and interest on arrears), Land tax, water rates, council rates and failed to insure the premises, and if so, what is the monetary extent of each breach. (3) Have the lessors failed to comply with section 27 of the RL Act, and if so, in what respects has there been non-compliance and what are the consequences of any such non-compliance. (4) What terms were agreed on 31 January 2001, have any such terms been breached by either party and if so, what are the consequences; (5) Has the lease been repudiated, and if so, by whom and with what consequences. The Events leading to the Mediation Conference 11 By October 1999 disputes had arisen between the parties. On 30 January 2001 the parties appointed Ms. Mary Walker to mediate in the dispute which had arisen between them. Mr. Neil Wardrop represented the Applicant at the Mediation Conference. Ms. Angela Moniaci represented the Respondents. Mr. Wardrop and Ms. Moniaci were given the opportunity to identify their understanding of the issues in dispute, which were to be mediated. Ms. Walker recorded the identified issues as: "1. Resolution of shop fit as required by New South Wales Lotteries/withdrawal of notice; 2. Exchange of bank guarantee; 3. sublet; 4. fitting and structure work without consent; and 5. no option for renewal of lease." 12 It is apparent that the main issues related to the Respondents' access for inspection of the property, fit-out work that had been undertaken by the Applicant; the Applicant's subletting of the residence associated with the property; and whether an option for renewal of the Lease would be granted. The fit-out work undertaken by the Applicant 13 Clause 4 of the Lease makes provision in regard to use, alteration and repair of the property. Clause 4(d) provides: "4. The Lessee covenants with the Lessor as follows:- (d) Not to make any alteration or addition to the Premises, or to any of the Lessor's fixtures, or fittings therein, without the written consent of the Lessor which consent shall not be unreasonably withheld." 14 Mr. Wardrop's evidence is that prior to entering the Lease he met with Ms. Moniaci and her father Mr. Dominic Pizzata and had discussions about the need to make changes to the property because of the requirement by the New South Wales Department of Lotteries. Mr. Pizzata, in the presence of Ms. Moniaci, had agreed to the changes so long as there were no structural alterations to the property. 15 The Respondents denied that the discussions took place as alleged and that the Applicant would have been referred to the Respondents' Solicitor to ensure that any approvals required in relation to the alterations were met. The Respondents also denied that Mr. Dominic Pizzata had authority to agree to any proposition in relation to the property. 16 Mr. Dominic Pizzata visited the property in early August 1998. At that time, two representatives of the New South Wales Lotteries were present and the issue of alterations to the property was raised. Mr. Pizzata advised the Applicant to send plans of the proposed changes to the property to Ms. Moniaci. 17 Mr. Wardrop's evidence is that in February 1999 he wrote to Michael Pizzata about proposed alterations to the property. He faxed the letter and the relevant plans to Michael Pizzata at a number given to him by Michael Pizzata's wife. He received no response to the material sent to Michael Pizzata and on the basis of what he had been told by Mr. Dominic Pizzata, he went ahead with the work in April 1999. His evidence was that the alterations were minor. 18 Michael Pizzata denied receiving the Applicant's letter and plans. Further, the Respondents denied giving the Applicant authorisation to undertake alteration to the property. 19 In about June 1999 Mr. Dominic Pizzata again attended the property and observed that substantial alterations had been made to the property. A dispute arose and Mr. Dominic Pizzata was ejected from property. The Respondents argued that if approval for the alterations had being given, as the Applicant has alleged, no such dispute would have arisen. 20 In my view, it is unlikely that the pre-lease discussions took place as alleged by Applicant. Is also unlikely that the Respondents gave consent to the alterations. I am satisfied that Ms. Moniaci was conscious of the need to have appropriate approvals for any alterations to the property and the potential consequences that might flow if they were not in place. It is probable that she would have insisted on those approvals prior to giving consent. 21 While it is not possible to say for certain whether the Applicant sent the details of the proposed alterations to Michael Pizzata, I am satisfied that he never received that material. I am also satisfied that the Respondents did not give consent to the alterations. The alterations took place without the Respondents' consent. Such consent would have been inconsistent with altercation at the time the Mr Dominic Pizzata attended the property and observed that alterations. The Applicant's subletting of the upstairs flat 22 Clause 4(c) of the Lease makes provision in regard to subletting of the property. Clause 4(c) provides: "4. The Lessee covenants with the Lessor as follows:- (c) Not to assign, transfer, demise, sub-let, or part with possession of, or grant any licence affecting, or otherwise deal with, or dispose of the Premises or any part thereof or by any act or deed procure the Premises or any part thereof, to be assigned transferred demised sublet to or put into the possession of any person without the written consent of the Lessor which consent shall not be unreasonably withheld." 23 The Applicant's evidence is that at the time of entering the Lease the previous owners of the business had been living in the upstairs flat. The Respondents could have reasonable expected that the Applicant would make similar arrangements. Had the Applicant sought the Respondents' consent to subletting the upstairs flat, the consent could not unreasonably be refused. 24 Initially, an employee of the Applicant occupied the upstairs flat, however he left after a period of about six months and another tenant moved in. The new tenant had no connection with the Applicant. The flat was vacated in November 2001 and has been vacant ever since. For a period following the mediation agreement the Applicant paid the Respondents an amount of $100 per week for rent of the upstairs flat. 25 The Applicant made minor alterations to the upstairs flat. New lino was put down in the kitchen, a new stove was installed, the carpet was cleaned, and the flat was painted internally and externally. 26 The Respondents' evidence is that when the Applicant took the assignment of the Lease, the upstairs flat was vacant. The Respondents were unaware that the Applicant had entered into any sublease of that flat until late 1998 when Mr. Dominic Pizzata and Ms. Moniaci's husband were carrying out roof repairs to the property. At that time a tenant was living in the upstairs flat. The Respondents were never informed about subletting arrangements for the flat. Nor were the Respondents aware whether the upstairs flat was vacated in November 2001 as stated by Mr Wardrop; however the upstairs flat was vacant in December 2001. 27 On the evidence before me I am satisfied that the Applicant entered into an agreement to sublet the upstairs flat without the Respondents' knowledge or consent. The Respondents' access for inspection of the property 28 The Lease makes the following provision in relation to access to the property by the Respondents: "the Lessor may at all reasonable times with reasonable written notice enter and view the state of repair and that the Lessee will repair according to notice in writing and that in default the Lessor may repair" 29 The Respondents alleged that the Applicant denied them any access to the property for the purpose of inspection. Ms. Moniaci's evidence is that in September 1999 she employed solicitors in order to gain access to the property. Correspondence between the parties' solicitors in relation to access followed, however the situation remained that the Respondents were unable to inspect the property. Ms Moniaci stated that she and the other Respondents were refused access to the property. They attempted to gain access for the purpose of inspection on at least three or four occasions before the mediation conference, but Mr Wardrop had denied each request. While the Respondents did not dispute that they had attended the property at various times, they denied that they were granted access for the purpose of inspection. Respondents finally gained access for the purpose of inspection in December 2001. 30 The Applicant denies that the Respondents were refused access to the property for the purposes of inspection. Mr Wardrop agreed that the Respondents had sought access in September 1999. The Applicant agreed to the inspection however the times proposed by the Respondents were unsuitable. Mr Wardrop stated that in April 2001 Michael Pizzata inspected the property and complimented on how the upstairs flat had been kept. 31 On the evidence before me I am satisfied that the Applicant denied the Respondents reasonable access to inspect the property. It is improbable that if reasonable access had been granted, the Respondents would have resorted to instructing their solicitor to act in relation to the issue. The Mediation Agreement 32 It is common ground that an agreement was reached following the mediation. Ms. Walker recorded the terms of the agreement on a white board, however, the terms of the agreement were not otherwise reduced to writing and there is now no agreement with respect to the terms of the agreement reached. Leave was given to the parties to present evidence in relation to what matters Ms. Walker had written on the white board at the mediation conference, for the purpose of establishing the terms of the agreement. No evidence of the discussions which had taken place and which lead to the matters written on the white board was permitted. 33 Each of the parties recorded what they say was written on the white board, however these records differ significantly. Mr. Wardrop's record provides: "1. Angela to write confirming the following by 28 February 2001 rent review from November 2001 option to lease further five years rescind letter asking to replace shop fit Neil 1. Pay $5000 March 5000" 34 Ms. Moniaci's record of the matters written on the white board provides: "Option for settlement 1. $5000 to be paid immediately 28.2.01 2. $5000 no interest within three months end May 3. option for five years 4. rent review before 28.2.01 5. Written notice to Angela. Written consent required for all alteration. 6. Inspection 4 time year after 6 PM" 35 Ms. Moniaci and Mr Wardrop agreed that some matters where agreement was reached had not been recorded by either of them, however they could not agree as to whether any agreed items had been removed from the white board. One issue which was the subject of the mediation was the exchange of the bank guarantee. Both parties agree that it could be exchanged however this agreement was not written on the white board. 36 Both parties also agreed that the Applicant was to pay an extra $100 per week for the subletting of the upstairs flat, but that agreement was not written on the white board either. Other matters which were agreed included a review of the rent payable on the property and an option to lease for a further five years. 37 The Applicant's evidence is that it was an essential term of the settlement that by 28 February 2001 the Respondents were to provide it with a written document setting out the matters agreed. Such a document was significant to the Applicant because it would provide it with a written statement that the Respondents were prepared to offer an option to lease for a further five years. In addition, the Respondents were to accept a new bank guarantee from the Applicant's new banker in substitution for the existing bank guarantee. 38 The Respondents contend that the Applicant agreed to make two payments of $5,000, the first on 28 February 2001, the second by the end of May 2001. These payments were compensation for the unauthorised subletting of the upstairs flat. They also contend that there was an agreement for inspection of the property. The Respondents contend that the granting of an option to lease for a further five years was conditional on the Applicant satisfying those parts of the settlement agreement. 39 In contrast to the Applicant, the Respondents contend that there was no term that the Respondents must write to the Applicant by 28 February 2001 setting out the terms of the settlement agreement. The exchange of bank guarantees was to occur at a convenient time, probably the date of first inspection under the settlement agreement. As for the rent review, time was not of the essence, but the parties were to act in good faith to achieve a rent review. 40 I agree with the Applicant's statement that this case provides a classical situation of why it is necessary at a mediation to have an agreement signed by the parties and the mediator. There is very clear disagreement as to what the agreement was. 41 Nevertheless, on the evidence before me I am satisfied that agreement was reached between the parties at the Mediation Conference and that the agreement resolved the issues that were then in dispute. However, I am unable to determine the entire terms of the mediation agreement from the evidence presented. 42 Notwithstanding that view, I am satisfied that the parties agreed that the Applicant would pay $5000 by 28 February 2001. I'm also satisfied that time was of the essence with respect to that payment and that any agreement by the Respondents to grant an option to lease for a further five years was contingent on the Applicant making that payment. It is not in dispute that the Applicant did not make the payment. 43 In my view it is probable that it was a term of the agreement that the Respondents were to provide the Applicant with a written document addressing the issues of rent review and the option to lease and that the Respondents were to rescinding the demand that the Applicant replace the shop fit. 44 It is not in dispute that the reviewed rent would not come into force until November 2001. I do not accept that the parties would have anticipated that issues relating to the rent review would have been completely resolved by 28 February 2001. In my view it is more likely that the parties would have agreed that they were to act in good faith to achieve an agreed rent review. If possible this was to be achieved by 28 February 2001. If no agreement was reached, the issue was to be determined by a third party. The parties could not have reasonably expected that such a determination would be made within that time frame. 45 I am not satisfied that it was an essential term of the settlement that the Respondents provide the document as agreed by 28 February 2001. The Events following the Mediation Conference 46 On 12 February 2001 the Respondents received a notice of arrears of land tax ("the Land Tax") in the sum of $31,615.18. The first instalment of $16,142.25 was due on 21 March 2001. Ms. Moniaci's evidence is that on 13 or 14 February 2001 she spoke with Mr Wardrop about the Land Tax Notice and faxed him part of the notice. Mr Wardrop disputes this evidence and states that Ms. Moniaci faxed him the Land Tax Notice on 9 March 2001. 47 Michael Pizzata's evidence was that during February 2001 he had discussions with Mr Wardrop in regard to the rent review but they were unable to come to an agreement. They discussed appointing a third person to resolve the issue. He phoned a number of valuers but it was apparent that none could complete the task prior to the end of February 2001. He had informed Mr Wardrop of the situation and Mr Wardrop had not objected to the approach that he was taking. 48 Mr Wardrop stated that on 28 February 2001 he phoned Ms. Moniaci to discuss the letter which he alleged the Respondents were to have provided. His evidence is that Ms. Moniaci told him that they had been busy and that there was a problem with unpaid Land Tax. He informed her that if he was legally bound he would pay what he was supposed to pay. Ms. Moniaci advised him that Michael Pizzata would contact him about the settlement of the $5,000 and the exchange of the bank guarantees. Ms. Moniaci denied that Mr Wardrop phoned her on 28 February 2001 and denied that the conversation alleged by Mr Wardrop took place. 49 It is not disputed that the Applicant did not pay the $5000 by 28 February 2001. Mr Wardrop's evidence is that he was not prepared to pay the amount because the Respondent had not provided the letter as agreed. 50 On 15 March 2001 Michael Pizzata attended the property to collect the Land Tax instalment and to exchange of the bank guarantees. Mr Wardrop declined to pay the Land Tax and asserted that Mr Pizzata was obliged to exchange the existing guarantee for a new guarantee. 51 Ms. Moniaci's evidence is that on 21 March 2001 Mr Wardrop phoned her and informed her that he was not going to pay the Land Tax. She made contemporaneous notes recording the contents of the conversation and shortly afterwards faxed those notes to her solicitor. 52 Also on 21 March 2001 the Applicant wrote to the Respondents in the following terms: "This is to formally advise you that I exercise my option to have a further lease of 5 years of the premises known as 49 Cronulla Street, Cronulla - lock up shop and flat above - being the whole of the land in portfolio identifier 4/310933, lease to be for the period commencing 1st December 2001 and ending 30th November 2006. You are referred to clause 13 of the lease, please let me know what you claim is the fair market rent which is to be paid from November of this year onward. If I have not heard from you within 2 months, I propose to, in accordance with the lease, request the President of the Australian Institute of Valuers to nominate a valuer for the purpose." 53 On 21 March 2001 the Respondents' solicitors wrote to the Applicant and advised that the Applicant was in breach of the mediation settlement and in breach of the Lease because it had failed to pay the sum of $5000 due on 28 February 2001, and because it had refused to pay the Land Tax adjustment under the terms of the Lease. The Applicant was advised that the offer of a new lease was no longer available to it. 54 By letter dated 23 March 2001 the Respondents rejected the Applicant's purported exercise of the option. The letter from the Respondents' solicitors stated: "Our clients have instructed us that the Notice of 21 March 2001 signed by the Lessee purporting to exercise the option of renewal contained in the Lease is not accepted as a valid exercise of such option of renewal because the Lessee has committed substantial breaches of the Lease and continues to be in breach." 55 On 8 May 2001 the Respondents sent the Applicant a Notice of Demand for payment of Land Tax. On 9 May 2001 the Respondents sent the Applicant a Notice of Demand for outstanding municipal rates and a Notice of Demand for outstanding CPI increases. 56 The evidence shows that the Applicant failed to pay $5,000 by 28 February 2001. The Applicant also failed to pay $5,000 in May 2001. The Applicant otherwise part performed the agreement relating to the subletting of the upstairs flat by continued payments of $400 per month until it abandoned those payments in September 2001. 57 On 4 September 2001, the Respondents' solicitor forwarded to the Applicant a Notice of Default under Clause 6 of the Lease signed by each of the Respondents. The Notice of Default was in the following terms: "we ... hereby give you notice and in accordance with clause 6 of lease 27841954W hereby exercise their option to reduce the term of the lease to one (1) month on the grounds of your failure to pay rent within the terms prescribed by the lease and to pay rates." 58 On 20 September 2001, the Applicant's solicitor responded to the Notice of Default by denying that the Respondents were entitled to reduce the Lease to a monthly tenancy. The Applicant also denied liability for Land Tax on the basis that the Respondents had not complied with section 27 of the Act in not providing the necessary expenditure and outgoing statements. It also stated that all outstanding rates had been paid. Has the option been validly exercised? 59 As indicated above I am satisfied that time was of the essence in relation to the agreement that the Applicant pay $5000 to the Respondents by 28 February 2001. I am also satisfied that the Applicant failed to make that payment by the due date. It follows the Applicant was in breach of the mediation agreement. 60 The evidence shows that the Applicant purported to exercise the option by letter to the Respondents dated 21 March 2001. The evidence also shows that by letter dated 23 March 2001 the Respondents rejected the Applicant's purported exercise of the option because the Applicant had committed substantial breaches of the Lease and continued to be in breach. 61 I am satisfied that the time the Applicant purported to exercise the option it was in breach of its obligations under the Lease. However, I note the Applicant's submission that the Respondents could not reject the option on the grounds of breaches of the Lease unless they complied with section 133E of the Conveyancing Act 1919. Section 133E of the Conveyancing Act provides as follows: "Breach of certain obligations not to preclude lessee from exercising option except in certain circumstances (1) In this Division prescribed notice means a notice in writing that: (a) specifies an act or omission, and (b) states that, subject to any order of the court under section 133F, a lessor giving the notice proposes to treat that act or omission as having precluded a lessee on whom the notice is served from exercising an option contained in the lease. (2) Where an act or omission that constituted a breach by a lessee of the lessee's obligations under a lease containing an option would, but for this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of fourteen days next succeeding the purported exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and: (a) an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the court before the expiration of the period of one month next succeeding service of the notice, or (b) where such relief is so sought: (i) the proceedings in which the relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or (ii) where relief is granted upon terms to be complied with by the lessee before compliance by the lessor with the order granting relief, the lessee fails to comply with those terms within the time stipulated by the court for the purpose." 62 The Applicant argued that the Respondents' letter of 21 March 2001 and the letter from their solicitor dated 23 March 2001 amounted to a clear repudiation of any agreement for the granting of an option reached at the mediation. 63 The Respondents conceded that neither their letter of 21 March 2001 nor the letter from their solicitor dated 23 March 2001 complied with section 133E of the Conveyancing Act 1919. However, the Respondents submitted that the Applicant was seriously in breach of its obligations after 21 March 2001. As a consequence it gained no enforceable renewal of the Lease. The Respondents also submitted that sufficient breaches existed to justify the conversion of the Lease to a monthly tenancy. 64 I do not except the Applicant's submission that the Respondents' refusal of the Applicant's purported exercise of the option amounted to a repudiation of the mediation agreement. I have formed this view on the basis that the Applicant had repudiated the mediation agreement by its failure to pay the $5000 by 28 February 2001, in circumstances where time was of the essence in relation to that payment. Having repudiated the agreement, the Applicant could no longer insist that the Respondents comply with the terms of the agreement. The Respondents were entitled to reject the purported exercise of the option. 65 Notwithstanding that view, I accept the Applicant's submission that the Respondents could not reject the option on the grounds of breaches of the Lease unless they complied with section 133E of the Conveyancing Act 1919. I also accept the evidence that the Respondents had not complied with those requirements. It follows in my opinion that Applicant validly exercised the option by its letter to the Respondents dated 21 March 2001. Is the Applicant liable to pay Land Tax? 66 On 31 October 1997 the Respondents gave the Applicant a disclosure statement which referred to Land Tax. The relevant parts of that disclosure statement provided: "OUTGOINGS TO BE PAID BY THE LESSEE Details of Outgoings Estimate $ p.a. 1. Insurance on building $ 2,225.25 2. Land tax $ 5,700.00 3. Water rates $ 1,181.15 4. Council rates $ 5,769.70 5. Electricity $ 1,305.00 TOTAL: $16,181.10" 67 As noted above, the Respondents' evidence is that on 12 February 2001 they received a notice of arrears of Land Tax in the sum of $31,615.18. Ms. Moniaci informed Mr Wardrop of the notice and sought payment by the Applicant. The Respondents assert that under the Lease, the Applicant is liable for Land Tax. Further, Ms. Moniaci's evidence is that on 21 March 2001 Mr Wardrop phoned her and informed her that he was not going to pay the Land Tax. On 15 March 2001, Michael Pizzata attended the property to collect the Land Tax instalment and Mr Wardrop declined to pay the amount sought. On 8 May 2001 the Respondents sent a Notice of Demand for payment of the Land Tax to the Applicant. The Notice of Demand stated: "We ... HEREBY GIVE YOU NOTICE that in accordance with the Lease dated 10 October 1996, you are liable to pay Land Tax for the period from 1 December 1996. The Land Tax being assessed as follows: 1997-1998 $4,873.00 1998-1999 $5,335.50 1999-2000 $6,186.00 2000-2001 $6,815.00 Total outstanding $23,209.50" 68 On 20 August 2001 the Applicant made a part-payment of $6,815 for Land Tax and on 15 October 2001 it made a further $16,394.50 payment for Land Tax (under protest). 69 Clause 14 of the Lease makes specific provision in relation to the payment of Land Tax. That Clause provides: "COVENANT TO PAY RATES AND TAXES 14. The Lessee covenants with the Lessor that throughout the Term the Lessee shall pay in respect to the Premises all government, semi government (which shall include all statutory authorities) taxes and imposts including all rates and charges for gas, electricity, water and excess water supplied to the Lessee or used or consumed on the Premises during the Term hereof and for the removal of trade waste garbage and refuse therefrom and for the telephone service to the Lessee and the Premises and specifically to pay Municipal Rates and the Land Tax charged in respect of the Premises from time to time (on the basis that the Premises are the only property owned by the Lessor during the Term of demise AND if the Lessee shall default in the payment of any such rates or charges then the Lessor may at its option pay the same and in addition to the Lessor's other remedies it shall be lawful for the Lessor to recover the amount so paid as if the same were overdue rent hereunder." 70 Provisions contained within the Act are also relevant to this issue. Sections 27 and 28 of the Act provide: "27 Estimates and expenditure statement of outgoings to be provided by lessor A retail shop lease is taken to include provision to the following effect: (a) The lessor must give the lessee a written estimate of the outgoings to which the lessee contributes under the lease, itemising those outgoings under the item descriptions used in the list of outgoings in the form of lessor's disclosure statement set out in Part 1 of the form contained in Schedule 2. (b) The estimate of outgoings must be given to the lessee in respect of each accounting period of the lessor during the term of the lease and must be given before the lease is entered into and thereafter during the term of the lease at least 1 month before the commencement of the accounting period concerned. (c) The lessor must make a written expenditure statement available for examination by the lessee detailing all expenditure by the lessor on account of outgoings to which the lessee contributes, itemising those outgoings under the item descriptions used in the list of outgoings in the form of lessor's disclosure statement set out in Part 1 of the form contained in Schedule 2. (d) The expenditure statement must be made available at least twice in each of the lessor's accounting periods during the term of the lease (once in relation to expenditure during the first 6 months of each such accounting period and once in relation to expenditure during the second 6 months of each such accounting period), and in each case must be made available within 1 month after the end of the 6 month period to which it relates. 28 Lessor to provide statement and report on outgoings A retail shop lease is taken to include provision to the following effect: (a) The lessor must give the lessee a written statement (an outgoings statement ) that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute. (b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates. (c) The outgoings statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time. (d) The outgoings statement is to be given to the lessee within 3 months after the end of the accounting period to which it relates. (e) The outgoings statement is to be accompanied by a report (an auditor's report) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth). (f) The auditor's report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period. (g) The outgoings statement may be a composite statement (that is, it may relate to more than one lessee) so long as each lessee to which it relates is able to ascertain from the statement the information required by paragraph (a) that is relevant to that lessee. (h) The outgoings statement need not be accompanied by an auditor's report if the statement does not relate to any outgoings other than land tax, water, sewerage and drainage rates and charges, local council rates and charges and insurance, and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the lessor as referred to in paragraph (a)." 71 There is no definition of "accounting period" in the Retail Leases Act, however the parties agreed that in this matter the accounting period is a financial year. "Outgoings" are defined in section 3 of the Act to include: "(b) rates, taxes, levies, premiums or charges payable by the lessor because the lessor is the owner or occupier of any such building or the land on which it is erected or is the supplier of a taxable supply (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth) in respect of any such building or land." 72 The Respondents case is that they sufficiently disclosed the outgoings at the outset of the tenancy by way of the disclosure statement and during the tenancy as the outgoings arose. They argue that the Land Tax and other outgoings are therefore recoverable. 73 In contrast, the Applicant asserted that the Respondents had failed to comply with section 27 of the Act and as a consequence was precluded from recovering any outgoings for the accounting periods commencing November 1998-2001. 74 In determining whether the Applicant is liable to pay the Land Tax it is therefore necessary to determine whether the Respondents failed to comply with section 27 of the Act, and if so, the consequences of any such non-compliance. The Applicant's' submissions 75 The Applicant compared the provisions of section 27 of the Act with those found in sections 11 and 12 of the Act. Section 11 requires a lessor to provide a disclosure statement with all the details set out in Schedule 2 of the Act. A failure to provide such a statement incurs a penalty of 50 penalty points. Section 12 of the Act provides: "A provision of a retail shop lease that requires the lessee to pay or contribute towards the cost of any finishes, fixtures, fittings, equipment or services is void unless the liability to make the payment or contribution was disclosed in a disclosure statement given to the lessee in accordance with this Part." 76 There is no express provision in the Act providing for the same consequences where there has been failure to provide a statement in each accounting period pursuant to section 27. Further, section 27 does not provide for any penalty as does section 11. The Applicant submitted that this is because section 27 does not create a statutory obligation. It creates a compulsory term in the Lease itself. 77 The Applicant proposed two possible consequences which could flow from a failure to comply with section 27 of the Act. Either the lessor is precluded from recovering the outgoings, or the lessee is entitled to damages for breach of the failure to provide a statement prior to each accounting period. 78 The Applicant submitted that the purpose of section 27, and the requirement for a disclosure statement at the beginning of the Lease, is to enable retail tenants to predict their expenditure for the year ahead so as to plan their business activities properly. The provision of a disclosure statement at the beginning of the Lease is not sufficient, because the lessee should be able to estimate the level of Land Tax and rates from the payments in previous years. Parliament has decided that this is not sufficient and it required a compulsory term in the Lease that the lessor provides such a statement before each accounting period. In this case, the Respondents were obliged to provide the statement at the end of October each year. 79 In relation to the second proposed possible consequence of failure to comply with section 27, the Applicant argued that it would not be possible to prove damages suffered as a consequence of the failure to provide a statement. If this is the meaning to be given to section 27, then the legislation would serve no purpose. The preferable interpretation is that Parliament intended that this statutorily implied term was meant to operate as a condition precedent to the entitlement of the lessor to recover any of these outgoings. 80 The Applicant referred the Tribunal to two reported cases which it submitted are relevant to this matter: Shephard & Ors v All Steel Services Ltd. & Anor, High Court of New Zealand, 12 October 2000: (see Lang's Commercial Leasing in Australia 85-136), and Feltex New Zealand Ltd. v Nielsen Property Management Ltd (1974) 2 NZLR 292, which is referred to in Shephard's case. These were not cases where there was an implied term that a disclosure statement had to be made at a certain time. The relevant clause provided that the outgoings were payable on demand. In Shephard Hanson J decided, like Cook J in Feltex, that there was an implied term that the demand was to be made within a reasonable time. He stated that failure to comply with such a requirement prevented the landlord from recovering anything. The Court accepted that the making of the demand within a reasonable time was a condition precedent. Cook J had come to the same conclusion in Feltex. 81 The Applicant argued that in each case, the NZ High Court decided that a breach of the term to demand payment within a reasonable time meant that there was no entitlement to the outgoings, i.e. it was a condition precedent to liability. Here the argument is much stronger, because the term in the Lease requires the disclosure to be made within each accounting period. No such notices were given for' the 1998/1999 and 1999/2000 period. The Applicant argued that the Respondents are entitled to recover $4,873 for Land Tax for the year 1997/1998 because the disclosure statement was made. They are not entitled to recover any other amounts because no such disclosure was made. The Applicant does not have to pay the outgoings where the statements required by the Act had not been provided. 82 The Applicant paid $16,394.50 for Land Tax for the years 1997/1998, 1998/1999 and 1999/2000 under protest, and on the basis that the money would be repaid or accounted for in the event that the Tribunal decided in the Applicant's favour. The Respondents' submissions 83 The Respondents asserted that the Applicant took the assignment of the Lease with the knowledge that it had to pay outgoings. The Respondents disclosed the outgoings at the outset of the tenancy and during the tenancy as the outgoings arose. There is no provision in the Lease which would prevent the recovery of outgoings. Therefore, the outgoings are recoverable. Section 27 of the Act is an onerous provision. Nevertheless, the Respondents conceded that the section extended to the Lease. The Act provides no sanction for breach of the section but permits the recovery of outgoings under the Lease. Breach of the section prima facie gives rise to an action for damages suffered by reason of non-disclosure. The damages may be quantifiable for example where a tenant is put to unexpected expense because of the late disclosure of the outgoings. Breach may in appropriate circumstances give rise to a right to terminate, however it is not a fundamental objective of the section to prevent the landlord from recovering outgoings. 84 The Respondents argued that Shephard v All Steel Services Ltd is based on New Zealand legislation and depends upon the implication of a term. The law in New Zealand regarding implication of terms is not the same as the law in Australia. The Australian law is stated in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 recently reiterated in Royal Botanic Gardens and Domain Trust v Sydney City Council [2002] HCA 5. No term should be implied unless the term is necessary to make the Lease work or unless the term is so obvious that it goes without saying. In their circumstances the Tribunal should not imply a term that outgoings are not recoverable where a lessor has failed to comply with section 27 of the Act. Finding 85 On the evidence before me I am satisfied that the Respondents provided a disclosure statement to the Applicant prior to the assignment of the Lease. I am satisfied that the disclosure statement identified the Applicant's obligation to pay Land Tax of approximately $ 5,700.00 per annum. The evidence shows that the Respondents did not provide further statements as required by section 27 of the Act. It is equally clear that the Act provides no sanction for failure to comply with that section. 86 Notwithstanding the Respondents' failure to comply with the provisions of section 27 of the Act, I am not satisfied that this failure precludes the Respondents from recovering payment of the Land Tax. 87 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales it was stated that to justify the implication of a term in a contract which the parties have not thought fit to express, the following conditions, which may overlap, must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express terms of the contract. 88 The New Zealand cases to which I have been referred are said to be authorities for the principle that where no time for performance is fixed by a lease, a term will be implied that each party is to perform its part of the contract within a time which is reasonable having regard to the circumstances of the case. In my view, it would be contrary to the principle established by Codelfa Construction Pty Ltd v State Rail Authority of New South Wales to imply a term which could have onerous implications for a lessor's ability to recover outgoings in circumstances where the Lease provides a clear liability to pay those outgoings. In my opinion this is not correct statement of the law in Australia. 89 In any event, I am satisfied that the Respondents brought the Land Tax Notice to the Applicant's attention within a reasonable time. The New Zealand authorities, if applicable, would therefore present no bar to recovery of the outgoings in the circumstances of this case. 90 Similarly, the principle established by Codelfa Construction Pty Ltd v State Rail Authority of New South Wales would not permit the implication of a term into the Act to the effect that compliance with section 27 is a condition precedent to the entitlement of the lessor to recover any of the outgoings. 91 Support for this view can be found in the second reading speech made by Mr Chappell, the then Minister for Small Business, and Minister for Regional Development upon the introduction of the Retail Leases Bill 1994 into the Legislative Assembly. (New South Wales Parliamentary Debates, Hansard, Legislative Assembly, 20 April 1994, at pages 1547-8). The Minister stated: "The bill I have introduced today is intended to foster good leasing practices in the retail industry, nothing more and nothing less. The Government does not wish to interfere in commercial agreements between two parties. It seeks to ensure that retail leasing agreements are explicit as to the requirements of both parties and that they are entered into from a position of reasonably equal negotiating strength. … Prior to any lease being entered into a copy of the lease agreement and a disclosure statement must be given to the prospective lessee to ensure that the lessee has sufficient information to enter into negotiations with the lessor. … Oral and implied leases will be effectively reduced by the requirement that before any lease is entered into, a disclosure statement is required which, among other things, will state the rent, the lease period, how the rent is to be calculated and what outgoings are to be paid. Failure to provide a statement may incur a penalty and a claim for compensation. … It is intended that the lease agreement imposes internal compliance mechanisms on the parties to determine rights and responsibilities rather than external compliance procedures. These sanctions mostly provide for voiding part or all of the lease agreement. In some cases where a practice is prohibited, fines may be imposed by a court. It is clearly not the intention of the bill to burden business with more red tape. The whole direction of this Government has been to reduce this burden. The Government merely seeks to set the ground rules, and leave people to go about their business with a minimum of fuss. 92 In my opinion, the onerous provisions in the Act are consistent with the intentions of the legislator as set out above. These are intended to ensure that adequate information is supplied prior to entry into the lease. There is no stated intention to interfere with the rights of the parties to the same extent once the lease has commenced. The interpretation of section 27 of the Act urged by the Applicant would add new external compliance procedures in contradiction to the stated intentions of the Minister. 93 It follows, in my view, that the Respondents are entitled to recover the amounts sought in relation to Land Tax. It is a matter for the Applicant to quantify any damages which may have resulted from the Respondents' failure to comply with section 27 of the Act. Has the Applicant failed to pay rent (including CPI increases and interest on arrears)? 94 The Respondents submitted that the Applicant, by its own admission, failed to pay rent during the month of July 2001. This has a consequence that the next payment on 17 August 2001 is treated as a late payment of the July 2001 rent. All subsequent payments therefore become substantially late. 95 The dispute between the parties relating to the rent largely relates to the manner in which CPI increases are to be calculated. The issue is whether the December or the September quarter figures are to be used as the basis of the calculation. 96 Clause 12 of the Lease sets out obligations in relation to the payment of rent, including the mechanism which applies to rent review. Clause 12 provides: "RENT 12. (a) It is agreed that the yearly rent for the first year of the Term shall be $61,376.16 per year which shall be increased annually as provided in paragraph (b) hereof. During the Term of this Lease or any extension or renewal the rent shall be paid monthly in advance by the Lessee to the Lessor directly into the Lessor's nominated bank account by regular calendar monthly payments the first of such monthly payment to be made on the 1st day of December, 1996 and thereafter on the first day of every consecutive month. The monthly instalment of rent for the first year shall be $5,114.68. In the event that the Lessee fails to pay any monthly instalment of rent within seven (7) days of the due date for such payment then the Lessor may (in addition to whatever other remedies it might have) be entitled to charge interest at the rate of eighteen percent (18%) per annum calculated daily from the date the monthly instalment became due on the rent outstanding and such interest shall continue to accrue until such rent is paid. (b) The yearly rental shall be reviewed on each of the following dates and in the following manner:- (i) The review dates under this Lease are 1st December, 1997 and on 1st December in each year thereafter during the currency of this Lease and any extension thereof. (ii) The rent shall be increased by the All Groups Consumer Price Index Number for Sydney published by the Commonwealth Bureau of Census and Statistics (hereinafter called "the Index Number") current on any of the review dates herein mentioned calculated on the rent payable immediately prior to any increase. (iii) Should there be no Index Number current at any review date, or should the basis of calculation of the Index Number have substantially changed after the date of commencement of this Lease and before the relevant review date, then the Basic Rent shall be increased on each subsequent review date by five percent (5%). (c) Such clause (b) shall not operate to reduce the current rent from that payable immediately prior to each review." 97 The Applicant submitted that section 12 uses the words "published" and "current" as at the date of the review, which in this case is 1 November. If the question is asked as at 1 November of each year when the review is to take place: "what has been published as the current CPI?", the only answer that it admits is the September quarter. The rent review is not to take place in January the following year, when the December quarter is published. It is to be done on 1 November and at no other time. 98 Clause 12(b)(iii) only confirms this interpretation. The time when the Index is to be looked at can only be as at the review date. It must follow from this that the relevant quarter in each year for the review is September. 99 In contrast, the Respondents argued that the review date set out in clause 12 is 1 December of the relevant year. The Respondents submitted that the appropriate calculation is based on CPI figures for the December quarter as that figure is aptly described as the "current" index number for the quarter even if it is published at the end of the quarter. They argued that to apply the September quarter figures would mean that the rent was adjusted on the basis of economic conditions prevailing two to five months prior to the review date. This is inconsistent with the obvious commercial purpose of the clause which is to change the rent in accordance with the general economic conditions existing at the date of review. In the alternative, the Respondents argued that failure to publish the index figure within any December quarter has the effect that no index number is current at the review date so that a flat rate of 5% would apply to increase the rent, at least in the December 2001 quarter. 100 I accept the Applicant's submissions in relation to this issue. In my view, the applicable CPI figure is that which was current on any of the review dates. I do not accept that the December quarter CPI figures were current at the review date. Nor do I accept that there were no current index figures at that date. As the December quarter CPI figures were not current at the review date, the applicable figure is that for the September quarter. 101 In my view, the Respondents were entitled to increase the rent in accordance with clause 12 of the Lease on the basis of the September quarter CPI and they are entitled to recover the additional rent calculated on that basis. 102 Pursuant to clause 12(a) of the Lease, the Respondents are also entitled to recover interest on any outstanding rent at the rate of eighteen percent per annum calculated daily from the date that the rent became due until it is paid. Has the Applicant failed to pay water rates and council rates? 103 As indicated above, clause 14 of the Lease provides that the Applicant is liable to pay outgoings including water rates and council rates. The Respondents sent the Applicant a Notice of Demand in relation to unpaid council rates on 8 May 2001. I am satisfied that the evidence shows that the Applicant failed to pay all council rates as they fell due. I am also satisfied that the Applicant has failed to pay all water rates for which it is liable under the Lease. The Respondents are entitled to recover those unpaid amounts. Has the Applicant failed to insure the property? 104 The Lease makes the following provision in relation to insurance: "5. IT IS HEREBY EXPRESSLY AGREED between the parties as follows:- (a) The Lessee will effect and keep affected in respect of the Demised Premises at all times during the continuance of this Lease a building policy in such amount as may be reasonably required by the Lessor from time to time. (b) The Lessee will effect and keep effected in respect of the Demised Premises at all times during the continuance of this Lease a public risk policy for a minimum amount of 5 million dollars or such other amount as may be reasonably required by the Lessor from time to time and shall upon renewal each year furnish a copy of the renewal schedule to the Lessor. (c) That the Lessee shall insure in the joint names of the Lessee and the Lessor the plate glass of the Premises against breakage howsoever caused and upon any breakage shall promptly replace the said plate glass and upon demand shall produce to the Lessor the last receipt for payment of premium for such insurance and in default of effecting such insurance the Lessor may effect such insurance and the Lessee shall thereupon pay the Lessor the amount of any premium so paid." 105 The Respondents' argued that the Applicant was obligated to maintain insurance in relation to the property and had failed to do so. The disclosure statement provided to the Applicant prior to the assignment of the Lease indicated that the estimated amount in relation to insurance of the building was $2,225.25 per annum. The Respondents maintained their own insurance and assert that they are entitled to recover the amounts paid from the Applicant. The Respondents sought reimbursement of a total of $11,015.88. 106 The Applicant argued that the Respondents failed to advise what they required by way of policy. The Applicant can not have any obligation to take out insurance if the Respondents' requirements were never communicated. 107 The Respondents took out their own insurance policy but the Applicant is not obliged to indemnify them for the expenses that they incurred in doing so. 108 Further, the Applicant relied on the argument that the Respondents' failure to comply with the requirements of section 27 of the Act prevents the Respondents recovering any expenses incurred in relation to outgoings. "Premiums" are specifically included in the definition of outgoings. The most to which the Respondents would be entitled to recover is the premium for 1997, it having been disclosed in the Disclosure Statement at the beginning of the Lease. 109 On the evidence before me, I am satisfied that the Applicant had maintained the insurance required by sub-clauses 5(b) and (c) of the Lease at least for the period 25 November 2000 to 25 November 2001. Arrangements were also in place for the period 25 November 2001 to 25 November 2002. There is no evidence to suggest that similar insurance was in place for the period of the Lease prior to 25 November 2000. Nor is there evidence to suggest that insurance as required by clause 5(a) of the Lease has been in place at any time since the Lease was assigned to the Applicant. 110 Sub-clause 5(a) of the Lease required the Respondents to notify the Applicant of the amount of insurance required. There is no evidence to suggest that the Respondents ever gave such notice. In my opinion, because the Respondents failed to notify the Applicant of the amount of insurance required the Respondents cannot recover the premium in relation to insurance as required by sub-clause 5(a). 111 I note that the Disclosure Statement that the Respondents gave the Applicant prior to the assignment of the Lease referred to an amount relating to insurance. This was sufficient notice for the purposes of clause 5 for the period covered by the disclosure statement but not for subsequent years. The Respondents are therefore entitled to recover the actual amount of premium paid by them in the period covered by the disclosure statement to a maximum of $2,225.25. The Respondents are entitled to recover the actual amount of premium paid by them in relation to insurance required by sub-clauses 5(b) and (c) over the remainder of the Lease period up until 25 November 2000. Did post option breaches justify conversion to a monthly tenancy and precluded the Applicant's entitlement to new lease? 112 Clause 6 of the Lease provide for action which may be taken by the Respondents in circumstances where the Applicant was in breach. Clause 6 provides: "DEFAULT BY LESSEE 6. IT IS HEREBY EXPRESSLY AGREED between the parties as follows:- (a) That notwithstanding anything herein contained, upon the Lessor becoming entitled to re-enter the Demised Premises or determine this Lease then the residue of the Term for the time being unexpired of this Lease shall at the option of the Lessor immediately upon notice of the exercise of such option being given to the Lessee become reduced to one (1) month and thereafter the tenancy hereby created shall be and remain a tenancy from month to month at a rental equivalent to one (1) month's proportion of the rental herein reserved and shall be determinable by one (1) month's notice in writing given by either party to the other expiring at any time. That if subject to Clause 12:- (i) the rent hereby reserved or any part thereof shall be unpaid for a period of fourteen (14) days after any of the days on which the same ought to have been paid; or (ii) the Lessee commits, or permits to occur any substantive breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions contained in this Lease; or (iii) (the Lessee being a company) any order is made or resolution passed for the winding up of the Lessee (except for the purpose of reconstruction or amalgamation with the written consent of the Lessor which consent shall not be unreasonably withheld) or an order is made for the appointment of a provisional liquidator or the Lessee makes an assignment for the benefit of or enters into any arrangement or composition with its creditors or is unable to pay its debts within the meaning of the Corporations Law or an official manager is appointed pursuant to the provisions of such Act; or (iv) execution is levied against the Lessee and not discharged within thirty (30) days; then and in any one or more of such events the Lessor at any time or times thereafter and without notice or demand shall have the right to re-enter the Premises or any part thereof in the name of the whole and thereby determine the estate of and interest of the Lessee therein and expel and remove the Lessee and those claiming under him without being taken or decreed guilty of any manner of trespass and without prejudice to any action or other remedy which, the Lessor has or might or otherwise could have for arrears of rent or preceding breach of covenant." 113 The Respondents have alleged that the Applicant continued to breach the Lease after the exercise of the option. They alleged that the Applicant failed to pay $5,000 in May 2001. In September 2001 the Applicant abandoned payments in relation to the subletting of the upstairs flat. The Respondents also alleged that the Applicant declined, without explanation or excuse to pay rent and outgoings. No rent was paid in July 2001 and subsequent payments were late. Such breaches disentitle the lessee to obtain a new lease on 1 December 2001. 114 As a consequence of those breaches, the Respondents gave the Applicant notice, under Clause 6, that the Lease was converted to a monthly tenancy. The Respondents assert that there was no requirement to give the Applicant a Notice under section 133E of the Conveyancing Act as such a notice was not required for post-option breaches. In support of this argument the Respondents referred to the decision of Windeyer J. in Flagstaff Investments Ply Limited v Cross Street Investments Limited [1999] NSWSC 999. In particular the Respondents referred to the statement at paragraph 33 of the decision where it is stated: "I concluded thats133E does not bear upon breaches of covenant after notice. It follows that a condition precedent to the entitlement to a new lease has not been fulfilled so that unless there is some other general relief against forfeiture available the plaintiff's claim must fail. … the law is clear that relief against forfeiture will not be granted in respect of loss of a new term, where the loss arises through non-fulfilment of a condition precedent to grant." 115 I note that the issue of the application of section 133E to post option breaches has been addressed by the Land Titles Legislation Amendment Act 2001. This Act did not commence operation until 1 November 2001. 116 The Applicant's argument is that it was not liable to pay the outgoings because of the Respondents failure to comply with section 27 of the Act. It also argued that it was not liable to make the payments as agreed at the mediation because the Respondent had repudiated that agreement. It therefore disputed the Respondents' right to convert the Lease to a monthly tenancy. 117 In my view, the evidence clearly shows that the Applicant has failed to pay the outgoings for which it was liable. I am satisfied that the Respondents sent the Applicant a Notice of Demand for payment of Land Tax and a Notice of Demand for outstanding municipal rates. The Respondents also sent the Applicant a Notice of Demand for outstanding CPI increases. 118 It is clear from Clause 6 of the Lease that the Respondents were entitled to take action under that clause if the Applicant committed, or permitted to occur, any substantive breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions contained in the Lease. Substantive breach is defined in clause 17 of the Lease as follows: "SUBSTANTIVE BREACH 17. Wherein mentioned in clause 6(b)(ii) "substantive breach" shall mean:- (a) Failure to pay rent on two (2) consecutive occasions or late payment of rent on three (3) consecutive occasions; (b) A breach by the Lessee of its obligations under this Lease which the Lessee has failed to rectify and make good within seven (7) days of being served with notice in writing from the Lessor requiring the same to he done." 119 On the evidence before me, I am satisfied that the Applicant was in substantive breach of its obligations under the Lease in that it had failed to rectify and make good the issues referred to in the Notices of Demand within seven days of being served with the notices. It also made late payments of rent on three consecutive occasions. It follows that the Respondents were entitled to give notice and convert the Lease to a monthly tenancy. 120 I am also satisfied that the Applicant's breaches of the Lease precluded the Applicant's entitlement to new lease. I am satisfied on the basis of the principle from Flagstaff Investments Ply Limited v Cross Street Investments Limited as set out above that it was not necessary that the Respondent provided the Applicant with a notice under section 133E of the Conveyancing Act as such a notice was not required for post-option breaches. 121 Given my findings as set out above, the Respondents were entitled to reduce the Lease to a monthly tenancy and the Lease could then be terminated by giving appropriate notice as required by clause 6 of the Lease. Further conduct of this matter 122 The Applicant no longer seeks specific performance of the Lease and has vacated the premises. The Respondents have sought damages in relation to circumstances surrounding the Applicant's vacating the premises and additional amounts in relation to rent and outgoings. A timetable has been set in relation to the further conduct of this matter and the hearing is set for 26 July 2002. 123 I note that the Respondents have proposed that these findings be submitted to an accountant for assessment of the quantum which is recoverable by the Respondents. I accept that proposition and will allow the parties the opportunity to seek advice in that regard. If the parties are able to reach agreement on the quantum which is recoverable, I will make orders consistent with that agreement. 124 If the parties are unable to reach agreement as to the quantum which is recoverable, I will make orders after I have considered any submissions that are made. Any such submissions are to be made by 12 July 2002. Summary of findings 1. The Applicant undertook alterations to the property without the Respondents' consent. 2. The Applicant entered into an agreement to sublet the upstairs flat without the Respondents' knowledge or consent. 3. The Applicant denied the Respondents reasonable access to inspect the property. 4. The parties agreed that the Applicant would pay $5000 by 28 February 2001. Time was of the essence with respect to that payment and the grant of an option to lease for a further five years was contingent on the Applicant making that payment. 5. It is probable that it was a term of the agreement that the Respondents were to provide the Applicant with a written document addressing the issues of rent review and the option to lease and that the Respondents were to rescinding the demand that the Applicant replace the shop fit. It was not an essential term of the settlement agreement that the Respondents provide that document by 28 February 2001. 6. The Applicant validly exercised the option to lease for a further five years by its letter to the Respondents dated 21 March 2001. 7. The Respondents are entitled to recover the amounts sought in relation to Land Tax. 8. The Respondents were entitled to increase the rent in accordance with clause 12 of the Lease on the basis of the September quarter CPI and to recover the additional rent. 9. The Respondents are entitled to recover interest on any outstanding rent at the rate of eighteen percent per annum. 10. The Applicant failed to pay all council rates and water rates as they fell due. The Respondents are entitled to recover those unpaid amounts. 11. The Respondents are entitled to recover the actual amount of insurance premium paid by them in the period covered by the disclosure statement to a maximum of $2,225.25. 12. The Respondents are entitled to recover the actual amount of insurance premium paid by them in relation to insurance required by sub-clauses 5(b) and (c) of the Lease over the remainder of the Lease period up until 25 November 2000. 13. Post option breaches justified conversion of the Lease to a monthly tenancy and precluded the Applicant's entitlement to new lease. ORDERS 1.The matter is listed for further hearing in relation to outstanding issue at 10 am on 26 July 2002. 2. The parties are invited to make submissions in regard to quantum based on these findings. Any submissions on which the parties propose to rely in relation to quantum are to be filed and served by 12 July 2002. 3. If the parties are able to reach agreement in relation to the appropriate quantum, orders will be made in accordance with that agreement.

Cronulla Newsagency Pty Limited v Pizzata & Ors

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