Victorian Civil and Administrative Tribunal|2000-01-31

Lylecash Pty Ltd v Mayfly Pty Ltd [2000] VCAT 397 (31 January 2000)

Retail Tenancies List, jurisdiction, retail premises, whether floor area exceeds 1,000 square metres

Proceeding dismissed pursuant to Section 75(1) of the Victorian Civil and Administrative Tribunal Act 1998.

For the Respondents: Mr B. Gillies of Counsel, instructed by Bennetts, Solicitors

1. The Hotel Nicholas is in Camp Street, Beechworth. On 12 May 1999 the then hotel owners Mayfly Pty Ltd and Prycroft Ninety-Six Pty Ltd let the hotel for a term of five years to Sydoc Investments Pty Ltd, granting two options to renew of five years each. By deed dated 16 October 1989, Sydoc Investments Pty Ltd assigned its leasehold interest to the present lessee, an applicant in this proceeding, Lylecash Pty Ltd. On 7 December 1990 Prycroft Ninety-Six Pty Ltd transferred its share in the reversion to Bilboa Giselle Pty Ltd.

2. On 12 May 1994 Lylecash exercised its first option to renew and a lease dated 14 September 1994 was executed by Lylecash Pty Ltd (the applicant in these proceedings) as lessee and Mayfly Pty Ltd and Bilboa Giselle Pty Ltd (the respondents in this proceeding) as lessor. That lease created a five year term commencing 12 May 1994 and reserved the second of the five year options provided for in the 1989 lease. On 4 February 1999, Lylecash Pty Ltd gave notice of its intention to exercise that option. Meanwhile, the parties had executed a deed of variation of lease dated 15 November 1998 which included the following additional clause numbered 55:

"55. Notwithstanding the provisions of anything hereinbefore contained, as from 12 December 1998 rental shall be payable weekly in advance for the remainder of the Term and any further term, such weekly rental currently standing at ONE THOUSAND EIGHT HUNDRED AND FIFTY-SEVEN DOLLARS AND THIRTEEN CENTS ($11,857.13), AND in the event that such weekly rental is not paid within three (3) days of its respective due dates then the within Lease Agreement is immediately terminated without notice and the Lessee undertakes to vacate the premises within forty-eight (48) hours of receiving written request so to do from the Lessor or their Solicitor."

3. Clause 52 of the 1994 lease provides for annual rental review. The rent review provision includes what has been described as an "underpinning" provision to the effect that the reviewed rent may not be more than $5 less than the rental for the previous year. In a letter dated 19 April 1999 Lylecash's present solicitors, raised a number of issues relative to the tenancy. They stated inter alia that Clause 52 of the lease "provides that there is to be a rent review `to market' in the sixth and eleventh years of the term. We note that the eleventh year of the term commences on 12 May 1999. Our client wishes to invoke that provision." They further asserted that the "underpinning" provision was invalid as a result of Section 12(3)(c) and (d) of the Retail Tenancies Reform Act 1998. The tenant says that the proper market rental is $1,000 per month and it has paid this amount and this amount only since the "market review" issue was raised.

4. On 23 June 1999 Lylecash filed an application in the Tribunal seeking declarations as to various matters including the validity of the exercise of option and an order that the rental review for the 12 month period commencing 12 May 1999 be referred to the President for the time being of the Victorian Hotel Brokers Association.

5. The landlords dispute the Tribunal's jurisdiction, contending that the hotel is not "a retail premises" for the purposes either of the Retail Tenancies Act 1986 or the Retail Tenancies Reform Act 1998. This jurisdictional challenge has come on for hearing before me.

6. Section 34(1) of the Retail Tenancies Reform Act grants this Tribunal jurisdiction to hear and determine disputes between landlord and tenant arising under a retail premises lease to which the Retail Tenancies Act 1986 applied or arising under or in relation to a retail premises lease within the meaning of the 1998 Act. The definitions of "retail premises" in the 1998 Act and the 1986 Act are not materially different. It is common ground in a general sense that the Hotel Nicholas does constitute retail premises for the purposes of both definitions. Subject to this, both definitions exclude "premises that have a floor area that exceeds 1,000 square metres". The tenant contends and the landlords deny that the hotel's floor area does not exceed 1,000 square metres. The methods of measurement to be employed in applying the definition are at large under the 1986 Act. The 1998 statute however, includes Section 3(5) in the following terms:

"(5) In determining the floor area of premises for the purposes of this Act, regard shall be had to the guidelines for the measurement of lettable area issued by the Minister and notified in the Government Gazette."

7. The Minister for Small Business, the Minister administering the Retail Tenancies Reform Act 1998, (then the Hon. Louise Asher) issued guidelines dated 23 June 1998 pursuant to Section 3(5) of the Act which were published in the Victorian Government Gazette No. S67 of 1 July 1998. On 16 August 1999 the Minister revoked those guidelines and published new ones dated the 16th of August 1999 in the Victorian Government Gazette No. S126 of Thursday 19 August 1999.

8. Mr Gillies who appeared on behalf of the landlords submitted first, that the guidelines dated 16 August 1999 were ultra vires. Secondly, he submitted even if the guidelines were valid, they were made after the parties had entered into the lease and in any event after the commencement of this proceeding, namely on the 23rd of June 1999. He submitted the guidelines could not be given retrospective operation. Thirdly, he submitted that principles laid down by the Court of Appeal (Ormiston, Phillips and Kenny JJA) in Sorbara v D.J. & A.J. McCallum Pty Ltd [1998] VSCA 71; [1999] 2 VR 1 led to a proper measurement of the hotel's floor area exceeding 1,000 square metres. Finally Mr Gillies submitted that the evidence showed that the tenant had made a default in the payment of rent such that the new Clause 55 had operated to terminate the lease before these proceedings were commenced and the tenant was in possession at best under a short-term periodic tenancy probably from week to week, meaning that there was no lease of not less than 12 months and hence no retail premises lease which would provide a proper basis for the Tribunal's jurisdiction.

9. Since this proceeding was commenced before the Fair Trading Act 1999 came into force, no party has sought to place any reliance upon it.

10. In Sorbara's case the Court of Appeal upheld a jurisdictional challenge to an interim award made by an arbitrator appointed under the Retail Tenancies Act 1986 with respect to the tenancy for a motel upon the footing that when measured in accordance with the appropriate methods, the floor area of the motel exceeded the 1,000 square metre limit laid down for retail premises in the 1986 Act. Their Honours considered at some length a number of earlier decisions of the Supreme Court dealing with the 1,000 square metre limit issue. Namely, Joad Pty Ltd v Ospies Hotels Pty Ltd [1995] VicRp 13; [1995] 1 VR 198; F.P. Shine (Vic) Pty Ltd v Gothic Lodge Pty Ltd [1994] VicRp 11; [1994] 1 VR 194; Nime Pty Ltd v Seventh Storey Pty Ltd (1994) VconvR 54-491; Robert v Besford [1991] VicRp 32; [1991] 1 VR 606 and Hall v Joyworth Pty Ltd (1993) VconvR 54-461.

11. Where the premises to be measured are a conventional shop, relatively few problems of measurement arise. In the case of premises such as car yards, nurseries and motels, the areas of constructed or paved "floor" which are undercover may represent a relatively small percentage of the total site. If the "floor" area is regarded as confined to these areas, the tenancy may well be within the 1,000 square metre limit. On the other hand, if open areas such as driveways, lawns, swimming pools etc. are counted, such premises will almost invariably exceed the 1,000 square metre limit. Even where open areas are not in question, difficult issues may arise as to the counting of areas such as stairwells, basements etc. The decisions of the Supreme Court on these difficult issues had been far from unanimous. Kenny JA (as Her Honour then was) said:

"The expression `floor area' in the definition of retail premises in S.3(1) of the RTA is, I think, used in this activity-related sense to signify the lower surface of each level of the premises (first identified in the definition of retail premises) used, to be used, or designed and available for use in the retail business carried on on the premises." [1998] VSCA 71; [1999] 2 VR 1, 50

Her Honour rejected the approach to be found in some of the Supreme Court decisions confining the measurement to "core purposes of the business". Turning then to the situation of a motel, Her Honour observed:

"Upon what reasonable and practicable basis can it be said that a path or driveway affording pedestrian or vehicular access to accommodation units and parking bays is not serving the purposes of the motel business just as much as the units and parking bays themselves? Upon what reasonable and practicable basis can it be said that a motel swimming pool is serving any lesser purpose in the motel's business than the path or driveway? The use of paths and driveways, swimming pool and garden forms part of a paying guest's entitlement: it is that availability for use which attracts the paying guest's custom." [1998] VSCA 71; [1999] 2 VR 1, 16.

"It will now be appreciated that in the case of a motel, relevant `floor area', on the approach just explained, may involve some areas which are constructed (as floor space within a building or as an apron to a building is constructed), some which are merely shaped or formed and some of which may not be constructed in any sense at all; the areas comprising the `floor' of a motel are commonly very diverse in kind. In relation to guest rooms, `floor area' will include that which is constructed as `floor' in the narrower sense; but the outdoors areas of beautification, which are just as much a part of any motel business, will be included to though they may be newly planted. As the carrying of the business of a motel commonly includes not only the provision of guest rooms and parking bays for guests' cars, and also a manager's residence and outdoor activity areas such as an in-ground swimming pool, a barbecue area and so on, all these things will set the nature of the floor area which is to be measured for purpose of applying or not the exclusion in Paragraph (a)." [1998] VSCA 71; [1999] 2 VR 1, 8

On the following page His Honour considered that a separate paddock area fenced off from the main motel complex, even though part of the relevant demise, might properly be excluded from measurement as part of the "floor area".

13. The 1999 guidelines do not deal specifically with the concept of "floor area" but rather with the concept of "lettable area". Chapter 4 deals specifically with lettable areas in hotels and motels. In context it is clear that for the purposes of the measurement and application of the thousand square metre limit, the concept of "lettable area" is to be treated as synonymous with the concept of "floor area". Clause 4.3 of the guidelines specifically include "public spaces" from the calculation including "swimming pools, gardens, recreational facilities, parking areas, thoroughfares or accessways". In the introductory chapter (1) the guidelines state:

"lettable area as measured by these guidelines, is to be taken to be floor area for the purposes of Section 3(1)(a) of the Retail Tenancies Reform Act 1998".

Lettable areas are to be regarded as including only those part or parts of retail premises that have:

(d) a surface which may be locked and secured by means of permanent structures."

14. Mr Edmonds on behalf of the tenant submitted that since these guidelines are in force now, that is, at the time of adjudication, they should be applied so as to govern the measurement of the floor area of his client's leasehold. In a celebrated passage in Maxwell v Murphy [1957] HCA 7; (1957) 96 CLR 261, 267 Dixon CJ said:

"The general rule of the Common Law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events. But, given rights and liabilities fixed by reference to past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enforcement is to be secured by judicial remedy is not within the application of such a presumption. Changes made in practice and procedure are applied to proceedings to enforce rights and liabilities, or for that matter to vindicate an immunity or privilege, not withstanding that before the change in the law was made the accrual or establishment of the rights, liabilities, immunity or privilege was complete and rested on events or transactions that were otherwise past and closed."

15. The designation of premises as "retail premises" certainly might be regarded as having procedural effects. It means amongst other things, that disputes between landlord and tenant arising in certain circumstances are within the exclusive jurisdiction (at least as to State law) of this Tribunal and not within the jurisdiction of the courts but there are substantive affects of the designation as well. The Retail Tenancies Reform Act 1998 and the Retail Tenancies Act 1986 before it, affected changes to the substantive law of landlord and tenant which would have applied in the absence of those statutes. It is for this very reason that this tenant seeks to have the Hotel Nicholas adjudged "retail premises" for the purposes of the 1998 Act. If the hotel falls within the definition, the operation of the rental review clause entered into in 1989 will be modified and partly nullified. In my view the presumption against the retrospectivity explained by Sir Owen Dixon applies with its full force in the present circumstances. There is nothing in the 1999 set of guidelines to exclude that presumption.

16. To the extent that Mr Edmonds' submissions depend upon reliance on the 1999 guidelines I reject them.

17. Mr Edmonds stressed that the 1999 guidelines should be regarded as "clarifying" the situation. As best I could understand the purport of this submission, it was that they merely made explicit and demonstrated for the avoidance of doubt what was already the correct method of measurement of floor area before the 1999 guidelines were adopted. If that were correct it would mean that the mode of measurement provided for in the 1999 guidelines was authorised and required by the 1998 guidelines and perhaps even by the position governed solely by general principle which obtained relative to the arbitrators' jurisdiction prior to the 1st of July 1998. For reasons which I give hereafter I reject that view.

18. The Court of Appeal in Sorbara's case was considering the rules of measurement under the 1986 Act. It therefore had no occasion directly to consider the 1998 guidelines at all. Nevertheless, since those guidelines had been published prior to the Court's judgment, their Honours made some remarks as to their operation by way of contrast with the situation which presented itself to them in the matter before them. Phillips JA said:

"Parliament has recently passed the Retail Tenancies Reform Act 1998 which by S.3(5) modifies the operation of the definition of "retail premises". With what success remains to be seen. If I may simply say this in passing: the descent into extensive and apparently complex "guidelines" of what should be a comparatively simple test to apply, given its ramifications, bodes ill for the future, not only in the considerable expense which this could involve for those who would seek to reinforce a claim to be conducting a small business, but also in the resultant use of scarce Court resources. It is perhaps surprising that an apparently complex device has been put in place ..." [1998] VSCA 71; [1999] 2 VR 1, 5

"The new Act would not to appear to have answered all the concerns and difficulties, however: compare the definition of retail premises in S.1, S.35 and "guidelines for the measurement of lettable area", published in the Victoria Government Gazette Special No. S67, 1 July 1998, none of which is expressed to apply, directly at least, to motels, caravan parks and like premises." [1998] VSCA 71; [1999] 2 VR 1, 18

20. Chapter 1 of the 1998 Guidelines says that they are

* strip shops, freestanding shops, semi-detached or terrace type shops in suburban streets."

21. Chapter 2 deals with measurements for warehouses, industrial buildings, freestanding supermarkets and showrooms.

22. Mr Edmonds submitted that "commercial buildings" could be regarded as including hotels and motels. It is difficult to judge whether Kenny JA in her obiter remark was expressing a concluded view that the 1998 guidelines did not apply at all to motels. In my view however, the correct interpretation of these guidelines is that they do not. There is no definition in the guidelines themselves to indicate what a "commercial building" might be. So one is left to consider what its popular meaning may be. In my view it is more likely that commercial buildings are office buildings. Moreover, the 1999 guidelines, which it will be recalled, in Chapter 4 makes specific provision for hotels and motels, continue to deal in Chapter 2 with "commercial buildings", appearing to indicate that commercial buildings are a different species of buildings from hotels and motels. In a press release dated 20 August 1999 issued on behalf of the then Minister Ms Asher, it was stated:

"Hotels and motels have been brought under the Retail Tenancies Reform Act 1998 following gazetted changes to the Act this week."

The press release later describes the new guidelines as "clarifying" the operation of the statute. Nevertheless, the opening sentence indicates that the Minister conceived that she was changing the substantive law and extending the reach of the Retail Tenancies Reform Act 1998 beyond that which it had prior to the issue of the guideline. Phillips JA in the remarks quoted earlier specifically observed that the power bestowed on the Minister to issue gazetted guidelines permitted the modification of the operation of the statute by that means. All of this supports the tentative view of Kenny JA in her judgment in Sorbara that the 1998 guidelines do not deal with motels. That observation appears to apply with equal force to the guidelines operation with respect to hotels.

23. It follows that for jurisdictional purposes the floor area of the Nicholas Hotel must, in this proceeding, be measured by reference to the general principles considered by the Court of Appeal in Sorbara's case and without regard to either of the two set of guidelines issued by the former Minister pursuant to Section 3(5) of the Retail Tenancies Reform Act 1998.

24. Mr Gillies on behalf of the landlords, placed reliance upon an affidavit of Mr Alistair Douglas Kemp, a qualified surveyor, sworn 8 September 1999. This survey shows three levels of the hotel which in total manifestly exceed an aggregate floor area of 1,000 square metres. Mr Edmonds on behalf of the applicant, relied upon surveys conducted by another surveyor, Mr Fransen. His first survey showed a total floor area of 753 square metres. The legend states "area measured in accordance with the Property Council of Australia Method for the Measurement of Buildings, Gross Lettable Area Retail (March 1997 revision)". I heard no viva voce evidence from either of the surveyors. As I understand it however, the 1998 Guidelines have their origin from the Property Council of Australia and there are references to the Property Council in the text of the guidelines themselves. I infer therefore that the first area calculation is by reference to the 1998 guidelines. For reasons which I have already given, in my view, those guidelines are not applicable and so I put Mr Fransen's first survey to one side. The second measurement is said to be "by Victorian Case Law". The legend states "area measured in accordance with Victorian Case definition "those surfaces of a durable and cleansable nature covered overhead and used to provide the retail services for which the premises are dedicated". Nevertheless, the Beer Garden and Bottle Shop driveway were included in the area calculations although they are uncovered. This latter survey measures the floor area 948.7 square metres. This includes the upper floor. The major exclusion as between Mr Fransen's survey and Mr Kemp's survey (though they approach the matter from different stand points, have different orientations and use different designations for the various areas), is the upper verandah area measured by Mr Kemp at 107.7 square metres and certain outdoor areas.

25. Mr Gillies on behalf of the landlords relied upon the hotel's liquor licence which he placed in evidence. This showed that the entire demise under the lease that comprised under the area designated as licensed premises. In his submission this indicated that the whole of the building was devoted to the retail business conducted by the tenants.

26. Mr Edmonds submitted that no account at all should be paid to any part of the upper storey. It was used in his submission solely as a residence for Mr and Mrs Evans (the principals of Mayfly Pty Ltd and their family and for their parents-in-law who work in the hotel).

27. I reject that submission. It will be recalled that Phillips JA specifically included as part of the "floor area" in a motel, the manager's residence [1998] VSCA 71; [1999] 2 VR 1, 8. Mr Evans said that during his time at the hotel, the upper area had never been used for guest accommodation. He conceded that it could have been at least when he first commenced running the hotel. Now, he said a number of the rooms were affected by a leaky roof. Kenny JA said it will be recalled, that the definition of floor area extended not only to areas actually used for the purposes of the retail business carried on at the premises, but also areas "designed and available for use in the retail business carried on on the premises" [1998] VSCA 71; [1999] 2 VR 1, 15. The character of the premises can scarcely change if during the course of the tenancy they deteriorate. I can see no reason why the verandah ought to be regarded as excluded from the "floor area" of the hotel. There was no evidence to suggest that it should be treated in any way different from the garden surrounds of the motel in Sorbara's case. Once one adds this area to Mr Fransen's survey, it includes the whole of the upper floor, the floor area of the premises exceed 1,000 square metres. Moreover the photographs tendered by the tenant show an outdoor yard area which seems to be used for storage.

28. Accordingly I uphold the jurisdictional challenge made on behalf of the landlords. In the circumstances it is unnecessary for me to say anything as to the challenge to jurisdiction based upon the assertion that there has been a forfeiture of the tenancy for a term of years, leaving the applicant in possession of the premises on some basis other than a retail premises lease within the meaning of the Retail Tenancies Reform Act 1998 or the Retail Tenancies Act 1986.

29. Having concluded that there is no jurisdiction for the Tribunal to hear and determine this proceeding, in my view the proper disposition is to make an order of summary dismissal under Section 75(1) of the Victorian Civil and Administrative Tribunal Act 1998. I take this course for the reasons explained in Malthall Pty Ltd and J & C Illiopoulos v Bevendale Pty Ltd (1998) VconvR 58-527; 14 VAR 368.

30. I heard no submissions as to costs and accordingly I will reserve that issue.

Civil and Administrative Tribunal Act 1998

Tenancies Reform Act 1998

Lylecash Pty Ltd v Mayfly Pty Ltd [2000] VCAT 397

At a glance

Court

Decision date

Source

Judgment (49 paragraphs)

Lylecash Pty Ltd v Mayfly Pty Ltd [2000] VCAT 397 (31 January 2000)

Parties

Legislation Cited (4)

Cases Cited (1)