Kyriacou v Manakis

Supreme Court of NSW|2006-07-28|Before: White J

CITATION : Kyriacou v Manakis [2006] NSWSC 804

DECISION : 1. Direct the legal representatives of the parties to bring in a short minute of order in accordance with these reasons; 2. Costs of this application will be costs in the proceedings.

CATCHWORDS : LANDLORD & TENANT - Termination of tenancy - Relief against forfeiture - Plaintiffs in possession of commercial premises pursuant to lease - Lease terminated for failure to pay rent - Plaintiffs excluded from premises - Whether plaintiffs entitled to interlocutory injunction in aid of relief against forfeiture - Where plaintiffs offer no undertaking to pay outstanding rent plus interest and costs - LANDLORD & TENANT - Fixtures and fittings - Plaintiffs installed various fixtures and fittings in leased commercial premises - Pursuant to lease agreement, defendants made contribution to cost of fit-out of premises - Lease agreement gave defendants right to sell or dispose of plaintiffs' property if lease terminated for failure to pay rent - Lease terminated for failure to pay rent - Plaintiffs excluded from premises - Dispute between parties as to ownership of fixtures and fittings - Defendants intend to re-let premises with existing fixtures and fittings if desired by new tenant - Whether serious question to be tried that fixtures and fittings are property of plaintiffs - Whether serious question to be tried that defendants not entitled to re-let premises with existing fixtures and fittings - Whether plaintiffs entitled to interlocutory injunctive relief restraining defendants from re-letting premises with existing fixtures and fittings - Injunctive relief granted.

Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Company of NSW Ltd (1970) 2 BPR 9562 Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 CASES CITED : D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317 Pugh v Arton (1869) LR 8 Eq 626 A. G. Lang, NSW, Conveyancing Law and Practice, CCH Australia McMahon's( Transport) Pty Limited v Ebbage [1999] 1 Qd R 185

Chris Kyriacou & 2 Ors PARTIES : v John Manakis & 1 Or

COUNSEL : Plaintiffs: J Nicopoulos Defendants: T Tzovaras

SOLICITORS : Plaintiffs: Legal Service Group Defendants: Tzovaras Legal

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

3797/06 Chris Kyriacou & 2 Ors v John Manakis & 1 Or JUDGMENT 1 HIS HONOUR: These proceedings were commenced on 18 July 2006 when the plaintiffs sought urgent interlocutory relief to protect what they claimed to be their rights under a lease of a shop at 185 Queen Street, Campbelltown. Until the defendants took possession of the premises, they were used as a "Homer's Burgers, Seafood and Chicken" food outlet. 2 On 18 July 2006, the defendants gave certain undertakings to preserve the status quo for a short period. Those undertakings were extended without admissions up to today. The undertakings have not been further extended and, accordingly, the plaintiffs now seek interlocutory injunctive relief until 11 August 2006 to restrain the defendants from disposing of, dealing with, or removing any fixtures and fittings on the premises, or from entering into any agreement for lease, or lease, of the premises with any third party without the plaintiffs' consent. 3 Prior to 31 May 2006, the plaintiffs were in possession of the premises pursuant to a lease whose term commenced on 1 March 2004. The lease was for a period of five years, with two options for renewal for a further five years each. Provisions of the lease which are relevant to the present application are clauses 45, 46, 53(3)(b) and 55. 4 Clause 45(2) provided that if the rent was unpaid and in arrears for more than 14 days, or any moneys payable by the tenant to the landlord on demand should not have been paid within 14 days of demand, then the tenant would be deemed to have made default under the lease. Clause 45(3) provided that upon such default the landlord could, after first giving any prior notice required by law, at its option, determine the lease by re-entry. 5 Clause 46 was headed "Landlord May Remove and Dispose of Property". It provided as follows: " 46. If the landlord terminates the lease under paragraph 45 above, it may remove the tenant's property and store it at the tenant's expense without being liable to the tenant for trespass, detinue, conversion or negligence. After storing it for at least one month, the landlord may sell or dispose of the property, by auction, private sale, gift, distribution or otherwise. It may apply any proceeds towards any arrears of Rent or other moneys or towards any loss or damage or towards the payment of storage and other expenses ."

6 Clause 53(3)(b) provided that the landlord, as the attorney for the tenant and on the tenant's behalf, could remove from the leased premises, store and sell any plant, equipment, chattels and other property left on the premises by the tenant after the tenant had vacated the premises and the lease was terminated or had expired. 7 Clause 55 provided for the lessor to make a payment of $20,000 towards the fit-out of the premises. 8 The rent was payable by monthly instalments in advance and was due on the first day of each month. The plaintiffs fell behind in the payment of their rent. There is no dispute that they were late in paying the rent for the month of May 2006. On 15 May 2006, the lessors gave a notice entitled "Notice of Breach of Covenant". It demanded payment of the sum of $17,105 plus interest of $302.99 within 14 days. That sum was calculated on the basis of a balance of rent outstanding for the month of April, rent due for the month of May and the balance of the security deposit. 9 On 30 May 2006, the plaintiffs paid $4000, which was the maximum amount of money that they could then obtain. 10 On 31 May 2006, the lessors took steps to take possession of the premises. The locks were changed. From 1 June 2006, the plaintiffs have been excluded from possession of the premises. 11 There then followed a period of negotiations between the solicitors for the parties which largely concerned the removal from the premises of fixtures and fittings which the plaintiffs claimed to be theirs. By a letter dated 14 June 2006 from Tzovaras Legal, who act for the landlords, to Legal Services Group, who act for the lessees, the following was stated: " In the interest of our clients been (sic) able to mitigate their losses, we note the agreement between the parties as follows:

(1) the your (sic) clients to remove all tenant fixtures and fittings, including lost stock and goods and personal belongings from the premises;

(2) the your (sic) clients to remove all signage that relates to the business name 'Homers'; and

(3) each party reserving their rights in respect of the Lease. " 12 There was enclosed with that letter an inventory of plant and equipment which contained the lessors' contentions as to what plant and equipment were tenants' fixtures, and what were landlords' fixtures. Landlords' fixtures were, it was contended, ceiling exhaust and other exhaust fans in the front kitchen area, a floor fridge and floor freezer in the kitchen area, a corner basin and food battering bench in the kitchen area, an exhaust ceiling fan in the preparation area, sinks and benches and a hand basin in the preparation area, a hot water unit and hand basins in the staff room, four motors in the cool room and a fridge and freezer in the cool room. 13 By a letter of the same date from Legal Services Group to Tzovaras Legal, the plaintiffs' solicitors stated: " We confirm the agreement between the parties as:

i Our clients are provided seven days to remove their tenants' fixtures and tenants' fittings;

ii Our clients remove all signage from the subject premises which relate to the name Homers;

iv Each party reserves their rights in respect to the lease. " 14 Legal Services Group enclosed their own list of what their clients regarded as tenants' fixtures and fittings, said to have been made from the list provided by the landlord. 15 Tzovaras Legal replied the following day and enclosed an amended list. This list reduced the number of items which were contended to be landlords' fixtures. Nonetheless, these still included the ceiling exhaust fans and other exhaust fans in the front kitchen area and an exhaust ceiling fan in the preparation area. Tzovaras Legal advanced reasons as to why the exhaust ceiling fans should be regarded as landlords' fixtures and asserted that if they were removed substantial damage would be caused to walls and ceilings. 16 In reply, the plaintiffs' solicitors stated that the extraction systems had cost in excess of $30,000 and that their clients had engaged the services of a licensed and insured shopfitter to remove the subject items. Ultimately, there was no agreement between the parties as to which items should be removed as tenants' fixtures, or the terms upon which that would be done. 17 On 23 June 2006, Tzovaras Legal advised that as the attempts to resolve the issues had been unsuccessful, the landlords intended to seek to re-let the premises. They made it clear that the landlords could attempt to re-let the premises either on an open plan basis such that any existing fixtures and fittings were removed at the lessees' expense or, alternatively, the landlords would let the premises in their current state with existing fixtures and fittings. Clearly, the landlords' intention is to let the premises in whatever condition is needed to expeditiously secure a new tenant. 18 Although no clear order for injunctive relief has even yet been formulated, I understand that the plaintiffs either claim relief against forfeiture of the lease, or they claim orders which would secure what they claim to be their entitlement to remove the fittings and fixtures they purchased and installed in the premises. Relief Against Forfeiture 19 Although the plaintiffs have made a claim for relief against forfeiture, the only undertaking which has been proffered by the plaintiffs in relation to the payment of rent is that they offer to pay any outstanding rent up to the end of May when they went out of possession of the property. No offer has been made to pay rent for the period they have been excluded from possession. 20 I do not think there is any real doubt as to the defendants' entitlement to terminate the lease, pursuant to clause 45, for non-payment of rent or other moneys. Equity regards a lessor's right to determine a lease by re-entry for non-payment of rent as a security for the rent due. Provided a lessee pays the outstanding rent or other moneys together with interest and costs, it is only in special circumstances that relief against forfeiture for non-payment of rent will be refused, although the relief still remains discretionary (Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Company of NSW Ltd (1970) 2 BPR 9562). 21 It is the proviso to that principle which is not met in this case. The plaintiffs do not offer to pay the outstanding rent. If relief against forfeiture were given, the lease would be treated as if it had remained on foot, and rent would be due for the months of June and July. In the absence of an offer to pay rent together with interest it would not be appropriate to grant relief against forfeiture. Nor should an interlocutory injunction go to protect any equity for relief against forfeiture in the absence of such an undertaking (Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837; McGregor v Henry [2006] NSWSC 368 at [66]). Tenant's Fixtures 22 The second issue is the lessees' claim to protect what they claim to be their right to remove tenants' fixtures or fittings. I accept that there is a serious question to be tried that all of the installations (to use a neutral expression) in issue are properly classified as tenants' fixtures. That is to say, there is a serious question to be tried as to whether those items were installed by the tenant at its expense. There is such a serious question notwithstanding that the landlord made a contribution to the fit-out. That does not seem to me, prima facie, to be relevant to this question. There is a serious question to be tried as to whether the equipment can be removed without causing irreparable injury to the premises. It is clear that the items were installed for the purposes of the tenants' trade. 23 If the items are tenants' fixtures, then, except in so far as the lease makes contrary provision, they do not pass to the landlord automatically on termination of the lease as part of the land which reverts to the landlord, but can be removed by the tenant, at least during the period of the lease. 24 The right of the tenants to remove tenants' fixtures is qualified in a case where the landlord terminates the lease under cl 45 of the lease. However, prima facie, except insofar as the landlord is entitled to exercise its rights under that clause, the tenants would be entitled to remove tenants' fixtures. The question then is whether, having regard to the fact that the lease was brought to an end on 31 May or 1 June 2006, and the plaintiffs are no longer in possession, it is now too late for them to remove tenants' fixtures. 25 It was submitted for the defendants that any such right had to be exercised during the currency of the lease. Reference was made to the decision of Young J (as his Honour then was) in D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317. His Honour was there dealing with a lease for a fixed term where the tenant remained in occupation after the expiration of the lease. His Honour referred to the principle that if a lease for an uncertain period - such as a tenancy at will, or a life tenancy - is terminated, then a tenant has a reasonable period in which to remove fixtures. His Honour held (at 322-323) that the position was different if the period of the lease was certain. In such a case the tenant's rights ceased at the expiration of the lease. His Honour did not have to consider the position where a lease is terminated by the lessor exercising a right of forfeiture. 26 In the short period available to consider this question, it appears to me that it is arguable that in such a case a tenant has a reasonable period after forfeiture of the lease in which to remove its fixtures. It is true that there is a number of older authorities which suggest the contrary. In Pugh v Arton (1869) LR 8 Eq 626, the Vice-Chancellor held that although a contract in a lease giving the tenant a right to remove fixtures would be construed so as to allow a tenant a reasonable time in which to remove fixtures if the lease were forfeited, in the absence of such an express contract, the tenant could not exercise a right to take away fixtures after the term had expired, even where the landlord determined the lease by re-entry. 27 However, there are statements also to the opposite effect. Thus A. G. Lang, NSW, Conveyancing Law and Practice, CCH Australia, says at [26-230] that: " The general rule is that when a lease is for an uncertain time (eg a periodical tenancy or during holding over) or if a lease is terminated suddenly eg through forfeiture) the lessee should remove his fixtures within a reasonable time after the lease has come to an end. " The authorities cited for that proposition do not deal with the question of the sudden termination of a lease through forfeiture. 28 In McMahon's (Transport) Pty Limited v Ebbage [1999] 1 Qd R 185, Pincus JA, in the Queensland Court of Appeal, with whom Davies JA and Dowsett J agreed, said (at 198): " There is authority in favour of the view that once the tenant gives up physical possession, which in this case occurred on 31 August 1990, the right to remove fixtures is gone; see the discussion in D'Arcy v Burrelli Investments Pty Limited (1981) 8 NSWLR 317. But the better view, and certainly one more in accordance with practical justice, is that the right to remove continues for a reasonable time after a lease has been terminated ...

It should be added that the landlord did not dispute before us there was a right to remove within a reasonable time after forfeiture. "

29 There has been only limited argument on this question and it is not one which I ought to decide now. I am satisfied that it is seriously arguable that, irrespective of any agreement made after the termination of the lease, the plaintiffs are entitled to a reasonable period to remove tenant's fixtures, subject only to the landlords not exercising their rights under clause 46. 30 It is also arguable that the parties reached an agreement on 14 June 2006 that the tenants could remove all tenants' fixtures and fittings. It is true that the parties were thereafter not able to agree on what items fell within that description. But it is reasonably arguable that they agreed that whatever properly fell within the description of tenants' fixtures and fittings could be removed. 31 Accordingly, I think there is a serious question to be tried that the landlords are not entitled to deal with the premises by letting them to a new tenant in the state in which they are currently fitted out, that is, by including the items which the plaintiffs claim as tenants' fixtures. 32 It was submitted for the defendants that, nonetheless, the balance of convenience did not favour the grant of any interlocutory relief. It was submitted that damages would be an adequate remedy to compensate the plaintiffs if, at a final hearing, the plaintiffs established that they were entitled to remove those items. The defendants offered to allow the plaintiffs to have the items valued, such that there should be no difficulty later in quantifying the value of the plaintiffs' property if ultimately it were held that the items are, in truth, the plaintiffs' property. 33 The difficulty, however, is that the equipment may have a greater value to the plaintiffs than its market value as second-hand equipment. The plaintiffs were in possession of the premises as a franchisee of a business called "Homer's Burgers, Seafood and Chicken". It may be the case that the equipment would have special value to them if they were to open a similar business elsewhere. 34 It is also clear that the plaintiffs' financial means are stretched at present, and they may not have the resources to acquire other equipment of a like kind if they were to seek to open a similar business in other premises. 35 I am not satisfied, certainly at this interlocutory stage, that damages would be an adequate remedy. 36 It was also submitted at one point in the argument that the plaintiffs were dilatory in bringing this claim. There may be much to be said for that proposition in so far as the claim for relief against forfeiture is concerned. But it seems to me that, having regard to the negotiations (which appear almost to have been successful up to almost the end of June 2006) on the terms upon which the plaintiffs might have been able to remove equipment from the premises, there has not been any such delay as ought to disentitle the plaintiffs from equitable relief. 37 For these reasons, I am of the view that the plaintiffs are entitled, upon giving the usual undertaking as to damages, to injunctive relief for the period sought, to restrain the defendants from entering into an agreement for lease, or granting a lease, to any third party of the premises, if the terms of any such agreement or lease were to include the right of the prospective new lessee to take possession of the equipment claimed by the plaintiffs as being tenants' fixtures. 38 I do not think there is a serious question to be tried that the defendants should be restrained from dealing in any way with that equipment. The landlords, in my view, would be entitled to exercise their rights under clause 46 of the lease. 39 I will direct the legal representatives of the parties to bring in a short minute of order in accordance with these reasons. 40 Costs of this application will be costs in the proceedings.

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