This is a dispute between the tenant Michael Gersak (Tenant) and the landlords George and Aspasia Kaldelis (Landlord). On 16 October 2013, the parties entered into a lease of a shop in No [***]Place, Maroubra NSW 2035 (the premises) for a term of two years with an option of one year (Lease).
The Tenant has lodged an Application for an Original Decision for interim orders against a lock out and also a claim against the Landlord that the premises was not fit for its purposes and that there were misrepresentations about the condition of the premises.
In the course of this dispute, a question was raised as to whether the premises was a retail shop lease within Section 3 of the Retail Leases Act 1994 (NSW) (RLA).
The Tribunal is asked to determine whether the Tribunal has jurisdiction to hear this matter. In this respect, the relevant question is whether the lease is a retail lease or a commercial lease. If the lease is not a "retail shop lease" as defined under the RLA, the Tribunal does not have jurisdiction to hear this matter.
[2]
BACKGROUND
The Lease was prepared by the Landlord's managing agent, Prime Property Partners, (Managing Agent) and was in the Real Estate Institute commercial lease format.
The Landlord's submission via the Managing Agent was that at the time of leasing of the premises, it was "unequivocally indicated" to the Tenant that the premises was available to be leased in its present state, repair and condition and it was obvious that there were significant cleaning, rubbish removal and repairs to be carried out to the premises.
According to the Managing Agent, the Tenant indicated that he was going to use the premises for the purpose of a charity and that at no time did he indicate that he would be "selling" anything of any type in the premises. Accordingly, the Lease was prepared in a commercial lease format and the permitted use was "commercial rooms". It is the Landlord's submission that if the Tenant had indicated he was planning to sell "anything of any type", the subject to approval by Randwick City Council (Council), the Landlord would have issued either a retail lease or a commercial lease.
The Managing Agent further submitted that the Tenant is not running a charity on the premises. Instead, he is living on the premises without approval from the Council. A letter from the Council to the Landlord discloses that during an inspection of the premises, it was discovered that the premises was being used for habitable purposes for which development consent was required but was not obtained in contravention of sections 76A and 125 of the Environmental Planning and Assessment Act 1979.
In addition, it was submitted by the Managing Agent that the Tenant is conducting illegal operations on the premises. One example given by the Landlord was that the Tenant had advertised the premises as a backpacker's accommodation. The Council was informed of this and instructed the Tenant to remove the ad and cease the operation.
The Managing Agent provided a copy of an email from Eric Brown from the organisation Youth Off The Street expressing concerns about the Tenant. Inter alia, it was alleged that the Tenant was living in the premises illegally, was deceiving others about running a charity, associating with ex offenders, disposing of rubbish on the footpath, and behaving in a suspicious way especially around children in the area.
The Tenant's submissions, via his solicitors, were that the Tenant's application sits under the definition of a retail tenancy claim. The Tenant submits that he has used the premises for retail purposes only during the course of his tenancy and that the premises has historically been used as a shop.
The Tenant sought orders under the RLA in particular but not limited to:
1. Relief from payment of money.
2. Claim for specified work.
3. Rectification of a retail lease.
4. Claim regarding invalidity of a non complying lease; and
5. Claim for a declaration of the rights, obligations and liabilities of the parties under a lease.
There was no evidence led by the Tenant to support his claim that he was conducting retail operations on the premises or any rejection of the allegations made by the Landlord.
[3]
Is the Lease retail or a commercial lease?
Section 72 of the RLA provides that the Tribunal is empowered to make a number of orders "in proceedings for a retail tenancy claim". Retail tenancy claim is defined in section 70 of the RLA as "any claim in connection with a liability or obligation with which a retail tenancy dispute is concerned".
Section 63 of the RLA defines retail tenancy dispute as "any dispute concerning the liabilities or obligations…of a party or a former party …to a retail shop lease [emphasis added] or former lease…being liabilities or obligations which arose under the lease or former lease…or which arose in connection with the use or occupation of the retail shop to which the lease or former lease…relates."
According to Barrett J in Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC 1151, to determine whether upon proper construction a lease is or is not a "retail shop lease", one must examine provisions of the RLA.
Section 3 of the RLA contains the following definition:
"retail shop lease" or "lease" means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:
(a) whether or not the right is a right of exclusive occupation, and
(b) whether the agreement is express or implied, and
(c) whether the agreement is oral or in writing, or partly oral and partly in writing.
The term "retail shop" is also defined by section 3:
"retail shop" means premises that:
(a) are used wholly or predominantly for the carrying on of one or more of the businesses specified in Schedule 1 (whether or not in a retail shopping centre), or
(b) are used for the carrying on of any business (whether or not a business specified in Schedule 1) in a retail shopping centre.
According to Barrett J, to determine if a lease is a retail lease, the focus is on two things: "the content of the right of occupation granted or appeared to be granted 'under' the parties agreement", and the question of whether the occupation the subject of the right is "for the purpose of" the use of the premises in the way described.
To determine the "purpose" of the use of the premises, Barrett J states that one looks at the terms of the parties' agreement. Where the agreement expressly defines the scope of use, that statement will be conclusive unless there is compelling evidence that the parties did not mean what they said (at [50] of Moweno). If at some time after the initial lease was signed, the parties decide to make a new agreement by which the landlord grants to the tenant a right of occupation for a new and different use, it may be that what was initially a retail shop is no longer a retail shop lease, or vice versa. In Moweno, the documents that defined the parties' agreement were found in an initial lease executed on or about 24 August 1998. However, there was then a second document executed on or about 1 December 1998 and a variation of lease executed on 1 January 1999.
Item 3 of the reference schedule of the initial lease in Moweno read:
The Lessee shall not without the written authority of the Lessors use or occupy the premises otherwise than as a reception lounge/function centre (Licensed).
Item 3 of the reference schedule as modified by the variation of lease was altered to read:
The lessee shall not without the written authority of the lessor use or occupy the premises otherwise than as a licensed restaurant with ancillary function and reception facilities.
The variation of lease served to modify the initial use for which the premises were leased.
Although evidence of the actual use of the premises was given that the premises consisted predominantly of catering for functions, the court determined that evidence of actual use is at best of "marginal relevance". It would only be useful if the written agreement of the parties were uncertain or there was some suggestion that the true terms of their bargain were to be gathered from their conduct, as distinct from written agreement (at [25]).
In my decision of Honings Bakery Pty Ltd v Cerialis Pty Ltd [2014] NSWCATCD 87, I held that the premises was not a "retail shop lease" for the purposes of the RLA.
In that case, both parties submitted that Wood and Wilson v Bergman [2003] NSWADT 82 was the authority which sets out the procedure to be undertaken by the Tribunal in interpreting whether a lease is a retail shop lease:
1. Firstly one looks at the lease to see what is the permitted use or agreed use of the premises;
2. If the agreement clearly defines what the use of the premises is to be, then the question as to whether or not the premises are a "retail shop" under s 3 of the Act will be determined by whether that use appears within Schedule 1 of the RLA;
3. If the permitted use or agreed use is not clear or is uncertain, or the use covers a number of different types of business some of which are, or may be, within Schedule 1 described businesses, then an analysis is required of the actual use(s) of the premises to determine whether the predominant use(s) fall within one or more of the businesses prescribed in Schedule 1.
The permitted use in Honings of "commercial bakery including retail sales" covered a number of different types of business, some which may be in Schedule 1 of the RLA and some which are not.
Applying the third limb of Wood and Wilson to Honings, analysis was required of the actual use of the premises to determine if the predominant use fell within one of the businesses in Schedule 1 of the RLA. The difficulty in Honings was that the tenant never entered into the shop to trade. However, it was clear from all the evidence submitted by the parties that the intention of the tenant from the start was that the tenant was proposing to operate a bakery as a commercial venture being the predominant use and that any retail sales via a café was ancillary. The fact that the retail use was an ancillary or auxiliary use was further supported by the Hornsby Council's assessment report of the development application submitted for the shop noting the total area of the premises was 217 sqm and the café which falls under Schedule 1 was to only occupy 30 sqm which equates to 7.2% of the total area.
Turning to the facts of this case, it would appear that the Tenant does not have any evidence to support itself of the retail use of the premises. The express agreement of the parties is documented in both the letter of offer and the Lease itself, with the Lease expressly stating that the Lease is for a commercial use, being "commercial use".
The word "commercial" was interpreted by me in my decision of Honings above. It was decided there that in the interpretation of the word "commercial bakery":
'commercial' is not another word for 'wholesale', it is clear that in the Real Estate Industry property sectors are divided into residential, commercial and industrial. So while 'commercial' may not be an antonym for 'retail' it is certainly not a synonym. It is clearly not a synonym. It is clearly a separate property sector to retail and generally connotes a non-retail aspect.
In this case, the permitted use was "commercial rooms" which is clearly commercial without any connotation of a retail use. In addition, the Tenant has not led evidence of the actual use of the premises being retail or being used as a retail shop or even a charity. Instead the overwhelming evidence is that the Tenant is instead living in the premises. This is supported by emails from Youth Off the Street, a letter from the Council and evidence led by the Landlord via its Managing Agents.
Applying both Moweno and Honings, there is no need to look at the actual use of the premises as it is clear from the Lease and letter of offer that the permitted use of the premises was "commercial rooms". Unlike Moweno, there was at no stage any change in the agreement between the parties that the permitted use was to change. Also, unlike Honings, the permitted use is clearly commercial and there are no elements of a retail use in that composite word.
Even if the analysis above is incorrect, there is no evidence led that the Tenant is using the premises for any retail purposes.
As a result, the Lease between the parties is not a retail shop lease within the meaning of the RLA. Therefore, the Tribunal does not have jurisdiction to hear this claim.
D Bluth
Senior Member
Civil and Administrative Tribunal of New South Wales
21 August 2015
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 01 October 2015