Pittwater Marinas Pty Ltd v Blue Pearl

District Court of NSW|2022-07-07

Solicitors: Diamond Conway (Plaintiff) Arch Law (First and Second Defendants) Mistry Fallahi Lawyers & Business Advisors (Third Defendant) File Number(s): 2021/88588

Judgment

The plaintiff Pittwater Marinas Pty Ltd (Pittwater Marinas) is the landlord of commercial premises at Bayview. The property is subject to a Crown lease. In April 2016 Pittwater Marinas acquired the Crown lease and real property comprising the marina, which included the assignment of the vendor's rights, remedies and covenants in relation to any sub-leases.
At the marina there is a commercial office building. For many years the Blue Pearl Waterfront Restaurant has occupied level one of that building. The restaurant has an indoor seating area, a balcony seating area and a rooftop terrace. The balcony and the rooftop areas are tiled.
In April 2005 a sub-lease of the restaurant premises was created. In April 2010 an option in the 2005 sub-lease was exercised. In April 2010 a new sub-lease for a term of five years was entered into. Between March 2015 when the 2010 sub-lease expired and August 2015 the sub-lease of the restaurant premises continued as a month-to-month tenancy.
On 14 August 2015 the first defendant Blue Pearl (NSW) Pty Ltd (Blue Pearl) was incorporated.
At that time Blue Pearl entered into a five-year sub-lease of the restaurant premises with Pittwater Marinas, commencing on 14 August 2015.

Evidence for Pittwater Marinas

The affidavit and documentary evidence for all parties was contained in a Court Book (PX 1).

Affidavit of Leon Nikolaidis dated 26 September 2021 (PX 1, Tab 5)

Mr Nikolaidis set out the history of the sub-leases of the premises. The 2015 sub-lease, which formed the basis for the claim made in the current proceedings, is at PX 1, Tab 6, p 43. It is a five-year sub-lease commencing on 14 August 2015 and terminating on 13 August 2020. There is an option to renew for a period of five years, but that was never exercised. The landlord under that sub-lease was Bakers Marina & Yacht Company Pty Ltd, who sold the property and the business to Pittwater Marinas in 2016. The sub-lease incorporated the provisions set out in Annexures A and B to the sub-lease.
Annexure B to the sub-lease contained the operative clauses. By the time of final submissions, there was no dispute concerning the meaning of the clauses concerning rent or outgoings. There was a dispute concerning cl 7.3.1, under which Pittwater Marinas sued in relation to damage to the premises. Clause 7.3.1 reads as follows: "The lessee must also - reimburse the lessor for the cost of fixing the structural damage caused by the lessee, apart from fair wear and tear."
From April 2020 onwards Blue Pearl was trying to sell the restaurant business, as its turnover had been severely affected by the COVID-19 pandemic. There were discussions between the parties in relation to Blue Pearl becoming a tenant from month-to-month after the expiry of the lease.
On 26 December 2020 Ms Pam sent an email to Pittwater Marinas as follows: "Hi Leon, Refer to our messages and conversations since 28 October 2020, I already informed you I would like to terminate the lease because I will not be able to continue to operate the restaurant anymore due to Covid times and others circumstances. So I would like to terminate the lease by the end of December 2020 and return it to you by that time."
Mr Nikolaidis said (par 33) that he attended the restaurant at 11.00am on 27 December 2020 to discuss an orderly handover of the premises. He saw at least six people packing up the premises and ripping out the kitchen. Mr Nikolaidis protested at the damage being done in the kitchen. He suggested that the kitchen equipment should be put back.
On 28 December 2020 Mr Nikolaidis wrote to Ms Pam, referring to the email of 26 December 2020. He said: "As you are aware, your lease requires you to give one month's notice in writing of your intention to end your month by month tenancy. Your tenancy therefore ends on 26 January 2021 and rent is payable up to and including that day. Please refer to cl 12.4.3 of your lease." (Emphasis added)
Clause 12.4.3 of the sub-lease (PX 1, Tab 6, p 60) says: "If the lessor allows the lessee to continue to occupy the property after the end of the lease period (other than under a new lease) then - either the lessor or the lessee can end the monthly tenancy by giving, at any time, 1 month written notice to the other expiring on any date."
The email went on to put the proposition that if the kitchen was put back into a fully operational state, no claim would be made for the damage caused to that point by the strip out.
The email concluded: "In the meantime, we would be grateful if you could pay your outstanding December rent which was due on 1 December. A revised invoice for January will be issued to reflect your vacate date of 26 January." (Emphasis added)
By an email dated 21 January 2021 Mr Nikolaidis wrote to Ms Pam setting out a list of items which required "reinstatement prior to the end of your lease and the handover of the premises". He said that rent would continue until such time as all outstanding matters had been attended to. The email listed 14 "reinstatement" items. The list included: "(11) All external tiled areas are dirty and the tiled areas on the roof terrace are also stained. All tiles must be professionally cleaned and stains removed. (12) All pot plants on the roof terrace and level 1 balcony must be removed."
By an email dated 29 January 2021 Mr Nikolaidis wrote to Ms Pam. He said, inter alia: "In relation to Item 11, your pot plants have left considerable staining on the tiles and the tiles on the first floor and roof terrace are still stained. These tiles need to be professionally cleaned."
By an email dated 1 February 2021 Mr Nikolaidis wrote to the solicitor for Blue Pearl and said: "Earlier this morning, your client purported to return the keys of the premises by delivering them to the marina office saying to Ryan Bradshaw, at the marina office, that she had spoken to the writer and the writer directed her to return the keys to the marina office. That statement is completely untrue. The writer has not spoken to your client since 27 December 2020. The marina office has nothing whatsoever to do with the management or conduct of commercial leases in the complex. The keys are in the process of being returned to your client by courier. We would ask that your client communicate directly with the writer when she is in a position to return the premises properly and fully reinstated."
Mr Nikolaidis provided photographs of the tiles which are the subject of the cl 7.3.1 claim at pp 115-128 of the Exhibit to his affidavit. These photographs show the rooftop and balcony tiles before and after professional cleaning. The photographs at pp 115-119 show pot plants located on the balcony and rooftop terrace, and stains to the tiles in the immediate areas of the pot plants. The photographs at pp 120-128 show stains to the tiles remaining after Blue Pearl removed the pot plants and had the tiles professionally cleaned.
By an email dated 12 February 2021 the solicitor for Blue Pearl wrote to Pittwater Marinas dealing with a number of issues set out in earlier correspondence. That email concluded as follows: "You appear to be suggesting that our client is thereby still in possession of the premises. This is not so. Even allowing for a failure by the lessee to have repainted part of the vaulted ceiling and the northern balcony ceiling such a breach of contract may sound in damages which we estimate at a few hundred dollars, maybe a bit more. However it does not entitle the lessor to refuse to accept the return of possession of the premises and it does not entitle the lessor to continue to claim rent ongoingly until any breach or breaches is or are rectified."
By an email dated 17 February 2021 Mr Nikolaidis wrote to the solicitor for Blue Pearl. In relation to the tiles he said: "With the exception of the photographs showing the pot plants as evidence of the origin of the stains to the tiles, the photographs are current photographs. The tiles are significantly marked, stained and discoloured and will require replacement if the marks, staining and discolouring cannot be removed. This is clearly the responsibility of Pam."
By an email dated 1 April 2021 Mr Nikolaidis wrote to the solicitor for Blue Pearl and said: "We note that Pam advised me last week that she was finishing some work in the restaurant premises and that she would be handing back the keys to the premises by 31 March. Would you please advise when your client will be returning possession of the premises to the landlord?"
An email dated 27 April 2021 from Mr Nikolaidis to the solicitor for Blue Pearl was to similar effect. That email said that "rent continues to accrue until such time as possession of the premises is returned to the landlord".
In par 44 of the affidavit Mr Nikolaidis set out a list of the items of "repair and reinstatement" for which a claim was made. The only items pursued by the end of the hearing were item (g) the tiles and item (c) "reinstating and revarnishing of timber panelled wall discoloured by the Blue Pearl signage". At p 104 of the Exhibit to the affidavit was a photograph said by Mr Nikolaidis to show the Blue Pearl sign on the timber wall. It appears to me that below the sign the timber staining has faded away leaving a timber wall which looks bare in parts. At pp 105-108 of the Exhibit to the affidavit are photographs taken after the sign was removed. It appears to me that the darker rectangle was where the sign was removed and the surrounding timber has faded and weathered, resulting in a colour differential.

Affidavit of Ryan Blackshaw dated 16 March 2022 (PX 1, Tab 7)

Mr Blackshaw was the manager of the floating marina. He deposed that on 1 February 2021 Ms Pam entered the marina office and handed back the keys. Mr Blackshaw said that he did not manage the office building and was not authorised to take the keys. Ms Pam told him that she had spoken to Mr Nikolaidis and he asked her to hand the keys over to Mr Blackshaw. On that basis Mr Blackshaw accepted them.
Later in the day he spoke to Mr Nikolaidis, who said that he had not had such a conversation and had not authorised the keys to be handed over. Mr Blackshaw then arranged for the return of the keys to Ms Pam.

Affidavit of Andrew Mason dated 22 March 2022 (PX 1, Tab 8)

Mr Mason is a registered surveyor. He annexed a copy of an aerial photograph of the marina building taken on 6 May 2016. Unfortunately, the copy reproduced in the Court Book is of very low quality and nothing in particular can be discerned from looking at the blue tiled area.

Affidavit of Leon Nikolaidis dated 11 April 2022 (PX 1, Tab 10)

Mr Nikolaidis set out his recollection of conversations with Ms Pam in 2020 concerning a possible termination of the lease, a continuation as a monthly tenancy, the payment of rent and the attempts to sell the restaurant business. He gave the following detailed evidence concerning his various inspections of the tiled area on the balcony and the rooftop terrace.
Mr Nikolaidis said that on 23 October 2015, immediately prior to submitting an offer for the purchase of the marina, he carried out a detailed inspection of the property. He was looking to identify building structural issues, building defects, building maintenance issues and items or areas of the building requiring immediate repairs or maintenance. He observed the pot plants on the rooftop terrace. He did not observe any stain or discolouration to any tiles on the rooftop terrace or balcony areas.
Mr Nikolaidis said that any staining of the type shown on the later photographs would have been a matter he would have taken note of "as it is indicative of the possible need to replace a tiled area to maintain the standard of the property". He also said: "It would have also have put me on notice to make an enquiry as [to] the tenant's liability under its lease for the replacement of the tiles".
Mr Nikolaidis said that he carried out a detailed inspection of all parts of the premises on 26 April 2016 prior to settlement of the purchase which took place on Friday, 29 April 2016. He again inspected the rooftop terrace and the external terraces. He did not observe any staining of the tiles.
Mr Nikolaidis said that he was again on the rooftop terrace of the restaurant premises during the first half of 2017. He met Ms Pam there to discuss a proposal to erect a sunshade structure over the terrace so that it could be used for dining purposes. He observed the same pot plants as he had previously seen on the rooftop terrace. He did not observe any tile staining in or around those pots. Mr Nikolaidis said that if he did observe any staining he would have immediately raised the issue with Ms Pam and required her to take immediate steps to clean the tiles and prevent further tile staining.
In March 2018 Mr Nikolaidis went with a plumber Mr Morrison to the restaurant concerning a water leak in the ceiling. He inspected the rooftop terrace. He noticed that most of the plants in the pots on the terrace had died or were dying. He did not notice any staining of tiles around the pot plants or elsewhere. If he had seen staining, he would have immediately raised the matter with Ms Pam and insisted that the staining be cleaned and measures be put in place to prevent the staining from reoccurring.
In relation to the timber staining, Mr Nikolaidis annexed a photograph of the wall after Ms Pam had arranged to have it stained. He described the wall after this work as "patchy, uneven and with a matte finish". The photograph as annexure "K" bears this out. However, having regard to the appearance of the wall prior to this work (faded, uneven and worn), it appears to me that the wall looks better than it was, not worse.
In any event, I note that nowhere in the plaintiff's case was there any evidence of the reasonable cost to sand and restain the timber wall.

Affidavit of Enrique Puffe dated 13 April 2022 (PX 1, Tab 11)

Mr Puffe operates a business as a tile and stone cleaner. He visited the Blue Pearl restaurant premises and inspected the staining of tiles on the rooftop terrace. He provided a report to Mr Nikolaidis which he annexed to his affidavit. The report said that Mr Puffe attended the premises in April 2021. He spoke to a lady named Pam. His report said: "I examined the tile staining on the balcony and roof terrace. Pam told me that the staining had been caused by her pot plants. She said the pot plants had been there for about 10 years and that the tiles were recently cleaned, leaving behind stains. On examination, I found that the discolouration and staining had penetrated the tile surface and penetrated into the tile itself. This is a standard occurrence with nearly any type of pot plant on nearly any type of surface which has been in the same position for a long period of time. The stains are impregnated into the tiles and cannot be removed as these are permanent water-related stains and no chemical or any type of manual clean will remove them as they are too deep within the tiles."

Affidavit of Nicholas Abbenbroek dated 4 May 2022 (PX 1, Tab 12)

Mr Abbenbroek is a licensed tiler. In February 2021 he was asked by Mr Nikolaidis to quote on tiling work on the premises. He quoted for replacement of the tiles to the rooftop terrace. His first quote contained a typographical error. He was later requested to provide a break-up of the components of the work to be undertaken. His updated quote was dated 10 April 2022 and was Annexure C to his affidavit.
The final quote said that Mr Abbenbroek could not match the existing colour for all tiles, as they had been discontinued. He made an allowance for purchasing new tiles for $75 per square metre. He said that the work would take between four to five weeks, depending on weather. The quote for the balcony works, including the supply of tiles was for $34,005 plus GST. It was common ground between the parties that Pittwater Marinas could not claim GST, as it was GST registered.

Affidavit of Leon Nikolaidis dated 7 May 2022 (PX 1, Tab 13)

Mr Nikolaidis attached a rent schedule for the period 1 April 2020 to 31 March 2021. This schedule said that the outstanding rent, after giving credit for the bond of $22,000 and a payment of $10,000 made on 31 March 2021, was $25,729.38.

Affidavit of Prempricha Pamornniyon dated 30 November 2021 (PX 1, Tab 15)

Ms Pam said that she had been involved with the restaurant at the premises since about the year 2000, which was then known as the Green Pearl restaurant. She was initially employed by the original owners. She said that at some time during the course of the original lease which ran from 2000 to 2005, planter pots were placed on the rooftop area and on the outdoor terrace area on the first floor. These were installed by the original sub-lessee.
Ms Pam and her then business partner entered into a sub-lease of the restaurant premises as joint tenants in 2005 for a term of five years. In 2010 Ms Pam, together with her then business partners, entered into a new sub-lease as joint tenants for a term of five years ending on 31 March 2015. At the commencement of this lease the name of the restaurant was changed from Green Pearl to Blue Pearl. Between April and 13 August 2015 the tenancy continued on a month-to-month basis.
On 14 August 2015 Blue Pearl entered into a new sub-lease of the restaurant premises for a term of five years ending on 13 August 2020. Ms Pam and her then business partner Mr Wang, the third defendant, were guarantors of the obligations of Blue Pearl under the 2015 lease.
Ms Pam said that after the conclusion of the fixed term on 13 August 2020, occupation continued on a month-to-month basis.
The business struck trouble in March 2020 with COVID-19 restrictions. By October 2020 Ms Pam had been unable to find a buyer for the business of the Blue Pearl restaurant and made the decision to terminate the 2015 lease. She sent a text message to Mr Nikolaidis on 26 October 2020. She sent an email to him on 26 December 2020. This email has been referred to above.
Ms Pam gave evidence about meetings at the premises and conversations concerning the removal and reinstatement of the kitchen equipment. Those matters are irrelevant to the present dispute.
Ms Pam accepted that she did hand the keys over to Mr Bradshaw, but that she received the keys back in the mail on 3 February 2021. She did not request that the keys be delivered to her. She said: "The keys were subsequently used solely to enable further work to be carried out at the Restaurant Premises as referred to elsewhere herein."
Ms Pam dealt with the rooftop and balcony tiles in pars 32 and 33 of her affidavit. She said: "32 In response to the plaintiff's claim for damages to repair the tiles on the rooftop (as set out, at least in part, at paragraphs 58-62 and 67 of the LN Affidavit), I say that: a. as deposed above, the planter pots which are said to have caused the damage to the rooftop tiles were first placed on the rooftop area and in the outdoor terrace area on the first floor around the time of commencement of the Original Lease. Neither I nor the first defendant were responsible for their installation or placement; b. when I first entered the First Lease, I was not aware of, and did not consider, whether or not I was entitled to or able to remove the planter pots. The planter pots thereafter remained in place until December 2020/January 2021 when they were removed. c. the damage caused by the planter pots could have been caused at any time between their original installation in 2000 and the date of their removal or over the course of that period. 33 As to paragraph 61 of the LN Affidavit I deny saying to Mr Puffe words to the effect that 'I had put the pot plants there'. I also refer to page 146 of Exhibit 'LN.1'. I spoke to Mr Puffe by telephone on 11 March 2021 and I sent him by SMS images of the staining of the tiles. He sms'd me 'Are you wanting the whole area cleaned or just the stains?' and I replied 'Whole area and special clean the stain'. There were further sms exchanges and among other exchanges I advised him 'The pot plants have been there for over 10 years'. I dropped the key to what I believe was his residence in 2/17 Edgecliff Boulevarde, Collaroy Plateau on 18 March 2021 and I will produce to the court a copy of those SMS messages if required. I did not meet Mr Puffe at the restaurant. Mr Puffe's reference to the month of April is incorrect, it was in March."

Affidavit of Shaochen Wang dated 28 January 2020 (PX 1, Tab 16)

Mr Wang was a former business partner of Ms Pam. He was a director of Blue Pearl between 22 July 2015 and 9 December 2016. He had not visited the marina property since March 2017. Mr Wang could understandably offer no evidence in relation to the matters which were the subject of the litigation.

Oral Evidence Concerning the Tiles

The issue to be determined concerning the claim for rent rests upon documentary evidence. The issue concerning the claim for repair of the tiles was the subject of oral evidence. There was cross-examination of Mr Nikolaidis, Mr Puffe, Mr Abbenbroek and Ms Pam in relation to their evidence-in-chief on the topic. This evidence was on affidavit and is summarised above.

Cross-examination of Mr Nikolaidis

Mr Nikolaidis acknowledged that he would not have been aware of any damage to the tiles prior to 2015. He confirmed that he made a detailed inspection before he bought the property and did not see any damage to the tiles. He confirmed his evidence concerning subsequent inspections. Mr Nikolaidis acknowledged that any damage which was underneath the pot plants would not have been visible on inspection.
Mr Nikolaidis said that it is always a risk that pots can cause damage and staining to tiles. However, on his inspections, he saw no dark markings or any halo around the pot. He said that if he had seen damage to the tiles he would have raised this with the agent.
Mr Nikolaidis was shown a current advertisement offering the premises for lease (DX 1). The photograph of the tiled balcony area shows pristine white tiles. Later evidence from a real estate agent (PX 4) showed that the photograph had been altered to make the premises look more attractive. Mr Nikolaidis confirmed that the tiles were still blue and were still stained as shown in the photographs. Mr Nikolaidis was asked whether the stains could have been there for 10 or 15 years and he said "definitely not".
In cross-examination by counsel for Mr Wang, Mr Nikolaidis said that about 25% of the tiles on the balcony were stained.

Cross-examination of Mr Abbenbroek

Mr Abbenbroek said that he had not been asked to consider the option of painting the tiles instead of replacing them. He said that painting the tiles may not comply with "the Standard". I took it that he meant that they would not comply with an Australian Standard in relation to slip resistance.

Cross-examination of Mr Puffe

Mr Puffe agreed that the damage could have happened over more than ten years. He said "time is the big factor". Iron in the soil leeches from the pots and causes staining. Mr Puffe said that he did not know when the damage occurred. The longer the time the more the staining.

Cross-examination of Ms Pam

Ms Pam acknowledged that she was carrying out make good works in February and March 2021. In March 2021 she went with a tiler to inspect the tiles on the kitchen walls. She went to see the tiles on the balcony. She said that "Andrew" suggested painting the tiles and Mr Nikolaidis said that this was not good enough.
Ms Pam was cross-examined about whether the staining was visible at the various inspections. She was asked about October 2015 and said that she did not know if the staining was on the tiles then. She was asked whether there was staining around the pot plants in March 2021 and she agreed that there was. Ms Pam was asked whether there were stains visible at an inspection on 29 April 2016 and she said she did not know. Ms Pam recalled a visit in 2017 by a plumber to discuss flooding from the roof into the restaurant. She was asked whether she saw staining at that time and she said that she had not observed stains.
Ms Pam was asked about a meeting with Mr Nikolaidis in 2017 in relation to a sunshade to be constructed on the balcony, which would need council approval. She said that she did not notice any staining then.
Ms Pam was asked about a 2018 inspection to investigate a water leak. She said that she was not sure if she went to the terrace on that occasion.

The Tiles: Credibility and Findings of Fact

Mr Nikolaidis said that he had several inspections well prior to 2021 and that on those occasions he specifically looked for whether or not the pots were staining the tiles. He said that he was aware that there is a risk that pots can cause staining on tiles. For that reason he was specifically looking to see if there was any damage to the tiles. On the other hand, Ms Pam either did not notice staining to the tiles or did not know whether the tiles were stained at various times when inspections were conducted by Mr Nikolaidis.
I accept the evidence of Mr Nikolaidis to the effect that on multiple occasions when he did inspections in 2015, 2016 and 2017, there was no staining from the pots apparent on the tiles. I also accept his evidence that he was particularly looking at the condition of the tiles, as he had observed the pots and was aware that there is always a risk that pots can cause staining damage to tiles. This gave him all the more reason to make a careful observation of the state of the tiles, particularly during his pre-purchase inspections when he was negotiating a price for the property.
I also accept the evidence of Mr Abbenbroek and Mr Puffe concerning the tiles.
As recited above, the evidence of Ms Pam concerning whether staining was present on the tiles in 2015, 2016 and 2017 was vague. I accept her when she says that she did not know whether there was staining on the tiles in 2015, 2016 and 2017. Her lack of observation of any staining on those occasions reinforces the view I have taken of the credibility of Mr Nikolaidis, who said that staining was not present in 2015, 2016 or 2017 when he inspected the area which is tiled.
I make the following findings of fact: 1. There was no staining of the tiles due to presence of pot plants when the sub-lease commenced in 2015. 2. There was no staining of the tiles when inspections took place in 2015, 2016, 2017 and 2018. 3. There was staining of the tiles when the sub-lease ended in August 2020. 4. The staining was not simply dirt or mould, but was staining which had impregnated into the tiles and which could not be removed by cleaning. 5. Pot plants sitting on tiles often result in staining which impregnates the tiles and which cannot be removed by cleaning. 6. Mr Nikolaidis knew in 2015 when he was negotiating to buy the property that staining could result from pot plants sitting on tiles.

The Timber Wall: Findings of Fact

I make the following findings of fact: 1. When the Blue Pearl sign was removed from the timber wall, it left a rectangle darker in colour than the surrounding timber. 2. Much of the wall appeared to have faded and to be uneven in colour. 3. Most of the need for sanding and restaining the wall came about not from the presence of the sign, but from deterioration of the timber generally in areas other than where the sign had been. 4. There was no evidence presented of the reasonable cost of sanding and restaining the wall. 5. In any event the need for such work did not arise from the presence of the sign, but from fading of the stained timber through exposure and effluxion of time.

Consideration of the Rent Claim

The term of the five-year sub-lease, which commenced on 14 August 2015, ended on 14 August 2020. From that time Blue Pearl was a month-to-month tenant. Blue Pearl continued to operate the restaurant (as best it could under COVID-19 restrictions) and occupied the premises on the same basis as it had under the five-year sub-lease. By cl 12.4.1 of the sub-lease, when the lessor allowed the lessee to continue to occupy the property after the end of the lease period, the lessee became a monthly lessee and was obliged to go on paying the same rent and other money in the same way that the lessee had to do under the sub-lease, just before the sub-lease period ended.
Such monthly tenancy could be terminated, pursuant to cl 12.4.3 of the sub-lease, by either party giving, at any time, one month's written notice to the other expiring on any date.
By the email dated 26 December 2020 from Ms Pam to Mr Nikolaidis, Blue Pearl purported to terminate the lease "by the end of December 2020". While this was a clear indication that the sub-lessee intended to terminate the monthly tenancy, it did not give the requisite period of notice required under cl 12.4.3.
However, this was cured by the email dated 28 December 2020 from Mr Nikolaidis to Ms Pam, which pointed out that one month's notice in writing was required. That email said: "Your tenancy therefore ends on 26 January 2021 and rent is payable up to and including that day".
Counsel for Pittwater Marinas submitted (MFI 1, par 16): "Where the tenancy has been lawfully terminated, a tenant who refuses to vacate the premises is a trespasser. The landlord is then to either sue for use and occupation or sue for possession and claim mesne profits. Mesne profits are the damages for the rent that would have been obtained on re-letting but for the tenant's continued occupation. Because the lease has been terminated, mesne profits are not strictly rent, nevertheless generally they equal the [market] rent that would have been obtained."
Pittwater Marinas did not sue for use and occupation after termination of the tenancy and did not sue for mesne profits. The Amended Statement of Claim plainly says that the payments up to the end of March 2021 were for "rent".
In oral submissions counsel for Pittwater Marinas said that the lease was not validly terminated by the correspondence in December 2020. He submitted that the tenant remained in possession to the end of March doing "make good work" and that the month-to-month tenancy ran until the end of March 2021.
I reject this submission. The correspondence in December 2020, referred to above, is a clear indication that it was agreed that one month's written notice was given, which terminated the month-to-month tenancy on 26 January 2021. Blue Pearl was not a tenant after that date, nor was it a trespasser. Blue Pearl was permitted to go onto the premises for the limited purpose of doing repair work which the landlord said was required under the sub-lease. It did not run a restaurant after 26 January 2021 and it only accessed the premises intermittently to do work required by the landlord.
In Council of the City of Newcastle v Royal Newcastle Hospital (1956) 96 CLR 493 (affirmed on appeal to the Privy Council), Justice Kitto contrasted "occupation" with "use". His Honour said that "use" involves no more than physical acts by which land is made to serve some purpose, but occupation involves three elements being "legal possession, conduct amounting to actual possession, and some degree of permanence".
Lord Denning, speaking for the Board of the Privy Council on the appeal from the High Court, said that occupation "is a matter of fact and only exists where there is sufficient measure of control to prevent strangers from interfering": Council of the City of Newcastle v Royal Newcastle Hospital (1950) 100 CLR 1 at 4.
Clause 12.4.1 of the sub-lease applies where a lessor allows the lessee "to continue to occupy the property after the end of the lease period" (emphasis added). I find that Blue Pearl did not continue to occupy the property after 26 January 2021 and I accept the submission of counsel for the third defendant (MFI 4, par 14) that this was so because: 1. Blue Pearl had ceased operations as a restaurant. 2. Blue Pearl had vacated the premises and removed tenant's fixtures such as the kitchen during January 2021. 3. Blue Pearl handed over the keys on 1 February 2021 and yielded control of the property. 4. Even though the keys were returned by Pittwater Marinas, Blue Pearl only returned to the premises to attend to the performance of certain make good works directed by Pittwater Marinas.
I find that the obligation to pay rent ended on 26 January 2021, when the month-to-month tenancy ended.
As a consequence, I accept the submission made by counsel for Blue Pearl that the rent and outgoings which Pittwater Marina can recover are as follows: Rent due 1 December 2020 $12,171.08 Rent due 1 January 2021 $12,171.08 Sydney Water outgoing $3,477.08 COVID-19 deferred rent $9,045.06 Subtotal $36,864.30 Less bond -$22,000.00 Less payment on 31 March 2021 -$10,000.00 Amount owing by defendants $4,864.30

The Tiles

Clause 7.3.1 of the sub-lease requires consideration of three legal concepts: 1. What is the meaning of the word "reimburse"? 2. What is the meaning of the phrase "structural damage"? 3. What is the meaning of the phrase "fair wear and tear"?

Reimburse

Counsel for the third defendant pointed out that Pittwater Marinas had not spent money and done the repairs to the tiles or the timber wall. Counsel submitted as follows (MFI 4, par 19): "More fundamentally, however, the Plaintiff is making a 'damages' claim and not a 'reimbursement claim'. Properly construed clause 7 does not permit a damages claim, it only conceives of a right to be reimbursed or indemnified for costs incurred in effecting repairs; clause 7.2, 7.3 and 7.5 of the sub-lease make this clear. The measure of recovery under cl 7 is for the amount which has been expended, not for an amount to be expended or which may never be expended."
The Macquarie Dictionary gives the following definitions for the word "reimburse": 1. To make repayment to for expense or loss incurred. 2. To pay back; refund; repay.
In Telfer v Fairfax [2016] NSWSC 60 the Supreme Court considered the meaning of "reimburse" in a deed granted in relation to a loan. The court said at [135]: "The primary meaning of the expression would appear to involve a repayment of some expense or loss actually incurred. The reference to 'expense' would cover an obligation that had arisen, whether or not that obligation had actually been paid. The word 'loss' is in my view capable of extending to damage, in the ordinary sense contemplated by the law as being a consequence of a breach of duty, even though the person who has suffered the loss had not actually been required to pay out money in consequence of it."
In Zurich Australian Insurance Ltd v Fruehauf Finance Corporation Pty Ltd (1993) 7 ANZ Ins Cas 61-177 Chief Justice Gleeson said: "The Macquarie Dictionary gives, as the primary meaning of 'reimburse', 'to make repayment to for expense or loss incurred'. The word is one whose meaning varies according to its context. It is not limited to a simple refund of money by a recipient."
In the present case the word "reimburse" appears in cl 7.3.1 which deals with the lessor incurring a "cost of fixing structural damage". Whether the lessor actually lays out money to fix such damage is in my view irrelevant. If a property has been damaged, its value is diminished. Either the landlord suffers a "cost" through paying money to effect the necessary repairs, or the landlord is left with a property which is damaged and therefore of a lower value.
I am of the view that the word "reimburse", in the context of cl 7.3.1, does not require the landlord to have paid money for the repairs, in order to make a claim for the cost of those repairs (or the value of those repairs when done) against the tenant. I therefore reject the submission as to the meaning of the word "reimburse" put by counsel for the third defendant. It is not necessary, in my view, for Pittwater Marinas to have done the work or to have paid for the work.

Structural Damage

The submission by counsel for the plaintiff in relation to the meaning of the term "structural damage" was as follows (MFI 1, par 21): "In relation to what constitutes structural repairs - in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 at [39]-[42] Barrett J found that an area of bitumen paving, laid on top of foundation of aggregate or blue metal was structural and this was affirmed on appeal in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224 at [37]-[42]."
In considering this submission, it is important to note that the phrase dealt with in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 was whether work to repair bitumen areas was "structural maintenance replacement or repair". It is also important to keep in mind that there was expert evidence in the case concerning the function and state of the bitumen areas.
At first instance, Justice Barrett said at [39]: "The first thing to be said is that, as I view matters, maintenance, replacement or repair that is 'structural' can be undertaken only in relation to something that is a 'structure' although, of course, not everything done by way of maintenance, replacement or repair in relation to a 'structure' is properly classified as 'structural'."
In the same paragraph Justice Barrett referred to the decision of Justice Brereton in Hampson v Clyne [1967] 86 WN (NSW) 321 where the following was said: "'Structure' of course is a word of which the meaning varies considerably according to the context, and the phrase 'structural character' or 'defect of a structural character' varies correspondingly. Literally 'structure' means something which has been constructed and 'defect of a structural character' means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together."
At [40] Justice Barrett referred to the decision of the Supreme Court of Victoria in Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272 where Justice Balmford said at [44]: "The structure is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defects - susceptible of patching, painting or other straight-forward repair."
In that same judgment Justice Balmford at [49] referred to the decision of Austin J in Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd (1999) NSWSC 264 at [46] where his Honour said: "The distinction between structural and non-structural repairs requires the Court to make a practical judgment as to whether the work, having regard to its nature and extent, interferes with or alters the framework or structure of the building."
In the primary judgment of Justice Barrett in Alamdo, it is apparent that the parties placed expert evidence before the court, which demonstrated that the bitumen paving could be regarded as structural, and that repairs to such paving were thus structural repairs. There is no evidence at all in the present case of an expert nature concerning whether or not the staining of the tiles can be regarded as "structural damage".
The oral submission of counsel for Pittwater Marinas was simply that the tiles are bonded to the concrete balcony and thus they form part of the structure. The submission was that if they are damaged, then that is structural damage. Such a submission does not accord with the authorities referred to above, which require the court to come to a finding that any damage has interfered with or altered the structure of the building, which could lead to building failure or collapse. The submission wrongly equates "damage to a structure" (no matter how slight) with "structural damage".
The staining to the tiles is undoubtedly unsightly. However, there is no evidence that this staining, even though it has impregnated the tiles, has threatened the load-bearing integrity of the building.
I find that the staining of the tiles is not "structural damage", and thus there is no obligation on Blue Pearl under cl 7.3.1 of the sub-lease to reimburse Pittwater Marinas for the cost of fixing or replacing the stained tiles. In relation to the stained tiles, the premises of Pittwater Marinas have not suffered structural damage.
For this reason alone, the claim for the cost of replacement of all of the tiles on the balcony areas fails.

Fair Wear and Tear

It remains to consider whether, even if the damage to the tiles constitutes "structural damage", that the staining can be regarded as "fair wear and tear" under cl 7.3.1.
At first instance in Alamdo and on appeal, there was reliance upon the decision of the House of Lords in Regis Property Co Ltd v Dudley [1959] AC 370, which was described as "authoritative".
In that decision it was said: "Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The exception of want to repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed." (Emphasis added)
A carpet being worn down by foot traffic is reasonable wear and tear. Painting which over the years acquires finger marks or chips is reasonable wear and tear. Mr Nikolaidis knew from the time he first inspected the property, before it was purchased, that pot plants sitting on tiled balconies could eventually lead to staining of the tiles. He made a point of observing the state of the tiles near the pot plants on subsequent inspections. In the light of these matters, I regard the staining of the tiles due to the leeching of iron from the pots, as within the meaning of the phrase "fair wear and tear". The staining has come about by the ordinary operation of natural forces. For this reason also, the claim in relation to the tiles fails.

The Timber Wall

This claim fails. The findings of fact recorded above mean that the need to re-varnish the entire wall has come about, not because a sign was placed on the wall, but because the rest of the wall appears to have faded and become uneven in appearance over time. If anything, the small area behind the sign, being unaffected by light or the atmosphere, is probably the original colour of the wall. In any event, there was no evidence of the reasonable cost of refurbishment of the wall. Finally, re-varnishing a wall does not fall within the phrase "fixing structural damage caused by the lessee" in cl 7.3.1. If anything, a wall which has faded over time would be regarded as "fair wear and tear", a phrase from cl 7.3.1, which is discussed above.

Conclusions and Orders

The claim of Pittwater Marinas in relation to rent has succeeded in the amount of $4,864.30. The claim in relation to repairs has failed for reasons set out above.
There will be judgment for the plaintiff against all three defendants in the amount of $4,864.30.
I was asked by all parties to reserve the question of costs, as a costs order may be affected by offers made between the parties.
My orders are: 1. Judgment for the plaintiff against the first, second and third defendants for $4,864.30. 2. Reserve the costs of the proceedings for later determination. 3. Grant liberty to the parties to approach my Associate to obtain a date for a further hearing in relation to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 July 2022

At a glance

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Judgment (27 paragraphs)

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Cases Cited (6)

Cited By (1)