These proceedings concern a lease of certain premises in McEvoy Street, Alexandria. The property is owned by the defendant. In December 2015 the defendant ("REN") granted a lease to the plaintiff ("Global") for a two year term commencing on 20 January 2016 and terminating on 20 January 2018. The lease contains four options to renew, each for a further term of two years.
A dispute arose between the parties concerning the validity of the exercise by Global of the first option to renew. Global exercised the option on about 21 July 2017. There is no dispute that this was done in accordance with the requirements of the lease. REN claimed, however, that Global was not entitled to the grant of a new lease because it had committed breaches of the lease. REN initially asserted only that the rent was often not paid on time. Later, REN asserted that Global was in breach of cl 16 of the lease, essentially because it used the premises for retailing which is not an approved use or lawful purpose.
The lease provides in cll 7.1 and 7.4 that the entitlement to the grant of a new lease is conditional upon Global punctually paying all of the rent and complying with all the terms and conditions of the lease. Those are provisions of the kind referred to in s 133E(1)(b) of the Conveyancing Act 1919 (NSW). Nevertheless, REN did not serve any prescribed notice pursuant to s 133E of the Conveyancing Act. Accordingly, breaches of those provisions do not preclude the entitlement of Global to the grant of the new lease (see s 133E(2)).
In these circumstances, REN accepts that Global has not, by reason of any breaches, lost its right to the grant of the new lease. However, REN maintains that breaches of the lease by Global, in particular breaches of cll 16 and 30 arising from the manner in which Global uses the premises, should result in the withholding of orders for specific performance of the contractual obligation of REN to grant the new lease (see Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744 at [21]; Kyrollos 4M Pty Ltd v Bassal [2018] NSWSC 833 at [35]-[36]). A suggestion that Global has impermissibly assigned the lease or sub-let the premises was ultimately not pressed.
The parties were also in dispute on the question whether REN was obliged to provide its consent to the making of a development application by Global for approval of retailing at the premises. On 23 May 2018 Global's solicitors sought to obtain REN's consent to the lodgement of a development application "in respect of the permissible use" under the applicable zoning. On 24 May 2018 REN's solicitors stated that their client would not consent to the lodging of a development application. Nevertheless, REN now accepts that it is obliged to provide its consent to the making of a development application by Global to obtain any approval necessary for the carrying on of its business. That issue thus fell away.
That being so, the issue left for determination is whether orders for specific performance of the contractual obligation of REN to grant a new lease should be made, or whether specific performance should be withheld on discretionary grounds due to breaches of the lease by Global.
[2]
Salient facts
Global has for many years operated a business that sells "Christmas products". The business operates from a number of locations, or stores, including the Alexandria property leased from REN. All of the stores use the brand "Christmas World". Global is the sole shareholder in Christmas World Pty Ltd. The stores are generally open for sales to the general public in the period from October to the first or second week of January. The Alexandria property also opens in July each year to cater for the Christmas in July trade. The Alexandria premises are also used as a warehouse to store goods to be sold from the various stores, and to take excess stock from the other stores.
Global commenced its occupation of the Alexandria property in 2011. It entered into a lease with REN for a 12 month term commencing on 20 July 2011 and ending on 19 July 2012. Under that lease, the premises were only to be used as "warehouse, wholesale & retail". The lease contained an option to renew for a further term of 1 year. Clause 10 of the lease obliged Global to obtain all necessary consents that may be required from local government or other authorities to carry on their proposed business at the premises. In Schedule A to the lease, the parties agreed that Global "may undertake an application process for D.A. Approval from Sydney City Council to operate from the premises for their own business retail purposes."
The sole director of Global, Mr Graziani, gave evidence in cross-examination that a development application was lodged in 2011 but was withdrawn before it was determined. That is consistent with a note made in a file pertaining to the property maintained by the Council of the City of Sydney ("the Council"). Mr Graziani further stated that the withdrawal of the application occurred after advice was received from a town planner that under the existing Local Environmental Plan it was not necessary to obtain approval for its activities. I accept that evidence, which was not challenged.
The evidence is not clear as to whether Global exercised the option to renew for a further one year term. Ms Ren, the sole director of and shareholder in REN, seemed to suggest in cross-examination that REN and Global entered into at least one further lease, but the details in this regard are sketchy. In any case, Global remained in possession of the Alexandria premises.
As mentioned earlier, the lease that is the subject of the present dispute was made in December 2015 for a two year term ending on 20 January 2018, with four options to renew, each for a further term of two years. The provisions of the lease that bear upon the use of the premises are described below.
Clause 3.1 provides:
The Premises shall only be used for the Permitted Use specified in Item 14.
There is a Schedule to the lease that contains a number of items, but there is no Item 14.
Clause 16.1 relevantly provides:
The Tenant agrees: -
16.1.1 to comply with and obtain all approvals, licences and consents required by and from the proper authorities to carry on the proposed business. The Tenant also agrees to bear all costs incurred in obtaining such approvals consistent with the specified use;
16.1.2 not to cause or allow the Premises to be used for any illegal purpose;
…
Clause 17.1 provides:
The Tenant agrees not to use the Premises for the purposes of storing, manufacturing or selling any explosives, flammables or other inherently dangerous substance, chemical, thing or device.
Clause 30.1 provides:
The Tenant and Landlord each shall comply with all by laws, statutory regulations, statutes and other public requirements now or hereafter affecting the Premises.
Clause 38.2 provides:
If the Local Council removes Global Sources Australia Pty Ltd (GSA) from 82 McEvoy Street or requires a cessation or substantial change of use, or if a (DA) is not approved for retail, then GSA shall be entitled to elect to determine the lease and once determined no future rent, costs or other obligations to the Landlord shall apply and GSA shall forthwith be released from all obligations under the lease terms and all security deposits or Bank Guarantees held by the Lessor shall be returned to the Lessee.
Clause 38.2 plainly contemplates that a development application might be lodged to obtain permission for retail use. That subject was raised in the course of discussions between Mr Graziani and Ms Ren before the lease was entered into. Both gave evidence about such a discussion. There is a divergence between them as to exactly what was said. Ms Ren deposed that she told Mr Graziani that he would "need to arrange a DA with Council", and Mr Graziani said that he would have his town planner organise it. Mr Graziani denied that account. He said that he did not have a town planner at that time. However, he deposed that Ms Ren said "you may need a DA" and offered to have her solicitor contact him. Mr Graziani deposed that he heard nothing further about the matter. Nothing of significance turns upon which version is accepted as more likely to be correct. On any view, the making of a development application was raised, and the lease later entered into contained a provision that expressly touched upon the matter.
It is relevant to note that by that time a new planning instrument was in force. The Sydney Local Environmental Plan 2012 ("the LEP") commenced on 14 December 2012. It appears that the relevant zoning of the Alexandria property is B7 Business Park (although part of the property is in the SP 2-Infrastructure (Classified Road) zone).
The LEP was amended on numerous occasions. By December 2015 (and thereafter) the LEP provided that in the B7 Business Park zone, Shops are permitted with consent (as are Warehouse or distribution centres), but Retail premises are prohibited.
Retail premises is relevantly defined in the LEP to mean "a building or place used for the purpose of selling items by retail…whether the items are goods or materials (or whether also sold by wholesale), and includes…shops…".
Shop is relevantly defined in the LEP as "premises that sell merchandise such as groceries, personal care products, clothing, music, homewares, stationery, electrical goods or the like or that hire any such merchandise, and includes a neighbourhood shop, but does not include food and drink premises or restricted premises."
In December 2017 REN's then solicitors sent a letter to Global's solicitors stating that the premises were being used as "retail premises", which was prohibited under the LEP. It was stated in effect that this was a breach of an essential condition of the lease. In their reply, Global's solicitors denied that there was any breach of an essential term of the lease and said that Global relied on existing use rights, so no development approval was required. The assertion of existing use rights seems to be no longer pressed.
Mr Graziani gave evidence that Global has not sold goods from the Alexandria premises since 7 January 2018. I accept that evidence which, again, was not challenged.
Since then, REN has served notices, said to be pursuant to s 129 of the Conveyancing Act, alleging breach of cl 16.1.1 of the lease. The validity of these notices was disputed by Global. It is not necessary to resolve those questions in circumstances where REN has not filed any cross-claim seeking possession of the premises or other relief based on a right of re-entry or forfeiture. For the same reason it is not necessary to consider the validity of the Notice of Termination served by REN in March 2018.
Certain documents produced by the Council indicate that there were communications between the Council and Ms Ren in December 2017 about the use of the premises. A Council officer carried out an inspection on 3 January 2018.
On 17 April 2018 the Council sent to REN a Notice of Intention to Give an Order to cease using the premises as a retail store without prior development consent. The notice came to the attention of Ms Ren on about 26 April 2018, and shortly thereafter to the attention of Global.
Global has since taken steps towards the making of a development application. The Court was informed that the application was to be for a mixed use development to comprise a warehouse and shops. It is evident that Global and its consultants have been in contact with the Council concerning the application. Global has obtained the agreement of the Council to allow until 30 June 2018 for the lodgement of the application in response to the Council's Notice of Intention to Give an Order. Mr Graziani stated in re-examination that Global will not be opening the Alexandria store in July this year "because we are lodging the DA…and until we have consent from the Council to trade again we won't be opening the store."
[3]
Submissions
Global submitted that no order has been made by the Council, and it has not been established that it has committed any offence under the planning laws. It was further submitted that even if there has been a contravention there is currently no illegal use or purpose, and steps are underway to cure the problem by obtaining an approval that would allow the premises to be used for retail purposes. It was further stated that the Court should accept Mr Graziani's evidence about not opening the store until an approval is obtained.
REN submitted that Global's use of the premises for retail purposes has been in breach of clauses 16.1.1, 16.1.2 and 30.1 of the lease, and those breaches have continued throughout the term of the lease. It was put that the Court should not "allow the lease to proceed" at least until the Council had made its determination in respect of a development application. It was stated that REN was itself exposed to liability for penalties if Global opened the store without having obtained the required approval.
[4]
Determination
Global validly exercised the option in the lease for a further two year term commencing on 21 January 2018 (see cl 7.6.1). REN thus became contractually obliged to grant a new lease to Global on the terms stipulated in cl 7.6.2 of the lease. As stated by Bryson AJ in Sydney West Area Health Service v Staracek (supra) at [21], whilst there is always a discretionary element in a decision to grant or withhold specific performance, the claim for specific performance of an entitlement to a new lease term is a very strong one.
I am prepared to accept in REN's favour that throughout the term of the lease Global was in breach of cl 16.1.1 in that it did not obtain all approvals required by the proper authorities to carry on "the proposed business". I take that expression to mean the business intended by Global, at the time of commencement of the lease, to be conducted at the premises. That business involved the selling of items by retail during at least four months of each year. However, there was no existing approval to use the premises in that way as a Shop. In my opinion, Global required such an approval to carry on the proposed business, but it failed to obtain it, in breach of cl 16.1.1.
It is not necessary to decide whether Global was also in breach of cl 16.1.2 insofar as it allowed the premises to be used for retail purposes, although I am inclined to think that as at least some retailing may be permitted with consent, retailing should not be regarded as an "illegal purpose" within the meaning of cl 16.1.2. I do think, however, that insofar as the premises were used by Global for retailing it failed to comply with the Environmental Planning and Assessment Act 1979 (NSW) which stipulates that where an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless a consent has been obtained and is in force and the development is carried out in accordance with the consent and the instrument (see s 76A and now s 4.2). Global would thus have breached cl 30.1.
Notwithstanding the discussion prior to entry into the lease about a development application, REN (which must be taken to have known that no such application had been made) seems not to have raised any complaint about Global's use of the premises until December 2017. Further, REN did not serve any notices under s 133E of the Conveyancing Act after Global exercised the option on about 21 July 2017. In these circumstances, the significance that might otherwise attach to Global's breaches of the lease is in my view greatly diminished.
It is important to recognise that Global has not conducted any retail trading since the commencement of the term of the new lease on 21 January 2018. Moreover, Mr Graziani has assured the Court that Global does not intend to open the store unless and until it has obtained the required approval. I am prepared to accept that assurance at face value. The prospect of unauthorised retail trading taking place, thereby exposing REN to potential liability, is in my view remote.
I also take into account that whilst REN has served notices said to be pursuant to s 129 of the Conveyancing Act, it has not sought to prosecute any cross-claim in these proceedings.
Viewing the circumstances of the case overall, I do not consider that there is any good reason that would justify the withholding of specific performance. In my opinion, REN should be ordered to perform its contractual obligation to grant the new lease. I do not agree that no order should be made until the Council determines Global's development application. Even if the Council refuses the application, the new lease can continue in accordance with its terms, albeit that Global may then have the right to terminate the lease under cl 38.2.
The Court will make a declaration as to the validity of the exercise of the option (as sought in paragraph 1 of the Amended Summons) and order that REN forthwith execute all such documents and do all such things as are necessary to grant a new lease to Global in accordance with cl 7.6 of the lease.
The Court will also make an order that REN, within 48 hours after a request is made, provide its consent to a development application to be made by Global to the Council in respect of the premises for a mixed use development to comprise a warehouse and shops.
There does not seem to be any reason why costs should not follow the event. Accordingly, the Court will also order that REN pay Global's costs of the proceedings.
[5]
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Decision last updated: 27 June 2018