The application of s39 of the RLA was considered in Raleigh v Cooks Corner Kallista[4] by Deputy President M.F. Macnamara (as his Honour then was). In this case the tenant also sought a refund of monies paid for outgoings. DP Macnamara had to consider the true construction of s39 of the RLA and the relevant regulation (which was regulation 10 in that iteration of the regulations).[5] The tenant argued that the application of the relevant fraction was mandatory whereas the landlord argued that the use of the word "may" permits the parties to contract out of the "percentage regime" (as DP Macnamara described the application of the relevant fraction).
DP Macnamara stated at [60]-[61]:
In my view the correct interpretation of Section 39 and Regulation 10 is that Section says that the mode of apportionment of outgoings amongst tenants must be 'consistent with the regulations'. The regulations only stipulate one mode of apportionment and that is by reference to the relevant fraction. The operation of Regulation 10 therefore is effectively mandatory even despite the use of the word 'may'.
The effect of failure to comply with Section 39 and the Regulation appears to be that outgoings are not recoverable by the landlord at all. Croft Retail Leases Victoria [60,015] page 19,105 (Service 4). Here all that has been sought is a re-adjustment of the outgoings that have already been paid. There seems in the circumstances to be no objection to this lesser remedy being allowed. I asked Mr Mackinnon what restitutionary cause of action he relied upon. It could not be said so far as I can see that these tenants paid any monies under a mistake because from the very early stage they complained about the validity of the apportionment of outgoings to them. Mr Mackinnon contended that of the gave a statutory cause of action entitling his clients to have the overpayment of outgoings re-adjusted. What Section 48 of the Act supposes will occur is that there should be an adjustment of outgoings following each 12 month period by comparison of the actual expenditures against a contribution made by the tenants. Here, there is no evidence that any such adjustments had taken place so that no accounts have effectively been for the purposes of Section 48. In those circumstances and with some hesitation I conclude that it is proper to re-adjust the outgoings as between landlord and tenant in reliance on Section 48 though it is fair to say that the section seems to be more directed to a contrast between projected expenditure and actual expenditure rather than to the issue of apportionment amongst the tenants.
Unlike the tenant in Raleigh, the tenant here is seeking reimbursement of all monies paid not just an adjustment in accordance with s48 of the RLA. However, the annual adjustments under s48 of the RLA have already occurred and any overpayment has already been accounted for as between the landlord and the tenant.
Having regard to the decision in Raleigh, I concur with the reasoning of DP Macnamara and find that the Lease does not comply with s39 of the RLA. As noted by DP Macnamara, a failure to comply with s39 appears to render a claim for unpaid outgoings not recoverable. However, as in Raleigh, the tenant has already paid the outgoings currently in dispute and is seeking reimbursement of those sums.
[2]
As set above, the tenant has paid outgoings in the sum of $29,541.05. $13,234.09 has been refunded as that payment was attributable to the land tax. The balance of $16,306.96 remains the subject of this dispute.
The parties each refer to the decision of SM Riegler (as he then was) in Richmond Football Club Limited v Verraty Pty Ltd ('RFC').[6] In RFC, the tenant made payments towards outgoings not knowing that it had no liability to do so because of a failure by the landlord to comply with s46 of the RLA. The tenant argued that in accordance with the principles set out in David Securities Pty Ltd v Commonwealth Bank ("David Securities')[7] the payments made by the tenant were paid under a mistake. As a consequence, there was a total failure of consideration for the payments and on that basis the landlord should repay the monies to the tenant as money had and received. SM Riegler disagreed and differentiated RFC from David Securities and also the decision in Roxborough v Pall Mall Australia Pty Ltd ('Roxborough').[8] SM Riegler held that the tenant in RFC had received good consideration for the money it paid to the landlord, i.e. "exclusive possession of the premises that were obviously of use and benefit to it".[9]
[3]
The tenant argues that the outgoings should not be considered good consideration. He asserts that the landlord cannot unilaterally determine what amount of outgoings to pay. Furthermore, that the landlord can only charge for outgoings in accordance with the provisions of the lease.
With respect to the cases relied on by the landlord, RFC and Q St Kilda Tenancy Pty Ltd v Kane,[10] the tenant argues that these cases are distinguishable because the lease in question in those cases did not include a legally enforceable clause as required by s39 of the RLA.
The tenant argues that the Landlord cannot rely on these decisions to overcome the effect of s39 of the RLA which the tenant argues negates any liability to pay for outgoings unless the requirements of the clause have been met.
[4]
The landlord relies on the decision in RFC and argues that there has been good consideration as the tenant has received a benefit, even if the payments were made by mistake. Following the decision in RFC, the landlord argues it should not have to refund the outgoings.
The landlord argues that the payment of outgoings is analogous to the payment of rent because it has a direct connection to the use and occupation of the premises. The tenant's use of the premises has contributed to the gross amount of the outgoings, and the tenant has received a benefit in exchange for the payment of outgoings.
The landlord further raises that the tenant struck a bargain as he was paying $150.00 per square metre as opposed to $370.00. Malik Suleman argues that it would be unfair to provide a refund when he has been liable for excess utilities payments.
[5]
In La Fara Pty Ltd v One-Six-One Pty Ltd,[11] Deputy President Riegler stated at [93] that:
[6]
[93] In my view, s 39 of the RLA operates differently to s 46 of the Act. Specifically, s 39 goes further than simply giving a tenant right to avoid payment of outgoings until an estimate of outgoings is given. Section 39 dictates or prescribes how much of the type of outgoings that are permitted to be charged to a tenant under a retail tenancies lease.
[7]
In the decision of Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Ltd ('Dog Depot'),[12] the Court of Appeal held that an entitlement to restitution requires the payee to establish that it would not be unjust or unconscionable for it to retain the money if the payer is to be denied the relief. In this case, the tenant mistakenly paid rent for using and occupying the premises for business purposes. I am not persuaded that it would be unconscionable for the landlord to keep the outgoings payments. The tenant has had the benefit of using the premises for commercial purposes and to generate income. It is fair for the tenant to contribute to the outgoings and expenses of the premises, particularly in circumstances where the landlord has borne the burden of paying the rates and utilities.
52. I find that the tenant has had continued occupation of the premises throughout the relevant period and has been able to utilise the premises to generate income where possible. In those circumstances, the tenant like the tenant in Richmond Football Club has received good consideration for the monies paid for the outgoings. It would be unconscionable or unfair to allow the tenant reimbursement for monies paid. I find that the tenant is not entitled to reimbursement of the monies paid for outgoings.
[9]
In this case, I find the payment of outgoings is good consideration as the outgoings had a direct connection with the use and occupation of the premises. I agree with the decisions made in RFC and Q St Kilda Tenancy; there was good consideration when the tenant occupied the premises and generated a profit from that occupation.
I find that the landlord was required to include the fraction of the outgoings payable under s39 of the RLA. To rectify this, the outgoings do need to be adjusted to reflect the relevant fraction required under s39 of the RLA and Regulation 10 of the Regulations (as in Raleigh) and I am satisfied this adjustment has occurred annually throughout the term of the lease. The outgoings concern the use and occupation of the land. Therefore, I accept that while the lease was not in compliance with s39 of the RLA, it would be unfair for the landlord to refund $16,306.96.
I find that it is reasonable to have the landlord adjust the outgoings as per s48 of the RLA, and as has occurred annually throughout the term of the lease, as opposed to providing a full refund of the outgoings.
[10]
In conclusion, the lease is a retail lease. The lease does not comply with s39 of the RLA. I will make orders to this effect.
With respect to the outgoings already paid by the tenant, the landlord is entitled to retain the monies paid by the tenant. Accordingly, the tenant's application is dismissed.
[11]
[1] By a letter dated 27 January 2023, the landlord admitted that land tax should not have been charged and agreed to refund the amount. In a letter dated 18 May 2023, Mr Nwankwo demanded a refund of all land tax paid within 7 days. The landlord repaid the land tax in July 2023.
[12]
[2] Presumably currently is a reference to the time at which the lease commences.
[13]
[3] In reliance on the decision in Richmond Football Club Limited v Verraty Pty Ltd[2011] VCAT 2104.