The plaintiff/cross-defendant, Ms Kristen Yoon Sun Ko (the Tenant), claims that the defendant/cross-claimant, CKAS Enterprises Pty Ltd (the Landlord), is estopped from denying that she validly exercised an option to renew a lease of premises situated in Joseph Street, Lidcombe (the Demised Premises). The option was contained in a lease dated 13 September 2010 granted to Sung Man Park (the Lessee) by Sami and Dounia Jabbour (the Lessors), which was registered under the Real Property Act 1900 (NSW) (the Real Property Act) as dealing AF807947H (the Lease). The Lease was for a term of five years commencing on 13 September 2010 and terminating on 12 September 2015.
The Lease consisted of a printed form that incorporated additional material set out in Annexure A and Annexure B. Annexure A contained a schedule of items (the Schedule). Annexure B contained some 13 pages of covenants and other provisions.
Clause 4 of Annexure B dealt with the "Lease Period" and provided that the Lease was for the period stated in item 1 in the Schedule, commenced on the date stated in item 2 in the Schedule and ended on the date stated in item 3 in the Schedule. Items 1, 2 and 3 provided respectively the term of five years commencing on 13 September 2010 and terminating on 12 September 2015.
Clause 4.2 of Annexure B relevantly provided that, if a further period, commencing when the Lease ended, was stated in item 12A in the Schedule, then the Lessee was to have the option to renew the Lease for that period. Item 12A in the Schedule provided for a further period of five years. Clause 4.3 provided that the period of the tenancy under the Lease and under any renewal(s) was not, in total, to be longer than the maximum period stated in item 12C in the Schedule. Item 12C, somewhat curiously and clearly erroneously, stated a maximum period of tenancy under the Lease and permitted renewals of six years. Clearly, that was intended to state 10 years.
Clause 4.4 of Annexure B is the critical provision for the purpose of these proceedings. Clause 4.4 relevantly provided that the Lessee could exercise the option only if the Lessee served on the Lessors a notice of exercise of option not earlier than the first day stated in item 12D in the Schedule and not later than the last day stated in item 12E in the Schedule. Item 12D stated that the first day that the option for renewal could be exercised was six months prior to expiry of the Lease. Item 12E stated that the last day that the option for renewal could be exercised was three months prior to the expiry of the Lease.
Clause 12.4 of Annexure B provided that, if the Lessors allowed the Lessee to continue to occupy the Demised Premises after the end of the term of the Lease, other than under a new lease, then the Lessee would become a monthly tenant and must go on paying the same rent and other money in the same way that the Lessee had to under the Lease just before the term ended. Subject to irrelevant exceptions, such monthly tenancy was to be on the same terms as the Lease. Under clause 12.4.3, the Lessors or the Lessee was entitled to end the monthly tenancy by giving one month's written notice at any time.
By Memorandum of Transfer dated 13 June 2011, which was registered under the Real Property Act as dealing AG542279X (the Transfer), the Lessee transferred the leasehold interest under the Lease to the Tenant. By Deed of Assignment dated 26 August 2011, the Lessors consented to the assignment by the Lessee of the Lessee's estate and interest in the Lease. The Register recorded that the Lease expired on 12 September 2015 and contained an option of renewal for five years. The Register showed the Tenant as lessee following registration of the Transfer.
The plaintiff/cross-defendant read affidavit evidence, subject to some objections, of the Tenant, Mr Peter Won Hyo Cho (the Tenant's husband) and Mr Paul Kwon (the Tenant's solicitor). Each of them was cross-examined.
The defendant/cross-claimant read affidavit evidence of Ms An Sook Kim (who is a director of the Landlord who has lived in Australia since 1996), Mr Sam Jong Dae Choi (Ms Kim's husband) and Mr Richard Chung (a real estate agent). Ms Kim and Mr Chung were both cross-examined. Mr Jabbour gave oral evidence and was also cross-examined.
English is not the first language of the Tenant, Mr Cho, Ms Kim or Mr Jabbour, although they were apparently able to communicate satisfactorily in English orally. Having regard to the difficulties that witnesses have with English, it is somewhat unfortunate that, notwithstanding the nature of the proceedings, the evidence-in-chief was given by affidavit in accordance with the general practice in the Equity Division.
[4]
Exercise of the Option
A significant aspect of the Tenant's case was an alleged conversation between Mr Cho and Mr Jabbour. Mr Cho said in his affidavit that, in about May or June 2015, he had a conversation at the Demised Premises with Mr Jabbour, who had come to fix a leak in the roof. The conversation, he says, was to the following effect:
"Mr Jabbour: Your shop lease finish in September. What do you want to do? Do you want to do option?
Mr Cho: Of course. Why not? We put in too much money into the shop. We make your shop very good quality. Last five year make money put it all back into the shop. Next five years we make money and retire.
Mr Jabbour: Okay, okay. I know you are a good tenant. You always pay rents on time. Thank you. I will be happy to renew the lease. No worries.
Mr Cho: That's good. Is there anything we need to do? What about rent under the new lease?
Mr Jabbour: With the new lease no rent increase. Just CPI. I will call my solicitor. You wait." (sic)
Mr Cho said that soon after that conversation he had a conversation with the Tenant, in which he told her that he had spoken to Mr Jabbour who had said that he would "renew the lease" and that his solicitor would contact "us". The Tenant corroborated that conversation and said that she asked her husband, Mr Cho, whether they had to do anything and that his response was "not now" and that Mr Jabbour's solicitor would "write to us".
In the course of cross-examination, when Mr Cho was asked whether he had given evidence that in about May or June 2015 he had a conversation with Mr Jabbour about the exercise of the option, he responded "around late June". The cross-examination then continued as follows:
"Q. Your evidence is that it's either in May or June. Do you now say it was definitely in late June?
A. Yes.
Q. It couldn't have been in about May?
A. I couldn't remember very well at the time.
Q. Maybe it's not in May or June at all?
A. No, I'm for sure. It was in June.
Q. You're for sure it was late June?
A. Because there was a heavy rain, during that time, and Mr Jabbour came to fix the roof. I have the receipt for the visit."
Mr Jabbour accepted in oral evidence that at some time during 2015 he had attended the Demised Premises and repaired a leak in the roof. However, he denied that there had been any conversation about renewing the lease or the exercise of any option to renew.
In his oral evidence-in-chief, Mr Jabbour was asked whether he had any conversations with "the tenants" in May or June 2015. He responded that he did not remember. In cross-examination, Mr Jabbour was asked whether he attended the Demised Premises occasionally in order to fix small matters. His response was that:
"… one time they rang me up … the floor was collapsing and I went there and I look at it. I said, 'Okay, we close the shop couple of day, I will replace it for you'". (sic)
Mr Jabbour was then asked whether in 2015 there was an issue "with a leaky roof" and he responded:
"With the roof I went there and I fix." (sic)
Mr Jabbour then agreed that, in 2015, he went to fix the leaky roof although he then said that he did not remember exactly the date or the year. He agreed that when he went to the Demised Premises to fix the leaky roof Mr Cho, or the Tenant, was there at the time. He could not remember whether it was either of them or both of them. When it was suggested to Mr Jabbour that on the occasion when he went to fix the leaky roof he had a conversation with Mr Cho about whether he and his wife wanted to renew the lease, he replied "no". Mr Jabbour was asked whether he categorically denied that he had ever had a conversation with Mr Cho about wanting to renew the Lease, to which he responded "no". He also responded "no" to the suggestion put to him that, on the occasion when he went to fix the leaky roof, he indicated to Mr Cho that he would be happy to renew the Lease. Mr Jabbour said:
"We never talk about the lease at all. … All what I remember I went up inside the ceiling by myself, he don't help me, and to look from inside was the leaking. … I went up on the roof and I, I put the new sheet with silicone and I close it. I never talk to him. I don't have time to talk to him." (sic)
On 23 July 2015, Mr Jabbour wrote to Mr Cho informing him that because the landlord GST registration had been cancelled, GST would no longer be included in the rent for the Demised Premises and that the new rent would be $900 per week, rather than $990 per week. Mr Jabbour said that the GST already paid would be deducted from the rent owing.
On 30 August 2015, Mr Jabbour wrote to "Kristen Cho" saying:
"We wish to advise that today we have reviewed the rent on the above mentioned property.
The rent is to be increased by $50 per week. The rent will be increased to $950 per week from the 2nd October 2015."
The letter was not signed by Mr Jabbour but by his daughter. Mr Jabbour said that he had left Australia in the first half of August 2015 to visit Lebanon, and was away for about nine weeks.
Shortly after receipt of the letter of 30 August 2015, the Tenant and Mr Cho consulted PSK Legal. Ms Michelle Kwon, a conveyancing clerk with PSK Legal, sent a letter by email dated 11 September 2015 to Thomas Tarmo Solicitors, who acted for the Lessors. The letter said as follows:
"We act for the current.
Both parties have been communicating each other directly previously this year in this Lease matter.
Our client says that on around May/June this year our client have verbally exercised to enter into five (5) years option term of lease to the landlord directly and the landlord has accepted. Since then the landlord handed over the attached letter to our client recently.
According to lease, the current term of the lease is due to expire on 12 September 2015.
Our client hereby exercises its option to renew the lease on the above premises for a period of five (5) years.
Our client would also like to draw a new lease for five (5) years with an option five (5) years.
Please seek the lessor's instructions and confirm us in this regards at your earliest convenience." (sic)
When Mr Jabbour was asked about the letter of 11 September 2015, he said that he did not see the letter but that his daughter told him, while he was in Lebanon for nine weeks from the beginning of August 2015, that the letter had been received. He told his daughter that he was not prepared to grant a new lease.
Mr Jabbour said that after he came back home from Lebanon, he and his wife went to see Mr Cho and the Tenant at the Demised Premises, when Mr Jabbour said to them:
"I'm selling the property. You can have the option only, I can't sign new lease for you." (sic)
Mr Jabbour said that it was in 2015 but he did not remember the date although it was the same year that he came back from Lebanon. He repeated that he and his wife went and he told them:
"I can't give you new lease. You have the option. And I'm selling the property. If you - the offer - if you want this give me 1.8 you can have it. Or I want to give it them." (sic)
Mr Jabbour said that they responded that they could not afford it and he then walked away. Mr Jabbour was then asked whether he agreed that at some stage Mr Cho told him that "they" wanted to renew the Lease and exercise the option. Mr Jabbour responded that he never talked about it. He then repeated that he told them:
"I can't give you a new lease. You have your option … I can't give you a new lease because I'm selling the property, and you got your option." (sic)
After sending the letter of 11 September 2015, Ms Kwon telephoned the office of Thomas Tarmo and confirmed that they had received the letter of 11 September 2015. In late September 2015, Ms Kwon again telephoned the office of Thomas Tarmo and asked to speak with Mr Tarmo. She was informed that Mr Tarmo was not available and left a message for him to telephone back. Mr Tarmo did not return Ms Kwon's call. Ms Kwon said that in the period from early October 2015 to early December 2015 she telephoned the office of Thomas Tarmo about once per week or fortnight and on each occasion left a message for Mr Tarmo to call her back. Apart from one conversation, Mr Tarmo did not return any of Ms Kwon's calls or otherwise contact her before early December 2015.
On 22 December 2015, Ms Kwon spoke to Mr Tarmo and had a conversation to the following effect:
"Mr Tarmo: The option has been exercised and your client is already paying rent increased by CPI according to the letter given by the lessor to your client.
Ms Kwon: How about the second request in my letter for a new lease five years with an option of five years?
Mr Tarmo: No.
Ms Kwon: Will you prepare a new option term document and send to us?
Mr Tarmo: No
Ms Kwon: Why not?
Mr Tarmo: It won't be necessary as there is nothing to amend at all. The current lease describes all terms and conditions. Rental increase of CPI is given by the lessor anyway.
Ms Kwon: If you are not going to prepare the option term document then would you be able to write a letter to me stating what you have just told me now over the phone so that I can take it up to my client?
Mr Tarmo: No. Michelle this is the end. I am not going to work on this matter any further. You don't have to call our office anymore."
In the course of the last conversation, Ms Kwon made a note on her file copy of the facsimile of 11 September 2015, saying as follows:
"TT [meaning telephone to Mr Tarmo]: LLS [meaning Landlord Solicitor] says option exercised and CPI at option first year so no doc will be issued. Title search? (Registered?)" (sic)
[5]
Sale of the Demised Premises
At some time in 2015, Mr Choi and Ms Kim met Mr Richard Chung, a real estate agent carrying on business in Lidcombe. They indicated to Mr Chung that they had an interest in buying a commercial shop. In early 2016, Mr Choi received a telephone call from Mr Chung saying that the Demised Premises were coming up for sale. After driving past the Demised Premises, Mr Choi and Ms Kim obtained a copy of a draft Contract for the sale of the Demised Premises. The draft Contract disclosed that the Demised Premises were offered for sale "subject to existing tenancies". A copy of the Lease and the Transfer were incorporated as annexures to the contract for sale.
Ms Kim and Mr Choi both said in their affidavits that, on 15 March 2016, they met with Mr Chung and Mr Jabbour and that Mr Choi asked Mr Jabbour whether the Lease had been renewed. They said that Mr Jabbour replied:
"I never received any request for a further five year option to lease … so the lease was not renewed … I did not sign any new lease … I can give you a statement … Richard will witness it …"
Mr Jabbour then signed a document handwritten by Mr Chung and dated 15 March 2016, which referred to the Demised Premises and said:
"…I have not received any request or confirmation for further five years option to lease above property."
When Mr Jabbour was asked about the handwritten document in cross examination, he responded:
"No, they don't ask me for a five year option. I offer him the option." (sic)
Mr Jabbour said that the agent wrote the document and told him "just sign here" and he signed. Mr Jabbour said that he did not read it properly because he does not read English properly and he trusted the agent. Mr Jabbour said that the agent asked him if he had signed any paper and he replied that he did not sign any paper "no other option, no lease, nothing". He said that he never signed any paper "for them" and that's why he signed the document of 15 March 2016. Mr Jabbour then said:
"All what I know, I tell him, and I don't sign any paper for them. I don't sign the, the option for them to say that they have the option, that's it. Because, already, they're being paid, since September, the, the five year option start from 13 September, and I'm not a lawyer or something, but in the lease, the real estate agent, he open one page. He turn me, 'Look here, this the five year option, you have to pay the rent up market value.' I said to him, 'Listen, market value, no market value, $950 every February'." (sic)
On 18 March 2016, the Lessors, as vendor, and the Landlord, as purchaser, entered into a contract for the sale of the Demised Premises, in the form that had been seen by Ms Kim and Mr Choi. The contract was completed on 13 May 2016 and the Landlord was subsequently registered as the proprietor of an estate in fee simple in the Demised Premises.
Thomas Tarmo & Co, who acted for the Lessors in connection with the contract for sale, sent a document dated 13 May 2016 addressed "To the Tenant" at the Demised Premises entitled "Notice of Attornment". By the document, the Tenant was advised that the Lessors had sold the Demised Premises. The addressee was directed to pay rent "to the new owners, as directed". No mention was made of the nature of the tenancy of the Demised Premises.
On 24 May 2016, Mr Chung's estate agency wrote to the Tenant informing her that One Realty Lidcombe Pty Ltd had been appointed as the new managing agent for the Demised Premises. The letter gave directions for the payment of rent for the Demised Premises. Once again, no mention was made of the nature of the tenancy of the Demised Premises.
On 17 June 2016, Mr Chung's estate agency wrote to the Tenant saying that the rent for the Demised Premises was to be increased to $2,000 plus GST per week, to take effect on 18 July 2016.
On 20 June 2016, Mr Chung's estate agency wrote to the Tenant again, saying this time that the rent was to be increased to $2,500 plus GST per week, with effect from 21 July 2016. The Tenant refused to pay the increase in rent. However, there appears to be no written communication from the Tenant asserting, for example, that the Landlord had no entitlement to increase the rent.
Under cover of a letter dated 22 June 2016, Mr Chung sent to the Tenant a notice under s 129 of the Conveyancing Act 1919 (NSW) (the Conveyancing Act) requiring the remedy of alleged breaches of the Lease (the S 129 Notice).
After further exchanges of correspondence between solicitors, a document dated 29 July 2016 signed by Ms Kim on behalf of the Landlord and entitled "Notice of Determination of Lease" (the Termination Notice) was served on the Tenant. The Termination Notice purported to give notice of the determination of the Lease with effect from 29 July 2016 as a consequence of the breach of cl 6.1.4, cl 6.3.2 and cl 6.3.1 of the Lease.
[6]
Commencement of the Proceedings
The service of the Termination Notice prompted the Tenant to commence these proceedings by summons filed on 10 August 2016, in which the Tenant sought interlocutory relief and a final order declaring that the S 129 Notice and the Termination Notice were invalid. In the alternative, the Tenant sought relief against forfeiture of the Lease.
The landlord filed a cross-claim on 2 September 2016, by which it seeks a declaration that the Tenant failed to exercise the option to renew the Lease and that the purported notice of exercise of the option to renew the Lease, contained in the letter dated 11 September 2015 from PSK Legal, is ineffective. In her defence to the cross-claim, filed on 12 December 2016, the Tenant asserts that the option was exercised by the letter of 11 September 2015. She says, in the alternative, that by reason of the conversation with Mr Jabbour, in May or June 2015, the Lessors accepted that the option had been exercised or alternatively that the Landlord is estopped from departing from a common understanding or an agreed assumption that the Tenant had validly exercised the option or that the Lessors had waived the requirement for strict compliance with the terms of the Lease. In its reply, the Landlord relies on the indefeasibility provisions of the Real Property Act.
[7]
Estoppel Binding the Lessors
It is difficult to draw any firm conclusion as to what conversation, if any, took place between Mr Jabbour and Mr Cho prior to the expiry of the term of the Lease. Mr Jabbour's somewhat confusing and confused responses in cross-examination suggest that there was in fact a discussion about exercising the option. Whether it was on the occasion of the leaky roof in June 2015, or shortly after Mr Jabbour's return from Lebanon in September or October 2015, or sometime in 2016, when Mr Jabbour was proposing to sell the Demised Premises, is quite unclear. I consider, however, that it is more likely than not that there was some mention of the exercise of the option on the occasion of the leaky roof. It is much more likely than not that the conversation took place in late June 2015, after the time for the exercise of the option to renew had expired.
Had there been a discussion in which Mr Jabbour said, on behalf of himself and his wife, to the Tenant, or Mr Cho acting on behalf of the Tenant, that there was no need for the Tenant to exercise the option to renew in accordance with the terms of the Lease and, in reliance upon that statement, the Tenant failed to give formal written notice of exercise of the option, the Lessors may well have been estopped from denying that the option to renew had been exercised [1] . However, in circumstances where any possible statement to that effect was made after the time for formal exercise of the option had elapsed, I do not consider that there is any basis for the Lessors, or their successors in title, being estopped from denying that the option had been validly exercised.
[8]
Estoppel binding the Landlord
However, the Tenant advances an alternative case as against the Landlord, based on the conduct of the Landlord following its acquisition of the reversion in May 2016. It is clear that the Landlord acquired the reversion with knowledge of the existence of the Lease and of the Transfer. As I have indicated, the Lease and the Transfer are recorded in the Register in respect of the Demised Premises. However, there is no notation of any exercise of the option referred to in the Register. For the reasons indicated above, the option was not validly exercised and, accordingly, as from 12 September 2015, the Tenant was in occupation under the 'holding over' provision of the Lease.
Further, for the reasons indicated above, the Lessors were not estopped from denying that the option to renew had been validly exercised. Nevertheless, the Tenant contends that the Landlord is estopped from denying the existence of a renewed term of five years. On the other hand, the Landlord asserts that it is entitled to the benefit of s 42 of the Real Property Act in so far as there is no recording of the renewed term on the Register.
The Tenant points to communications from the Landlord in the period from completion of the contract for sale on 13 May 2016 as giving rise to the alleged estoppel by convention. In none of the communications was it asserted or suggested that the Tenant had failed to exercise the option to renew or that her tenancy of the Demised Premises was no more than a monthly tenancy. Thus, it is common ground that, at no stage, prior to the commencement of these proceedings, was an assertion made on behalf of the Landlord that the Tenant was in occupation of the Demised Premises under a monthly tenancy and not for a fixed term following exercise of the option. The question, however, is whether it is possible to conclude, from the conduct of the parties and the communications between them, that the Tenant occupied the Demised Premises on the basis of a common assumption by her and the Landlord that the occupation was under a renewed lease for a term of five years and not under the holding over provisions in cl 12.4 of the Lease.
The "Notice of Attornment" of 13 May 2016 addressed "To the Tenant" does no more than notify the Tenant that the Lessors had sold the Demised Premises and direct the Tenant to pay rent to the new owners. Similarly, the letter of 24 May 2016, addressed to the Tenant, gave directions for the future payment of rent. There was nothing in either of the communications that indicated, one way or the other, the basis upon which the Tenant was in occupation of the Demised Premises. No mention was made of the term of the Tenant's occupation or the basis for it.
The two letters of 17 June 2016 and 20 June 2016 purporting to increase the rent payable by the Tenant also made no mention of the basis upon which the Tenant occupied the Demised Premises. Both letters were headed "Rent Review" and referred to the Demised Premises and were identical apart from the date and the amount of the increased rent. Neither indicated the basis upon which the Tenant continued in occupation of the Demised Premises and no mention was made of a term of five years from September 2015.
On the other hand, it is strongly arguable that the purported "rent review" was inconsistent with the existence of a new lease for a term of five years. As I have indicated, cl 4 of Annexure B to the Lease dealt with the option to renew. Under cl 4.6, any new lease was to be in the same terms as the Lease except for the rent, the commencement date and the termination date, and the omission or adjustment of the provisions dealing with the option to renew.
However, cl 5 of Annexure B was to be a term of any new lease. Clause 5.4 provided that the rent was to be reviewed on the rent review dates stated in item 16 in the Schedule, which did not in fact specify a rent review date. However, cl 5 described three different methods for fixing the new rent on a rent review date and cl 5.6 stated that the method agreed by the Lessors and the Lessee was as stated at item 16 of the Schedule. The three different methods were set out in clause 5 as follows:
Method 1. By a fixed amount or percentage.
Method 2. By reference to Consumer Price Index.
Method 3. By reference to current market rent.
Clause 5.8 provided a formula for the calculation of rent by reference to the Consumer Price Index Number for Sydney. Clause 5.12 to cl 5.21 provided a mechanism for calculating rent by reference to current market rent.
Item 16 of the Schedule stated that Method 2 was to apply unless another method was stated. The references in item 16 of the Schedule to Method 1 and Method 3 were ruled out. Thus, it is clear that item 16 stated that Method 2 was the method agreed upon for fixing the new rent on a rent review date. Thus, the rent review was to be by reference to the Consumer Price Index. It was not to be by reference to current market rent.
Neither of the letters of 17 June 2016 or 20 June 2016 referred to any provision of the Lease as the basis for the alleged "Rent Review". However, each of them stated as follows:
"As a part of our ongoing service to our landlords we continuously assess the market rental values of the properties under our management.
Whilst it is noted that you're a valued tenant, we must also ensure that we balance this with maximising the rental return for our client.
Given the current market, and taking into account your length of tenancy and our desire to retain you as a tenant, I hereby provide 30 days notice of the increase of your rent …"
Clearly, the Landlord would have no entitlement to increase the rent on the basis of the letters of 17 June 2016 and 20 June 2016 by reference to "the current market". Under the terms of the Lease, the only increase could be by reference to the Consumer Price Index.
The S 129 Notice is curious. It is difficult to see why the Landlord would give instructions for a notice to be given under s 129 of the Conveyancing Act in relation to a monthly tenancy. Section 129 affords protection to a tenant against re-entry or forfeiture by reason of a breach of a covenant, condition or agreement in a lease. Thus, under s 129(1), a right of re-entry or forfeiture for a breach of any covenant, condition or agreement is not to be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice complying with s 129 and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy. The S 129 Notice required the Tenant to remedy alleged breaches by:
obtaining and providing to the Landlord a Development Consent and an Occupation Certificate for the use of part of the Demised Premises for outdoor dining and an Occupation Certificate for change of use into a cafe or florist, and
complying with the easement for car parking registered in the title for the benefit of the neighbouring land users.
The S 129 Notice ended by saying that, in the event that the Tenant did not comply with those requirements within 21 days, the Landlord may determine the Lease without further notice. The S 129 Notice referred to the Lease and the Transfer by reference to the registered dealing numbers and referred specifically to cll 6.1.4, 6.3.1 and 6.3.2 of the Lease, which were alleged to have been breached. Those references are equivocal since, even if the Tenant was in occupation of the Demised Premises under the holding over provision in cl 12.4, those covenants would continue to bind the Tenant.
PSK Legal responded to the S 129 Notice on behalf of the Tenant by letter of 8 July 2016. After referring to its provisions, PSK Legal asserted that any concern that the Landlord might have with how the Tenant was using the Demised Premises had been satisfactorily clarified and that the Tenant was in compliance with the clauses of the Lease identified in the S 129 Notice. The letter also asserted that the breaches alleged were non-existent and that the "requested remedies" were invalid.
Alpha Lawyers responded by letter of 14 July 2016. After dealing with various assertions made by PSK Legal, Alpha Lawyers asserted that the requirement to remedy the breaches specified in the S 129 Notice had not been complied with and purported to allow a further 14 days for the Tenant "to provide documents issued by the Council and any relevant authorities".
On 25 July 2016, PSK Legal wrote to Alpha Lawyers enclosing a letter from JWC Group Pty Ltd concerning architectural advice and documentation sought by the Tenant. PSK Legal requested that the Landlord agree to provide "owner's consent" for the application to the Council for a Complying Development Certificate, prepared by Vic Lilli Architects. The application is equivocal as to the basis upon which the application was being made by JWC Group.
The Notice of Termination, which is dated 29 July 2016, referred to the Lease and the Transfer by reference to their respective registered dealing numbers. Those references are equivocal. The term of the Lease, of course, had expired by effluxion of time. It is curious that such a notice should be given if it was the understanding of the Landlord that the Tenant remained in occupation of the Demised Premises under the holding over provision in cl 12.4 of the Lease. It would have been a simple matter for the Landlord to give notice in terms of cl 12.4 terminating the monthly tenancy by way of holding over. On the other hand, the S 129 Notice and Notice of Termination would have been quite appropriate if the Tenant was in occupation under a renewed lease for a term of five years.
On 1 August 2016, PSK Legal wrote to Alpha Lawyers in response to the S 129 Notice and the Notice of Termination, asserting that both were invalid and of no force for various reasons. The reasons may be summarised as follows:
1. the party purportedly giving the S 129 Notice, CKS Enterprises Pty Ltd, is not the Lessor under the Lease and the Tenant had received no notice of any assignment: that seems to involve a misconception in light of the deed of assignment;
2. the period of 21 days specified in the S 129 Notice was unreasonable in the circumstances;
3. the S 129 Notice does not contain the note stipulated in the Sixth Schedule to the Conveyancing Act referred to in s 129(9) of the Conveyancing Act; and
4. the Tenant was no longer in breach of the Lease either as identified in the S 129 Notice or at all.
The letter asserted that, since the Tenant was up-to-date with respect to the payment of rent under the Lease, it was highly likely that she would be entitled to, and would be granted, relief against forfeiture with respect to any attempts to re-enter or prevent her from using the Demised Premises.
[9]
Conclusion
The Landlord is entitled to a declaration that the Tenant did not exercise the option to renew and occupies the Demised Premises as a monthly tenant. In light of that conclusion, it is not necessary to consider the possible application of s 42 of the Real Property Act to any interest that the tenant may have had as a consequence of the exercise of the option to renew.
However, I consider that it is also appropriate to declare that the Landlord is estopped from exercising its rights to give notice under cl 12.4 terminating the monthly tenancy of the Tenant unless it first pays to the Tenant reasonable compensation for the costs incurred in obtaining the Complying Development Certificate and filing the summons in these proceedings. It should also be noted that the Landlord no longer relies on the S 129 Notice or the Notice of Termination.
Before making any orders, I propose to give the Landlord the opportunity of considering my conclusions and deciding whether to offer to pay such compensation, after it has been assessed. I will then hear the parties further on the question of costs.
[10]
Endnotes
See Lindsay William Gillard v Lifoon Pty Ltd [2005] NSWSC 687 at [59]- [63].
See Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851 at [103].
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Decision last updated: 12 December 2018
On 2 August 2016, the Tenant received a letter from Strathfield Partners, real estate agents, stating that they had been appointed the new managing agents on behalf of the Landlord as of 1 August 2016. The letter enclosed a direct debit form to be used for rental payments as well as a tax invoice for rent for the period 29 July 2016 to 29 August 2016.
On 9 August 2016, PSK Legal wrote to Alpha Lawyers again, saying that they understood that Strathfield Partners no longer represented the Landlord. The letter said that, unless the Landlord signed owner's consent for the application for Complying Development Certificate, an application would be made for urgent interlocutory relief.
By email of 17 August 2016, H&H Lawyers, acting for the Landlord, wrote to PSK Legal attaching the relevant page from the Complying Development Certificate application signed by the Landlord and saying that the original would be posted that afternoon. The email said that consent to the application was being provided "on a non-admissions basis and… without prejudice to all our client's rights, including to terminate the Lease and seek vacant possession of the premises."
The terms of those communications are curious. They are consistent only with the Landlord proceeding on the assumption that there had been a renewal of the term of five years. They are not consistent with the Landlord proceeding on the assumption that the tenant was in occupation of the Demised Premises only as a monthly tenant under the holding over provision in cl 12.4 of the Lease.
The Tenant had commenced these proceedings by summons filed on 10 August 2016, which was returnable on 15 August 2016. By the summons, the Tenant claimed orders that the Landlord be restrained from treating as valid or otherwise relying on the S 129 Notice or the Notice of Termination and from taking any steps to re-enter, or to prevent entry or use by the Tenant of, the Demised Premises or otherwise to terminate or forfeit the Lease.
On 19 October 2016, a Final Occupation Certificate was issued by the Council. That certificate was issued in response to the application lodged on behalf of the Tenant, with the consent of the Landlord.
In cross-examination, Ms Kim, the director of the Landlord, acknowledged that the Landlord received "benefits" as a result of the Tenant applying for, and obtaining, a Final Occupation Certificate for the Demised Premises. The Demised Premises were previously "not [in] suitable condition" for their use, and, upon the Final Occupation Certificate being issued, they could legally be used as a café and florist, even if Ms Ko was no longer the tenant.
The Tenant contends that, in the period from 13 May 2016 until the filing of the Landlord's cross-claim on 2 September 2016, she acted on the assumption and understanding that the option had been exercised and that there was a new lease in place. She contends that, in light of the communications summarised above, the Landlord also acted on that assumption and understanding and did nothing to disabuse the Tenant of her understanding that there was a lease in place for a term that expired in September 2020. She contends that the conduct of the Landlord was consistent only with the existence of a new lease pursuant to the exercise of the option.
If the registered proprietor of an estate in land engages in unconscionable conduct intended to deny or defeat an unregistered interest, the holder of the unregistered interest may obtain relief against the registered proprietor if the conduct of the registered proprietor creates an equity that the holder of the unregistered interest may assert against the registered proprietor. However, such an equity will not arise merely because the registered proprietor asserts his registered title after acquiring it with notice of the unregistered interest. There must be an additional ingredient, such as an acknowledgement of the unregistered interest or an agreement or undertaking to act in accordance with the unregistered interest such that it would be unconscionable for the registered proprietor to resile from that agreement or undertaking [2] . It is not sufficient that the registered proprietor merely have notice of the unregistered interest.
In the present case, the Tenant had no unregistered interest in the Demised Premises, since the option to renew had not been validly exercised. However, the conduct of the Landlord and the Tenant from 22 June 2016 is explicable only on the basis of a common assumption or understanding that the Tenant had an entitlement to occupy the Demised Premises under a substantial leasehold term and not merely under the holding over provision in cl 12.4 of the Lease. On the basis of that assumption, the Tenant incurred expense in retaining JWC Group Pty Ltd and applying for a Complying Development Certificate, from which the Landlord benefited. On the basis of that assumption, the Tenant also incurred the expense of commencing the proceedings seeking relief in respect of the S 129 Notice and the Notice of Termination.
It was not until the filing of the cross-claim that the Landlord made clear that it would depart from the common assumption and understanding. In the circumstances, I consider that it would be unconscionable for the Landlord to resile from that assumption without offering to pay equitable compensation to the Tenant in respect of the expense incurred by the Tenant in reliance on the common assumption. No such offer has hitherto been made.