REASONS FOR DECISION
Background
1 In proceedings 075041 the Respondent (then known as Repco Limited) on 9 March 2007 applied to the Tribunal for the appointment of a specialist retail valuer pursuant to Retail Leases Act 1994, Section 19.
2 The premises were described as "Showroom 1, 456-462 Canterbury Road, Campsie" and were occupied by the Respondent as lessee from the Applicants pursuant to an assigned lease commencing 8 December 2000 and terminating 7 December 2010 with two options for renewal each for a period of five years. The lease was registered 9914514T; it provided for a mid-term review to market effective 8 December 2005 consistent with Item 9 of the First Schedule to the Lease. The Second Schedule, clause 1.1, applies Item 9 to the lease contract. The Annual Rent is to be adjusted on every anniversary of the Commencement Date (8 December 2000) during the term and any further terms (except market review dates) by 4% and the rent is reviewed to market "on the Commencement Date of any further term, and the commencement of the sixth year". Thus, so it seems to me, rent is adjusted to market on 8 December 2005.
3 The Application came before Higgins JM who expressed the opinion (22 March 2007) that she was not satisfied from the material filed that the parties had failed to reach an agreement on a particular valuer (see paragraph [6] of the Tribunal's Practice Note 20) and she suggested "that the parties try to seek agreement in this regard, noting the (objection by the lessor Perri) to any valuer previously used by (Repco)". The matter stood adjourned for further directions to 12 April 2007 when, on that date, the Tribunal was informed that the parties had agreed to a valuer and did not wish the Tribunal to make any appointment. The file was noted "resolved/settled - dismissed".
4 In proceedings 085256 filed 11 December 2008 the Applicant/lessor sought an urgent interim order that the Respondent pay asserted outstanding rent plus interest. In support of this Application it was asserted that the valuation obtained by the valuer appointed by both parties (Mr Pierre Dupre of Egan National Valuers) and dated 31 July 2008 "is a nullity and therefore is ineffective to alter the rental set out in the lease". A number of other grounds were asserted. Simultaneously, a formal Application was filed seeking a declaration that the valuation was in breach of the Retail Leases Act 1994 (the Act) and void and seeking various consequent orders.
5 This Application was formerly amended by Amended Application filed 26 February 2009. I shall deal with this in more detail below.
6 On 19 December 2008 Higgins JM ordered that the Respondent "is to pay rent at the rate of $13,940.83 per month on 1/1/09 and by close of business on 4/2/09. The matter of payment can be revisited at hearing on 4/2/09". On 5/2/09 the parties agreed to a different course of action and filed Short Minutes of Order and those Orders were made by consent. In the meantime that Repco Pty Limited had changed its name 13 February 2009 to Exego Pty Limited.
7 Finally by way of background, the Respondent by its own Application filed 26 February 2009 sought rectification of the lease and a refund of asserted overpayment from the Applicant. It was argued that the way in which the lease had been drafted would result in rent always going upwards such that a Specialist Retail Valuer should always be able to adjust the rent downwards and the lessee should be able to receive the benefit of such a downward adjustment.
The Amended Application
8 This document sought a number declarations/orders as follows:
i) A declaration that the valuation of Pierre Dupre, Egan National Valuers (NSW) was "in breach of the Retail Leases Act 1994, and void or of no effect".
ii) In the alternative, declaration that the Applicant had been denied natural justice for the purposes of Section 32A of the Act.
iii) An order appointing a Specialist Retail Valuer to conduct a valuation of current market rent pursuant to Section 19(1)(b) of the Act.
iv) In the alternative to (iii), an order that Mr Dupre issue a further signed copy of the valuation with various specified changes.
v) Various consequent orders/declarations relating to the fixing and payment of current market rent.
Facts
9 The parties together appointed Mr Pierre Dupre to prepare a valuation whether this appointment was pursuant to Section 19 is a moot point (I discuss this later in this decision). Section 19(1)(b) provides that where the lessor and lessee do not agree "as to what the actual amount of (current market rent is to be), the amount of the rent is to be determined by valuation carried out by a specialist retail valuer appointed by agreement of the parties to the lease or failure agreement by the Tribunal". The Act therefore makes quite specific provision for independent valuations to be binding upon the parties (save as to any review under s.32A) in the absence of agreement. The Act also makes quite specific provision as to what a specialist retail valuer so appointed is obliged to take into account in determining the amount of the current market rent. These matters are quite specifically set out in Section 19(1)(a) and can be conveniently summarised as follows:-
a) The rent that would reasonably be expected to be paid for the shop, as between a willing lessor and a willing lessee in an arm's length transaction (where the parties are each acting knowledgeably, prudently and without compulsion) determined on an effective rent basis.
b) "The provisions of the lease".
c) "The rent that would reasonably be expected to be paid for the shop if it were unoccupied and offered for renting for the same or a substantially similar use to which the shop may be put under the lease".
d) "The gross rent, less the lessor's outgoings payable by the lessee"
e) And it must also take into account "rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied retail shops".
10 The Act makes it plain that current market rent "is not to take into account the value of goodwill created by the lessee's occupation or the value of the lessee's fixtures and fittings on the retail shop premises".
11 Thus it can be clearly seen that the Act, in Section 19, not only creates a statutory method of resolution of disputes between the parties to the lease over current market rent, but also specifies, with precision, the matters that are, and are not, to be taken into account by a specialist retail valuer when carrying out his/her duties under Section 19.
12 The Section makes provision for co-operation between the parties and the appointed specialist retail valuer. I shall refer to this later in this decision. Importantly, Section 19(1)(e) provides that a "valuation for the purposes of paragraph (b) is to be in writing, to contain detailed reasons for the specialist retail valuer's determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination". In other words, it is to be a clear speaking valuation - the reasons for this is to enable the parties to see what it was that the valuer took into account and how the valuer took those matters into account; so that the parties can properly consider whether the valuer took into account all the proper factors and, whatever factors were or were not taken into account, whether the valuer applied them correctly and, most importantly, ended up with the correct result. This last-mentioned observation is important: there is not much point in arguing about valuation factors if in fact, at the end of the day, the valuer reached the correct result. The reason for this observation is obvious: the whole purpose of section 19 is to determine a quantum, a monetary amount, and if the monetary amount is in fact correct, or within reasonable parameters, then arguments about factors and methodology are interesting, but academic.
The Valuation
13 It is dated 31 July 2008. It is effective 8 December 2005. The date of inspection is stated as being 13 August 2007.
14 The first objection was that the Act (Section 19(2)) states that a specialist retail valuer "must make a valuation of current market rent … not later than 1 month after receiving the information in subsection (1)(d)". It was asserted that the valuer received the information under cover of letter 24 August 2007. The valuation is dated 31 July 2008, approximately 11 months after receipt of the information. Consequently, it was submitted that the valuation was in breach of Section 19(2) and therefore void or voidable.
15 In my opinion a breach of Section 19(2) does not render void or voidable a valuation otherwise in accordance with Section 19. The statute does not provide for consequences or penalty if the valuation is not made within the one month period. Rather, the subsection is an exhortation to "get on with it" - if it were otherwise then one would have thought that the statute would have made provision for making void or voidable a valuation in breach of the subsection. It does not.
16 In any event, there was no application by either party to the Tribunal to stop the valuation; there was no application to declare the appointment void; and no prejudice at all has been demonstrated to the Applicant by the delay of the valuer. I can see no merit in that argument.
17 The second argument raised is that the valuer has taken into account matters that he is required, by statute, not to take into account, alternatively, that what he took into account was not as was required of him by the Act. This argument was based on that portion of the valuation that refers to the principle that the valuer adopted in fixing the market rental value.
18 The valuer stated that in fixing the market rental value he adopted the definition approved by the Australian Property Institute (API), defined as follows:
"Market Rental Value is the estimated amount for which premises should rent as at the relevant date between a willing lessor and a willing lessee in an arms's length transaction, wherein the parties had each acted knowledgably, prudently and without compulsion, and having regard to the usual market terms and conditions for leases of similar premises".
19 It was submitted, understandably, that that definition was not the definition in Section 19(1)(a) (set out above at [9]) which the valuer is obliged to take into account in determining the amount of rent pursuant to Section 19(1)(c).
20 Why the valuer adopted the API definition is not clear. In the second paragraph of his valuation he confirmed his "role is to determine the market rent as an expert and not to arbitrate on any issues" but at no point in his valuation does he refer at all to the Retail Leases Act nor, in particular, does he refer to Section 19 thereof. The failure of an appointed specialist retail valuer to refer to Section 19 and, more importantly, to apply Section 19 as the statutory method for determination of current market rent, is in my very respectful opinion, although perhaps not fatal to a valuation, certainly raises significant questions about the valuation and the methodology adopted by the valuer. It is certainly not helpful.
21 The evidence discloses that the Respondent suggested to the Applicant (through respective lawyers) on 24 October 2006 that the dispute relating to current market rent be determined "in accordance with the provisions of clause 19 of the Retail Leases Act" and proposed 'that the parties request that the President of the NSW Division of the Australian Property Institute appoint a specialist retail valuer to determine the rent at the joint cost of the parties". The Institute by letter 16 January 2007, advised the lawyers for the Respondent that under "the new regime (the ADT) is the body that appoints specialist retail valuers to undertake rental determinations of properties that are covered by the Act" and therefore application should be made to the Tribunal. Application 075041 was subsequently filed 9 March 2007 (see [1] above); the parties then negotiated; agreement was reached "to the appointment of Pierre Dupre of Egan National Valuers as a specialist retail valuer" (e-mail 12 April 2007) and he was privately appointed.
There are two letters from Mr Dupre, all dated 17 August 2007. In the first (Index N in the Amended Tender Bundle Exhibit "A") Mr Dupre confirmed his appointment with the parties, indicated that the "lease is silent in regards to submissions" but that he would "take into consideration any written submissions provided by (the parties) as to their assessment of current rent", stated that his "role is to determine the current market rent as an expert …", but it is odd that no reference was made to the Act nor to Section 19.
22 In the second letter 17 August 2007 (Index P) he wrote again to the parties noting that he had inspected the premises, that he had been "verbally informed" that the need for a rental determination "has arisen pursuant to an application to the … ADT for the appointment of a specialist retail valuer"; that he was not aware of the particulars of the ADT application and requested "a copy of these particulars and a copy of any directions by the ADT"; that he had been instructed "to determine the rental for the demised premises for the year commencing 8 December 2005" and, importantly, pursuant to the provisions of the lease and not the ADT" and noted again that the "lease is silent in regards to submissions".
23 Indeed, I am unable to find anywhere, in any of the correspondence, e-mail transmissions nor in the valuation itself, any reference to the Retail Leases Act or to Section 19 as the source of authority for the valuation or the principles to be applied. This is odd, to say the least, simply because clearly the Act applied, and it is the Act, not the lease, that determines how disputes regarding current market rent are to be resolved. It seems to me that all parties, and the valuer, should have been aware - acutely aware - that Section 19 is the authority and the only source of jurisdiction to determine current market rent. Furthermore, in the opening paragraph to his valuation 31 July 2008 the valuer says:
"I refer to my appointment to act as the determining valuer in the abovementioned matter, pursuant to item 9(b) of the First Schedule as well as Section 1.1 of the Second Schedule, within the Lease document Dealing 9914514T".
How this could be the case in the face of Section 19 is not immediately apparent to me.
24 In all of the above circumstances the Applicant says that the valuer, in defining "Market Rental Value" in accordance with the API definition and, where on page 11 of his valuation he states that he has assessed the Market Rental Value by "direct comparison with the available rental evidence", the valuer did not have regard to the matters stated in Section 19(1)(a) of the Act and therefore the valuation is in breach of Section 19(1)(c) of the Act. It was submitted that it does not matter what the API says. It is what Section 19(1)(a) says - that is the statute and that is the dispute-resolution procedure to be adopted in determining disputes about market rental value. It was submitted that there can be no appeal/review under Section 32(a) where there is no determination under Section 19. Section 32A requires the specialist retail valuers conducting the review to take into account the relevant principles/methodology required to be taken into account under Section 19 - thus, presumably, if the original valuer did not take into account the principle/methodology required to be taken into account under Section 19 then there can be no proper review of that determination because any review under Section 32A would really be a valuation de novo because the specialist retail valuers carrying out the review would need to apply de novo the principle/methodology required under Section 19.
25 Put another way, Section 19 creates its own valuation regime; Section 32A does not apply until Section 19 is satisfied; the Tribunal has jurisdiction to make a declaration that a valuation is void because it does not comply with Section 19; and in these circumstances there has been no Section 19 determination such that any time limits imposed by Section 32A do not apply simply because there can be no review of a void valuation. In other words, before you get to Section 32A you must have a valuation that complies with Section 19.
26 In my opinion this is a very powerful argument. But, at least so it seems to me, there are a number of obstacles to be overcome in the circumstances of this particular case.
27 The first obstacle is this: the valuation is dated 31 July 2008. The Application for relief put to this Tribunal was not filed until 11 December 2008, some four and a half months after receipt of the valuation. The Applicant asserts that the valuer "got it wrong", not only in his application of principle/methodology but also in quantum - after all, what is the point of agitating the arguments unless the Applicant/Lessee ultimately is seeking a lower rental amount? Section 32A(2) requires an application for review to be "made within 21 days after the party first received a copy of the determination". There is no provision for extension of time. Thus, absent setting aside the valuation as a non-conforming valuation, the Applicant is out of time for a Section 32A review.
28 Secondly, there was no suggestion that the valuer was guilty of gross negligence or intentional misconduct. The only argument, in reality, is whether the valuer adopted the Section 19 principle/methodology or relied upon the API definition. The Respondent says the definition and Section 19 "are very similar and indeed identical in parts" and that the "issue should be assessed as one of substance and not form".
29 The primary obstacle that I see confronting the Applicant is that there is no one jot of evidence that would led this Tribunal to conclude, even if everything that the Applicant is correct, the ultimate quantum determination is incorrect.
The Valuation
30 The Applicant submits that the valuation does not comply with the statutory requirements of Section 19(1)(a). It is worthwhile considering each of those requirements seriatim.
31 Firstly, the "current market rent is the rent that would reasonably be expected to be paid for the shop, as between a willing lessor and a willing lessee in an arms length transaction (where the parties are each acting knowledgably, prudently and without compulsion), determined on an effective rent basis …". This is to be compared to the API definition as follows:
"Market Rental Value is the estimated amount for which premises should rent at the relevant date between a willing lessor and a willing lessee in an arm's length transaction, wherein the parties had each acted knowledgeably, prudently and without compulsion, and having regard to the usual market terms and conditions for leases of similar premises."
32 There is, firstly, a difference in tense - the Section 19 requirement is present tense whereas the API definition is past tense. I do not think there is any difference in fact, simply because both require a market rent to be determined at a particular time. However, the Section 19 requirement is that the current market rent is to be "determined on an effective rent basis", and these words do not appear in the API definition. In my opinion that is a significant difference. "An effective rent basis" is not the same, by any means, as the inclusive words "having regard to the usual market terms and conditions for leases of similar premises". "Effective rental" has a quite specific meaning and is to be compared to "face rental", the latter being the rental shown on the lease contract and the former being that rental but having taken into account tenant incentives (eg cash payments, rent-free period, fitout contributions and so on) most of which are often confidential and not disclosed in the lease contract.
33 There is, in my opinion, a need for courts and tribunals to be very careful when looking at these types of definitions. The most recent case that I can find is Eureka Funds Management Limited v. Freehills Services Pty Limited [2008] VSCA 156, where the Victorian Court of Appeal confirmed, unanimously, that the phrases "current annual market rental value" and "current annual market rental" did not mean the same but rather they embraced two different rental review mechanisms. In that case the lease provided that there was to be a review from 1 July 2003 to "current annual market rental value" and reviews on various later dates to "current annual market rental". The review 1 July 2003 to "current annual market rental value" was conducted on the basis of an effective rental review, and both parties agreed that was the correct approach. The lessor (Eureka) argued that all following reviews on the "current annual market rental" basis should have been carried out on the basis of a face rental review. The appointed valuer conducted the next following February 2004 review on an effective rental basis and the trial Judge found that it was open to the valuer to regard the two expressions as synonymous and to review the rental on an effective rental basis.
34 The Victorian Court of Appeal unanimously rejected that approach, holding that the two phrases used in the lease did not mean the same, such that the valuer had not determined the market rental in accordance with the provisions of the lease, and remitted the matter to the valuer to determine the current market rental from February 2004 on a face rental basis.
35 The Court of Appeal made the point that the phrases used was a distinction made five times in the lease contract. The Court accepted [27] "that the key to this appeal lies in the explicit and repeated differentiation in the rent review provisions as between the rental review due in respect of 1 July 2003 and all subsequent reviews, including the relevant review in respect of 2 February 2004". The Court referred to real estate cycles and the perceived commercial need of lessors to retain or increase the capital value of commercial real estate by the use of face rental without disclosing, often confidential, lease incentives. The Court described this as a "mirage" and observed at [40] "so widespread was the use of leasing incentives, that, in the valuation of commercial leases, some informed people in the industry referred to the "face" rent as being the rental specified in the lease and the "effective" rent as being the rental discounted for incentives".
36 There is no need for the Tribunal to refer further to this case. Suffice it to say that clearly there is a difference in the words "determined on an effective rent basis" and the words "and having regard to the usual market terms and conditions for leases of similar premises". The latter phraseology is not in any way to be equated with "effective rent" but, in my opinion, could equally be regarded as either effective rent or face rent. Consequently, there remains an area of more than considerable doubt when one adopts the API definition compared with the clear statutory requirement that the current market rent is to be "determined on an effective rent basis". The valuer in the instant case before the Tribunal clearly adopted the API definition (page 2 of the valuation) and in my opinion he thereby fell into error.
37 But there is more to the Section 19 requirements. Not only does the current market rent need to be determined on an effective rent basis but in such determination the valuer is required to have regard to a number of various matters.
38 Firstly, he has to have regard to "the provisions of the lease". In this case the valuer, at pages 6 and 7 of his valuation, set out the details (in encapsulated form) of the lease. Then, at page 8 he states "I have had regard to the lease document with specific regard to …". So, it seems to me, that the valuer has in fact taken into account "the provisions of the lease'.
39 Secondly, the valuer has to have regard to "the rent that would reasonably be expected to be paid for the shop if it were unoccupied and offered for renting for the same or substantially similar use to which the shop may be put under the lease". In my opinion the valuer has failed to apply his mind to that matter. At page 8 of this valuation he states that he has "had regard to the lease document" and then expands that by stating "with specific regard to clause 1.1 of the Second Schedule" of the lease. This clause 1.1 is in the following terms:
"The Lessee will during the term pay to the Lessor at the Lessor's address stated herein or at such other address as the Lessor shall from time to time in writing direct without demand from the Lessor and without any deduction whatsoever rent ("Annual Rent") of the amount specified in Item 8 of the First Schedule such Annual Rent to be paid in advance by regular and consecutive monthly payments on the first day of each month in each year during the term (except the first and last payments which if necessary will be proportionate) the first being payable on the commencement date of the term provided always that the Annual Rent shall be reviewed as from each of the dates specified in Item 9 of the First Schedule and shall be a sum as shall be reappraised as follows;
i) On the basis that the Demised Premises are used as a showroom with a warehouse and associated offices;
ii) On the basis that the Demised Premises are available for leasing with vacant possession by a willing Lessor to a willing Lessee for a term similar to the term of this Lease and any additional option for renewal;
iii) On the Terms and conditions contained in this Lease;
iv) On the basis that the Lessee's Lease covenants and obligations shall have been fully performed at the review date to the satisfaction of the Lessor;
v) Without taking into account fixtures or fittings erected or installed at the Lessee's expense which the Lessee is permitted or required to remove at the Termination of the Lease; and permanent structural improvements to the Demised Premises installed at the Lessee's expense which the Lessee is not permitted to remove at the Termination of this Lease;
vi) Having specific regard to:
A. rental values of comparable premises;
B. any inducements available to tenants of comparable premise;
vii) Without taking into account any goodwill attributable to the Demised Premises by reason of any trade or business carried on therein by the Lessee".
40 It is important to understand that the provisions of the Act override any inconsistent provision of the lease contract - see s.7 and Kindful (Australia) Pty Ltd v Country Villa Holdings Pty Ltd [2006] NSWADT 224 at [108]. Section 19 therefore applies and overrides any inconsistent contractual provision and any inconsistent principle of valuation practice.
41 The valuer clearly regarded his task as being governed by Clause 1.1 of the Second Schedule (above) and not in accordance with Section 19. So, for example, he approached the task "on the basis that the (premises) are used as a showroom with a warehouse and associated offices", whereas the actual use in the First Schedule, Item 7, is "automotive accessories and spare parts outlet or such other use as may be permitted under the local zoning and planning scheme for the area" - in my opinion a totally different permitted use simply because the Respondent was not limited to using the premises either as a "showroom with a warehouse and associated offices" or for "automotive accessories and spare parts outlet", but could also (consistent with Item 7) use the premises "for such other use as may be permitted under the local zoning and planning scheme for the area". The evidence showed that under the zoning a number of different activities could be carried out. Thus, in order to comply with Section 19(1)(a)(ii) the valuer should have applied his mind to what rent would reasonably be expected to be paid for the premises if it were firstly, unoccupied and secondly offered for renting for the same or a substantially similar to use to which the shop may be put under the lease, ie. not limited to use "as a showroom with a warehouse and associated offices".
42 The reason for focus on this Clause 1.1 of the Second Schedule is, not to be critical of the valuer by any means, but rather to focus on what the lease contract itself said about the annual rental review. It can be seen straight away that there is no requirement that the review shall be to "current market rent" but rather the review is to be made on the bases as I have set out above. One does not wish to sound pedantic but clearly there are differences, and significant differences, in comparing Clause 1.1 to Section 19.
43 Thirdly, the valuer is to take into account (s.19(1)(a)(iii)) "the gross rent, less the lessor's outgoings payable by the lessee". There is nothing in clause 1.1 (above) that imposes that obligation. The valuer did refer to the "current rental" and the outgoings and (at page 11) expresses the opinion that "a current Market Rental Value to be $250 per square metre per annum net". His calculations showed the showroom/warehouse area at $118,000 per annum net, the outgoings at $13,473.45 and the "gross rent equates to ($278.54 per sqm per annum gross) $131,473.45 p.a" and therefore concluded that the market rental value was $118,000.00 per annum net, exclusive of GST. However, there is nothing in the valuation, other than a reference to it, on page 7, that takes into account "the gross rent" payable by the Respondent/lessee. It seems to me that the valuer should explain that he has in fact had regard to "the gross rent … payable by the lessee", not by simple reference but rather how he has had regard to it.
44 Fourthly, the valuer has to have regard to (s.19(1)(a)(iv) "rent concessions and other benefits that are frequently or generally offered to perspective lessees of unoccupied retail shops". In the valuation the valuer gives chapter and verse to "market evidence", stating that he "had regard to rentals of comparable use premises within surrounding localities as well as rental evidence of other comparable premises within this locality", and then he refers to a number of premises and gives some details. The first example is a showroom and warehouse at Rockdale which is examined by the valuer, noting a cash incentive and "outgoing free period", and then specifies the "effective rental"; the second is a property at Liverpool where there is no reference to any incentives or even "effective rent"; the third is at Bankstown where again there is no reference to any incentives nor any reference to "effective rental"; and the fourth is a property at Campsie where there is no reference to any incentives but the valuer describes the result as "effective rental".
45 In my opinion the valuation fails the Section 19 test in this regard because there is little or no reference to "rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied retail shops".
46 Finally, at the foot of Section 19(1)(a) there is a statutory requirement that the "current market rent is not to take into account the value of goodwill created by the lessee's occupation or the value of the lessee's fixtures and fittings on the retail shop premises". This is also a requirement of Clause 1.1 of the Second Schedule and there is nothing in the valuation that would lead me to conclude there was a breach of this statutory requirement.
Tribunal's Conclusions
47 It may well be that the valuer in this case has carried out the valuation in accordance with the terms of the Lease and in accordance with the terms of the instructions that were given to him by the parties. As I endeavoured to point out above, there is little or no reference to the Retail Leases Act, the Tribunal or to Section 19. It may well be that the valuer has proceeded on a basis that was different from what the parties intended, but inadvertently so. Even so, in my opinion the parties and the valuer should all have recognised that the valuation, whatever the lease may say, must be carried out, as a matter of law, pursuant to and in compliance with s.19.
48 For the reasons that I have set out above, in my opinion the valuation does not comply with the statutory strictures of Section 19. That is not to say, of course, that a valuation that did so comply with have reached any other conclusion. But, for whatever reason the valuer did not apply the statutory requirements and as such I am driven to the conclusion that the valuation is not a rental determination pursuant to Section 19(1)(b), particularly bearing in mind that sub-section (c) makes it a statutory imperative to take into account the matters in sub-section (a).
49 The lease requiring there to be a market review on certain dates and rent to be thereby changed, and it being a retail shop lease, then any market review, to be binding upon the parties, must comply with Section 19. This valuation does not. In my opinion if there are statutory requirements, obligations, a set procedure that a valuer has to follow, and he/she does not, then, and even accepting that the rent would have been the same had the statutory requirements/obligation/procedures been followed, the valuation is not a valuation that complies with Section 19); thus there cannot be a review of that valuation under Section 32A (simply because, in order for there to be a review there must firstly have been a determination made under Section 19, and therefore it seems to me that the parties have, perhaps inadvertently, travelled down the incorrect path.
50 In my opinion it is not appropriate to make a declaration that the valuation is void or of no effect (as sought in the Amended Application); but rather the Tribunal should declare that the valuation is not a valuation for the purposes of Section 19. It is clearly a valuation simpliciter and it is clearly arguable that it was the valuation that the parties, perhaps inadvertently, requested the valuer to carry out. If all of that means that the parties have to start again, then so be it.
51 Thus, in my view, once the declaration as I have foreshadowed is made, the balance of the Amended Application should await determination at a later date. It was pleaded that there was a breach of the lease because it was asserted that the Respondent has not made rental payments for the months of October, November and December 2008. It seems to me those issues, and how the lease is to be interpreted, ought to wait determination once there has been a complying Section 19 valuation. It is only when that document is produced or there is a review under Section 32A and that review document is produced, then the Tribunal (and the parties) will be in a position to address whether there are in fact arrears and what steps should be taken (if any) to rectify (if this is possible) the lease. The starting point must be a valid valuation.
Other Issues
52 The Applicant complained that the valuer had made reference (page 7) in his valuation to "a rental assessment report carried out in April 2006 by Preston Rowe Paterson NSW Pty Ltd in April 2006", but otherwise did not annex it and made no further reference to that report. It was submitted that by the use of the words (at page 11) "based on the above and comments within this report …" the valuer took into account the report, alternatively did not make it clear whether the whole or part of the report was taken into account, alternatively did not make it clear that he did not take into account any part of the report. Thus, it was submitted, the valuation was in breach of Section 19(1)(e) which requires the valuation to contain "detailed reasons for the … determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination".
53 In my opinion Section 19(1)(e) does require a specialist retail valuer to specify, with some degree of precision, the matters to which he/she had regard. In the case of the Preston Rowe report, that being a document supplied by the Respondent, it behoved the valuer to either inform the parties in the valuation that he had not taken it into account, alternatively that he had taken all or part of it into account, and not simply leave the matter up in the air so that the parties, and the Tribunal, end up not being aware of "the matters which the valuer had regard".
54 And, if the parties and the Tribunal are not aware, how can there be a "review" under s.32A? In my opinion this valuation does not comply with s.19(1)(e).
55 Secondly, the Applicant complained that the valuer stated that he "had regard to rentals of comparable use premises within surrounding localities as well as rental evidence of other comparable premises within this locality" and then proceeded to list four only, describing them as "some of the premises" to which he had regard. It was submitted that by using the words "some of" the valuer clearly took into account other premises not listed, and failed to specify, in relation to the premises not identified, those matters which he set out in relation to the premises that he did identify and to which he clearly had regard.
56 In my opinion a valuation, in order to comply with s.19 must "specify the matters to which the valuer had regard" and that means specifying all of the matters, not some only.
57 The Applicant also complained that the valuer was in breach of Section 19(4) in that in his valuation he disclosed information identifying other leases or parties to other leases or the business of parties to other leases, without their consent. On the basis that the submission is true, however, whether a valuer is in breach of Section 19(4) is not a vitiating factor which would otherwise make a Section 19 valuation void or voidable.
58 Finally, the Applicant complained that the valuer had denied them natural justice by failing to attach the Preston Rowe Report, failing to provide details of other premises taken into account and how they were taken into account, and thereby denied to the Applicant knowledge of part of the information upon which the valuer relied in order to make its determination, thereby prejudicing the Applicant in obtaining advice in relation to pursuing a review of the valuation under Section 32A. In my opinion, there is no requirement upon this Tribunal to go further in this decision. Once the point is reached to the effect that the valuation is not a Section 19 valuation then issues of "natural justice" simply do not arise, certainly not as pleaded.
59 However, it is important to note that firstly, there are quite specific requirements upon a lessor (not a lessee) under s.19(1)(d) and secondly, s.19(1B) permits all parties to a lease to "make written submissions to a specialist retail valuer to assist in the valuer's consideration of the valuation, and the valuer must consider any such written submissions". Firstly, in relation to this sub-section, there is no reference in the valuation report of any consideration of the Preston Rowe Report. But, more importantly, either party is permitted by statute to make submissions to the valuer, the valuer must consider those submissions and, in my opinion, he/she must, in the valuation, specify the matters to which he/she had regard - thus there is an obligation on the valuer to have regard to the submissions made by the parties under sub-section (1B). But, and unlike the regime that applies in courts and commercial arbitrations, there is no statutory requirement for a party to provide to the other party the submissions that the first party makes to the valuer. There is probably good reason for this: once it is accepted that sub-sections (1B) and (1)(e) apply in the way I have indicated, then the final Section 19 valuation will set it all out anyway, and in considerable detail, so that when considering whether to apply for a review under Section 32A the parties will know, with reasonable precision, what matters were considered, thus incorporating the matters/issues/submissions made under sub-clause (1B).
Final Conclusions
60 I have formed the clear opinion that the valuation is not a Section 19 compliant valuation; therefore the Applicant could not have appealed under Section 32A as a matter of law; and although it is truly a matter of dollars and cents and no prejudice has been demonstrated to the Applicant, or demonstrated by the Applicant; and although a Section 19 compliant valuation may well end up with the same result; the plain fact is that this valuation is not a Section 19 compliant valuation. Section 19 creates its own regime and the Tribunal will make an appropriate declaration as foreshadowed above.
61 The Respondent, by its application, sought rectification of the terms of the lease and submitted that Section 18(4) applied and the lease, with its current wording, was in breach of that section. All parties agreed at the hearing that the making of further dispositive orders should await the determination of the primary issue and the Tribunal proposes to bring these proceedings back for further directions at a convenient time.
62 Finally, the Respondent submitted that Parliament did not anticipate that Section 19 valuations would be the subject of Tribunal determinations. Section 70(a)(ix) describes a "retail tenancy claim" as including "a claim for a declaration of the rights, obligations and liabilities of the parties under a lease". Retail tenancy claims come within the purview of this Tribunal. The Tribunal has power (s.72(1)(f)(iii)) to declare "the rights and liabilities of the parties under law, whether any consequential relief is or could be claimed or not"; and, under sub-section (1)(g) "such other order, in the nature of an interlocutory order of a kind referred to (in the other sub-sections) as the Tribunal" considers proper to be made in order to resolve or assist resolution of the dispute between the parties". Under sub-section (2) the Tribunal "may make such ancillary orders as it considers necessary for the purpose of enabling an order under this section to have full effect". S.72(1)(a) empowers the Tribunal to "order that a party to proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person". In order to get to that point it is necessary to travel via Section 19 to determine what are the precise rights of the parties that are agitated under s.72(1)(a). This Tribunal is intended to be a one-stop shop for the resolution of disputes between parties to a retail shop lease and this is a dispute between those parties and in my opinion the Tribunal has jurisdiction to determine the issues as ventilated (see Batson Holdings Pty Ltd v Rose [2002] NSWADT 110; and Webb v Clifton [2008] NSWADT 132 (especially at [19]).
Conclusions of Principle
(i) The Retail Leases Act applies to all leased premises that fall within its purview.
(ii) The Act applies to vary the lease contract and thus incorporates the provisions of the Act into the lease contract and excludes from the lease contract those terms that are in conflict with the provisions of the Act.
(iii) Section 19 imports into a retail lease its terms and, as such, overrides any contractual term to the contrary.
(iv) Section 19 is thus an overriding statutory provision/contractual lease term that applies in all cases where a retail shop lease provides for rent to be changed to current market rent.
(v) Where there is such a lease contractual requirement then Section 19 applies in its precise terms to the exclusion of any contrary contractual term and to the exclusion of any contrary principle of valuation practice.
(vi) Parties to such a lease must comply with Section 19.
(vii) Valuers must comply with Section 19.
(viii) Section 19(1)(a) sets the principles that must apply. Neither the parties, nor the valuer (s.19(1)(b)), can apply different principles.
(ix) A valuation that complies with s.19(1)(a) is a complying s.19 valuation.
(x) A valuer appointed by the parties (s.19(1)(b)) and without an appointment by the Tribunal is a valuer appointed pursuant to s.19 and has an obligation, whether or not so instructed/advised by the parties to the lease, to carry out a valuation within the s.19(1)(a) principles, and not otherwise (s.19(1)(c)).
(xi) A valuer so appointed by the parties has also to comply with the whole of s.19 - see, in particular s.19(1)(c); s.19(1)(e); s.19(2) and (4).
(xii) A breach by a valuer of s.19(2) and/or s.19(4) does not vitiate a valuation, or make it void or voidable.
(xiii) A valuation that does not comply/adopt/apply the strictures in s.19(1)(a) by taking them into account (s.19(1)(c)) is not a s.19 valuation.
(xiv) Section 19(1)(a) is a code, or contractual term imposed by statute, and a valuation that takes into account matters not referred to in s.19(1)(a) is not a complying s.19 valuation. There is no provision in s.19 that entitles a valuer to take into account matters other than as set out in s.19(1)(a).
Further Conclusions on the Facts
(i) The valuer was properly appointed by the parties pursuant to s.19(1)(b).
(ii) The valuer's duty was to value the current market rent within the principles/terms as specified in s.19, whether or not he was so instructed/advised by the parties, simply because the lease (with the s.19 overlay) obliged the valuer so to do.
(iii) The valuer's failure to comply with s.19(2) and/or s.19(4) did not vitiate, void or make voidable the valuation.
(iv) However, for the reasons stated above, the valuation did not comply with s.19 and is therefore not a s.19 valuation from which a review may be made under s.32A.
Orders
- The Tribunal declares that the valuation of Mr Pierre Dupre of premises Showroom 1, 456-462 Canterbury Road Campsie NSW 2194 and dated 31 July 2008 is not a valuation of current market rent of those premises for the purposes of Retail Leases Act Section 19.
- The proceedings are listed for Directions before the Tribunal at 12 noon on Thursday 6 August 2009.