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[2017] VSC 313
Supreme Court of Victoria
2017-06-09
CROFT J
Original judgment source is linked above.
LANDLORD AND TENANT - Construction of market rent review provisions - Nature and purpose of market rent review provisions - Applicable principles of construction - Relationship between different provisions of a lease (including market rent review provisions and percentage rent review provisions) - Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 - Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 - - ;
1 This proceeding raises a question of construction of market rent review provisions in a commercial lease. The Plaintiff, Point Cook Community Entertainment Facility Pty Ltd, is the owner of "The Brook" situated at 5 Sneydes Road, Point Cook in Victoria ("the Premises"). The Plaintiff leased the Premises to the Defendant, Geelong Football Club Ltd, for a term of 20 years, commencing on 5 June 2009, together with three further terms, each of ten years, by a lease executed on or about the commencement date ("the Lease"). The Lease was preceded by a Deed of Variation of Agreement to Lease and Lease between PCCEF Pty Ltd and the Defendant dated 24 July 2008 ("the Deed of Variation").
2 The Premises are licensed premises, in the usual sense with respect to the sale and consumption of alcohol, and are also licensed as a gaming venue. The benefit of these licences is provided for in the permitted use under the terms of the Lease which is:[1]
Licensed gaming and community facility including associated offices and carpark.
3 Factual matters are not in controversy between the parties in these proceedings, including the history of the development of the Premises, a deal of which is recited in the Deed of Variation. In this respect, it is noted that it is stated in Recital C to this Deed that:
It was a condition of the Agreement to Lease and Lease that the Lessor would provide certain fitout works in the development and construction of the Facility for GFC which fitout works were to be provided as part of the Lessor's works under the Development Agreement.
4 These matters as recited are reflected in the operative part of the Deed of Variation. Aspects of the history and development of the Premises are also reflected in a letter from Arnold Bloch Leibler to Grindal & Patrick, the Plaintiff's solicitors, dated 6 February 2017. In any event, it is not necessary to go further into the detail of the history of development of the Premises, save to observe that it was accepted by the parties that it is a facility which was developed and built to a significant extent as a purpose-built facility for the Defendant. In terms of the Defendant's position, this is said to be significant on the basis that the Plaintiff, as landlord, having spent significant sums of money on the Premises, would expect a return on its investment and maintenance of the capitalised value of the Premises on the basis of a rental adjusted and reflective of market rentals during the term and any renewals of the Lease. Moreover, as contended by the Defendant, the Lease is properly described, in the Victorian context, as a long-term lease, particularly when one considers the entitlement of the Defendant to seek three further terms of ten years each beyond the initial term of 20 years - thus producing an aggregate term of 50 years.
5 The critical provisions of the Lease are as follows -
3. RENT
3.1 Tenant to pay rent
The Tenant covenants to pay the Rent:
(a) at the times and in the manner set out in Item 6 without demand by the Landlord;
(b) without any abatement, deduction or right of set-off unless it is specifically allowed under this Lease; and
(c) to the Landlord at its address appearing in this Lease or to any other address or in any other way the Landlord reasonably directs the Tenant by Notice.
...
These provisions are to be read with the definition of "Rent" contained in clause 1.1 of the Lease, as follows:
Rent means the rent set out in Item 5 as varied under this Lease...
SCHEDULE 1
Item 1 The Premises:
The Licensed Premises situate at 5 Sneydes Road, Point Cook being the land delineated in red in the Plan marked A annexed hereto and being the land described in Certificate of Title Volume 11080 Folio 093.
Item 2 The Term:
Twenty (20) years.
Item 3 Commencement Date:
The fifth day of June 2009.
Item 4 Rent Commencement Date:
The fifth day of July 2009.
Item 5 Rent:
The initial annual Rent is $996,000 plus GST.
Item 6 Rent Review:
The annual rent payable from time to time shall be reviewed as provided in Schedule 2. Rent Review dates are as follows:
(a) Percentage Review Dates: on each anniversary of the Commencement Date during the term or any permitted extension hereof; and
(b) Market Rent Review Dates: on each Fifth anniversary of the Commencement Date during the term or any permitted extension thereof.
Item 7 Rent Payable:
The initial annual Rent is to be paid in advance by monthly instalments of $83,000 plus GST. The first instalment is to be paid one month after the Rent Commencement Date and each instalment after this is to be paid on the first day of each month. (No rent shall be payable for the period of One Month from the Commencement Date.) The instalments will be revised if the Rent is revised in accordance with Schedule 2.
Item 8 Permitted Use:
Licensed gaming and community facility including associated offices and car park.
Item 9 Further Terms:
Three (3) Further Terms each of ten (10) years.
SCHEDULE 2
RENT REVIEW
APPENDIX
Item one: On each anniversary of the Commencement Date except for any Market Rent Review Date.
Item two: On each Fifth anniversary of the Commencement Date during the Term hereby created and any permitted extension thereof.
The only other definition provisions of relevance to the Lease provisions set out (at least in the present context) are as follows:[2]
...
Commencement Date means the date of commencement of this Lease set out in Item 3;
...
Rent Commencement Date means the date set out in Item 4;
...
Term means the term of this Lease set out in Item 2 commencing from and including the Commencement Date.
...
6 It is common ground that the primary duty of a court in construing a written contract, including a lease, is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied.[3] The meaning of the contractual or lease terms is to be determined objectively, by reference to what a reasonable business person would have understood the terms to mean.[4] The proper approach involves consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract or lease.[5] In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd the plurality, French CJ, Gordon and Nettle JJ, having referred to this approach, observed "... [o]rdinarily, this process of construction is possible by reference to the contract alone."[6]
7 Even more recently, the plurality of the High Court in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd said:[7]
See also Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd.[8]
8 Thus, as submitted by the Defendant, and not treated as controversial, the principles pertaining to the construction of commercial contracts and contracts in general may be summarised as follows:[9]
...
(a) The Court must construe the contract as a whole; Bettini v Gye (1876) 1 QBD 183 at 188; Tramways Advertising Pty Ltd v Luna Park (NSW) Limited (1938) 38 SR(NSW) 632 at 641.
(b) Where the language of the commercial contract is ambiguous or susceptible of more than one meaning, evidence of the surrounding circumstances is admissible to assist in the interpretation of the contract; Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352.
(c) Where the language of the contract is open to more than one interpretation, the Court should prefer a construction that does not lead to capricious or unreasonable results; Bytan Pty Ltd v BB Australia Pty Ltd [2012] 41 VR 46 at [12] citing Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109.
(d) The Courts will look to enforce agreements that have been freely entered into by the parties and to give effect to the objective intention of the parties, rather than to avoid the agreements; Watson v Phipps (1985) 60 LJR 1 at 3; Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; Secured Income Real Estate (Aust) Limited v Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596.
(e) The Court will be slow to find ambiguity or uncertainty in a commercial contract where the intention of the parties can be reasonably inferred; Upper Hunter County District Council v Australian Chilling & Freezing Co [1968] HCA 8; (1968) 118 CLR 429; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571.
(f) The terms of a contract will include those terms that the parties objectively intended it to include; Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne )Ltd [2014] VSC 556 at [14].
9 Turning now to rent review provisions in leases, more specifically, it is well accepted that rent review provisions must be considered in the context of the lease as a whole.[10] Nevertheless, the objective purpose of rent review provisions may be stated at least in general terms. Thus, in Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd, I observed:[11]
10 The Plaintiff, in its List of issues, identified the following three issues:[13]
1.1 Issue 1. Whether the first notice was of no effect to the extent that:
(a) contrary to paragraph 7 of Schedule 2 to the lease it purported to vary the annual rent to an amount less than the annual rent paid in the year immediately prior to 5 June 2014;
(b) contrary to paragraph 2 of Schedule 2 to the lease it purported to apply the varied rental as and from a date other than a Market Rent Review Date.
1.2 Issue 2. Whether the second notice was of no effect to the extent that:
(a) contrary to paragraph 7 of Schedule 2 to the lease it purported to vary the annual rent to an amount less than the annual rent paid in the year immediately prior to 5 June 2014;
(b) contrary to paragraph 2 of Schedule 2 to the lease it purported to apply the varied rental as and from a date other than a Market Rent Review Date.
1.3 Issue 3. Whether, as alleged by the defendant,[14] the first notice and/or the second notice had the effect of invoking the market rent review procedure set out in Schedule 2 to the lease.
In addition to the three issues identified by the Plaintiff, the Defendant identified the following further issue for determination in the proceeding:[15]
[Issue 4] Whether where the current market rent as determined by a market rent review is either less than or significantly more than the rent payable in the year prior to the Market Rent Review Date (previous rent) the rent payable in the second and subsequent years after a Market Rent Review Date can be less than the previous rent or more than 8% higher (5% Schedule 2 cl [or para] 7 plus 3% ratchet increase) than the previous rent.
11 Having regard to the issues raised by the parties, it is helpful to set out the notices referred to in those statements of issues, namely, the "first notice" and the "second notice", which are as follows:
RENT NOTICE (B2B Lawyers for and on behalf of the Tenant 10 November 2016)
Premises: 5 SNEYDES ROAD, POINT COOK
Paragraph 2, Schedule 2 of Lease dated 1 October 2009
Pursuant to paragraph 2, Schedule 2 of the lease of the Premises dated 1 October 2009, the Tenant hereby gives notice that the annual rent should be varied as and from the last Market Rent Review Date (i.e. 5 July 2014) to the amount referred to below which is, in the opinion of the Tenant, the current market rent for the Premises as at the Market Review Date.
Commencement Date
For New Annual Rent: 5 July 2015
RENT NOTICE (B2B Lawyers for and on behalf of the Tenant 21 December 2016)
PREMISES: 5 SNEYDES ROAD, POINT COOK
Paragraph 2, Schedule 2 of Lease dated 1 October 2009
Pursuant to paragraph 2, Schedule 2 of the lease of the Premises dated 1 October 2009, the Tenant hereby gives notice that the annual rent should be varied as and from the last Market Rent Review Date (i.e. 5 June 2014) to the amount referred to below which is, in the opinion of the Tenant, the current market rent for the Premises as at the Market Review Date.
New Annual Rent: $680,000
Commencement Date
For New Annual Rent: 5 June 2015
12 Before turning to the substantive aspects in this context, it is helpful to note that the Lease suffers from a number of drafting problems, identified by the Defendant as follows:[16]
(a) The reference in paragraph 2 of Schedule 2 to Item Six of the appendix to Schedule 2 where there is none referred to in paragraph 15 of the Plaintiff's submissions.
(b) Clause 3.1(a) refers to payment of the rent at the times and in the manner set out in item 6 of the Schedule, which refers to rent reviews, rather than item 7 which refers to the time and manner of payment of the rent.
(c) There is no clause of the lease proper which provides for rent reviews, that task being left for item 6 of Schedule 1 and Schedule 2.
(d) There are differences between item 6 of Schedule 1 and Schedule 2 (referred to in [11] of the Plaintiff's submissions).
The reference to the Plaintiff's submissions - at paragraph 11 - is to the following:
Appendix 2 to Schedule 2 supplies the operative definitions of Percentage Review Date and Market Rent Review Date. To the extent there is any practical difference between the definitions in the appendix and the description of those dates in Item 6 in Schedule 1, the definitions in the appendix should prevail because they are given operative effect by Schedule 2. By application of those definitions, each anniversary of the commencement date which is not a Market Rent Review Date is a Percentage Review Date.
Determination of the issues in controversy in this proceeding does not, however, hinge upon these drafting infelicities. It is common ground that the approach stated by Dixon CJ and Fullagar J in Fitzgerald v Masters is applicable in the present circumstances, namely, that:[17]
Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.
Thus, in the context of a reading of the Lease and its Schedules and Appendix to Schedule 2 as a whole, it is clear that the matters identified are merely technical drafting mistakes or slips where the content and structure of the Lease itself makes the references intended quite clear.
13 Despite these drafting issues, there is no dispute between the parties that either the Plaintiff landlord or the Defendant tenant may, at any time before or after each market rent review date - relevantly, for present purposes, 5 June 2014 - by notice in writing to the other party, notify a proposed current market rent for the premises as at the relevant Market Review Date. In addition to its contentions concerning defects in the notices given by the Defendant tenant under paragraph 2 of Schedule 2 of the Lease pertaining to a market review of and from 5 June 2014, the Plaintiff landlord contends that the effect of paragraph 7 of Schedule 2 is that the rent consequent on a market rent review cannot go down nor be increased by more than 5%. In other words, in lease valuation parlance, the rent review provisions of the Lease provide both a "collar" and a "cap".
14 The appendix to Schedule 2 to the Lease provides the operative definitions of "Percentage Review Date" and "Market Rent Review Date". As indicated previously, to the extent that there is any practical difference between the definitions in the Appendix and the description of those dates in Item 6 in Schedule 1, the definitions in the Appendix should prevail because they are given operative effect by Schedule 2.
15 On each Percentage Review Date, the annual rent "will increase by an amount equal to 3% of the annual rent payable immediately prior to the Percentage Review Date"; as is provided for in paragraph 1 of Schedule 2 to the Lease. No provision is made for the annual rental to be varied at a time other than a Percentage Review Date or a Market Rent Review Date.
16 The market rent review procedure is provided for in paragraph 2 of Schedule 2 to the Lease. This paragraph provides the exclusive mechanism for the invoking of the market rent review procedure; a procedure which can only be invoked in compliance with the provisions of this paragraph. Under paragraph 2, either party is entitled to serve a notice, defined as a "Rent Notice". It is provided that a Rent Notice must be in writing and notify the other party that the annual rent should be varied as and from the Market Rent Review Date and must specify an amount which is, in the opinion of the party giving the notice, the current market rent for the Premises as at the Market Rent Review Date. The reference in paragraph 2 of Schedule 2 to "Item Six of the Appendix to this Schedule" is an obvious mistake, as there is no such item. On the basis indicated previously, clearly the reference should be to Item 2 of the Appendix and paragraph 2 of this Schedule should be interpreted as though that mistake were corrected.
17 The definition of Market Rent Review Date incorporates the language in Item 2 of the Appendix. Thus, paragraph 2 of Schedule 2 refers to "each of the dates ... specified in Item [2] of the Appendix to this Schedule (each of which dates are in this Schedule referred to as the Market Rent Review Date)". It does appear that the words "or on the expiration of each period" may be ignored, as no "period" is specified in 2. Item 2 specifies a date - being "[o]n each Fifth anniversary of the Commencement Date during the term hereby created and any permitted extension thereof".
18 Paragraphs 3, 4 and 6 of Schedule 2 to the Lease set out, in some detail, the machinery provisions for the market rent review procedure. As emphasised by the Defendant in its submissions, paragraph 3 contains quite elaborate provisions for the appointment of a valuer in default of agreement between the parties on an annual rent to apply after the Market Rent Review Date. For example, a licensed valuer who must be a member of the Victorian Division of the Australian Property Institute ("the API") is to be engaged by agreement or, in default of agreement, by the President of the API and must be a person with a minimum of five years' experience in the assessment of rental of comparable premises in the locality. Provision is then made for submissions by the parties to the licensed valuer. Moreover, paragraph 4 of the Schedule provides that the licensed valuer is to act as an expert and not as an arbitrator and, additionally, that the determination "will be conclusive and binding on the Landlord and the Tenant".
19 The Plaintiff emphasises that under these provisions, a party may serve a Rent Notice "at any time before or after each of the dates [i.e. the Market Rent Review Date]". So much is provided for in paragraph 2 of Schedule 2 of the Lease. The Plaintiff continues, submitting that an annual rental agreed or determined pursuant to the market rent review provisions can only apply as from a Market Rent Review Date, and says that there are three indications that this is so:[18]
20 I accept that so much, as submitted by the Plaintiff, is clear so far as it can be said, as a general proposition, that market rental variations can only apply from a Market Rent Review Date. The crucial question is, however, what is the quantum or content with respect to the market rental variation applicable from a Market Rent Review Date. This brings into focus the proper interpretation and effect of paragraph 7 of Schedule 2 to the Lease.
21 As the Plaintiff observes, paragraph 7 of Schedule 2 to the Lease provides: "the annual rental payable in the first year following any Market Rent Review Date shall in no circumstances be more than 5%, nor less than the annual rental paid in the year immediately prior to the Market Rent Review Date in question". The effect of these provisions is, the Plaintiff says, that the market rental ascertained by the market rent review procedure is disregarded to the extent it is more than 5% greater than, or is less than, the annual rental in the year before the Market Rent Review Date. Moreover, the Plaintiff submits that paragraph 7 is confined in its application to "the annual rental payable in the first year following any Market Rent Review Date" because in every other year the variation to the annual rental is an increase of 3%, occurring on the Percentage Review Date.
22 The Plaintiff contends that it is nonsense to construe paragraph 7 of Schedule 2 to the Lease as permitting a rental reduction at any time - or in any year - other than in the first year following any Market Rent Review Date. Such construction, it says, ignores the careful identification of Market Rent Review Dates and the explicit designation of each other anniversary as a Percentage Review Date. Moreover, it is said that such a construction would make no commercial sense as it is impossible to imagine why a lease, which permitted market based rent reviews to be commenced at any time, would include a ratchet provision applicable to such a review only if the review was to take effect in every fifth year of the term of the lease.
23 The Defendant submits that the Plaintiff's contention with respect to the proper construction of paragraph 7 is at odds with the language of that paragraph, which, the Defendant says, operates to limit movement in the rent during the first year following a Market Rent Review Date on which there has been a review of rent to current market rent, but that the actual market rent, increased by 3%, will be payable in the second year following a Market Rent Review Date in respect of which there has been a market rent review. Moreover, the Defendant submits that the construction it advocates is very much in the Plaintiff landlord's commercial interests. It is, the Defendant says, entirely conceivable that the market rental value of the land might go up far more than 3% per annum, in which case a five yearly market rent review would restore the return to the Plaintiff landlord in the second year after a Market Rent Review Date to market plus 3%. It is pointed out that with a fixed 3% increase every year for 20 years, the rent would be approximately double the commencing rent at the end of that term. With a fixed 5% increase every year, the rent after 20 years would be approximately 2.5 times the commencing rent at the end of the lease term. Moreover, as the Defendant tenant can compel a further 30 years of option terms with the same rent review provisions,[20] it is entirely conceivable that the construction contended for by the Plaintiff could see the rent well under market relatively early in the term and remain so for the next 40 years. These matters which the Defendant points to are, in my view, clearly matters of arithmetic in the context of the length of the Lease term, with possible renewals. As such, they are not matters of mere supposition or assertion and are properly considerations in the objective assessment as to the position of a reasonable businessperson applying the construction principles to which reference has been made.[21]
24 Thus, the Defendant contends that it is hardly what a reasonable businessperson would have objectively understood the market rent review provisions to mean at the time the lease was entered into. Additionally, the Defendant says that the Plaintiff's submissions appear to be motivated by the fact that the current rent appears to be well above market and the Plaintiff wishes to sell the Premises based on that rent; not what the parties objectively intended their bargain to be at the time they entered into the Lease. This latter submission is, of course, speculation and I confine myself to applying the principles applicable to the construction of commercial leases to the provisions of the Lease.
25 I accept that in the process of considering what the reasonable businessperson would have objectively understood the market rent review provisions to mean, it is necessary to look to the nature of these provisions and their generally accepted object and purpose as discussed previously,[22] but always in the context of the actual provisions of the Lease.
26 Paragraph 2 of Schedule 2 to the Lease makes it clear that the Market Rent Review provisions exist for the benefit of both the landlord and the tenant because it is expressly provided that either the landlord or the tenant may initiate a Market Rent Review at any time in accordance with the provisions of the Schedule. It should, however, be emphasised that the ability of either party to initiate a market rent review at any time does not disrupt the temporal structure provided for in the Lease for percentage rent increases and market rent review rent adjustments - this temporal structure is fixed by the Percentage Review Date(s) and the Market Rent Review Date(s) as provided for, expressly, in the Lease.
27 It is the position, as the Defendant submits, that a current market rent review is a well-known concept in commercial leasing, particularly in relation to long-term commercial leases; of which this lease is certainly one. The operation of a rent review mechanism may produce a rental more favourable to the landlord or more favourable to the tenant, depending on market conditions. Paragraphs 2, 3 and 4 of Schedule 2 make it clear that what is intended if either the landlord or the tenant initiate a market rent review is that "the current market rent" will be agreed or determined by a valuer and the latter process will be conclusive and binding on both the landlord and the tenant. Thus, the Defendant tenant submits that it is not the function of the market rent review to produce, merely, a modified ratchet provision limiting the increase in rent in one year, being the year following the Market Rent Review Date to somewhere between zero and five per cent. On this basis, the Defendant says that such a clause would not require the complex provisions pertaining to agreement or binding determination of the actual current market rent for the premises as set out in paragraphs 3 and 4 of Schedule 2. There is, of course, nothing to prevent commercial parties agreeing such an outcome, but the care taken in the drafting of paragraph 3 of Schedule 2 with respect to the appointment of a licensed valuer and the valuation determination being binding, as provided in paragraph 4, does, in my view, tend to indicate that there would be a disjunction between provisions of this nature and a provision which then had the effect of restricting the commercial outcome of this carefully constructed process within the strictures of an existing rent "collar" and a 5% "cap".
28 On this basis, the Defendant submits that the current market rent review process fixes the rent for the five years following the Market Rent Review Date, but with a "cushion" in the first year - a cushion produced by the "collar" and "cap". Thus, it is contended that this construction prevents the Plaintiff landlord from having to suffer rent far below market rent for potentially more than 40 years. Moreover, it is said that were that not the case, the words in paragraph 7 of Schedule 2 "in the first year following any market rent review date" would be otiose. Indeed, this would appear to be the case, because if the Plaintiff's construction were correct, the words "in the first year" could be omitted without any effect on the construction of these provisions as advocated by the Plaintiff.
29 The Defendant also emphasises that its submissions with respect to these market rent review provisions must be viewed in the context that the commercial purpose of the Premises is gaming, operation of a licensed premises and a community facility. Having emphasised the benefit to the Plaintiff landlord in the construction of these provisions as advocated by the Defendant, reference is also made to its position as tenant. Thus, the Defendant says that from the point of view of the tenant, the gaming and liquor licensing activities undertaken at the Premises are vulnerable to competition from other licensed and gaming facilities, and that it is in the commercial interests of both parties to the lease that, in the context of a 20 year initial term and a possible total term of 50 years, either party have the opportunity to procure payment of the current market rent for the premises every five years, cushioned in the first year after a market rent review, and thereafter to be subject to the annual 3% ratchet - being the percentage rent increases as provided for in Schedule 2 to the Lease. Again, these are properly considerations - and, in my view, obvious commercial considerations - in the objective assessment as to the position of a reasonable businessperson, applying the construction principles to which reference has been made.[23]
30 In my view, the construction of these Lease provisions as advocated by the Defendant is to be preferred for the reasons advanced by the Defendant and as discussed in the preceding reasons. In particular, applying the principles of construction to which reference has been made, I am of the view that one cannot simply ignore the reference to "the first year" in paragraph 7 of Schedule 2 to the Lease, which would be the effect of the position advocated by the Plaintiff having regard to the provisions of the Lease which establish a dual rent review regime of both percentage rent increases and increases as a result of a market rent review.
31 Moreover, it is clear enough that the objective purpose of market rent review provisions is, broadly speaking and subject to the terms of the particular lease, to seek to maintain rents at something close to the current market rental for premises as that might vary - upwards or downwards - during the term of the particular lease. Clearly, this is likely to be a more important consideration for parties the longer the lease term, as fixed rents in fluctuating market conditions might seriously disadvantage one or other party. In the present circumstances, the lease term - which might extend for 50 years if options to renew are exercised - indicates that, objectively, the parties were seeking to achieve this objective in including the rent review provisions as they appear in the Lease. I accept, for the preceding reasons, that the Plaintiff's construction both ignores critical words in the Lease and opens the possibility of a significant aberration in the fixing of future rental by reference to current market fluctuations in rent of comparable premises over a long term - an outcome that, viewed objectively, a reasonable businessperson would not have understood those terms to mean.
32 The Plaintiff contends that the Notices were of no legal effect because they sought to vary the annual rental to a market-based rental from a date other than a Market Rent Review Date, and to vary the annual rental to an amount below that required by paragraph 7 of Schedule 2. The Defendant submits that, as was made clear in the covering letters with which the Notices were served, the Market Rent Review Date was 5 June 2014, but the date on which there would be a new market based rent payable was postponed to the end of the first year following the Market Rent Review Date, as referred to and required in paragraph 7 of Schedule 2 to the Lease.
33 Thus, it says that on a proper construction of the Notices, in particular that dated 21 December 2016 which referred to the correct Market Rent Review Date of 5 June 2014, the Notices, properly construed, were effective under Schedule 2. Having regard to the position I have indicated with respect to the proper construction of the Lease provisions, particularly paragraph 7 of Schedule 2, I am of the opinion that the Defendant's submissions in this respect correctly state the position. It follows, therefore, that the 21 December 2016 Notice is validly and effectively given under paragraph 2 of Schedule 2 to the Lease.
34 For the preceding reasons, it follows that the first Notice was not effective because of the mistake in date (Issue 1), but that the second Notice was effective under the terms of the Lease (Issue 2). It follows that, in terms of Issue 3, the second Notice had the effect of invoking the market rent review procedure set out in Schedule 2 to the Lease. Moreover, in terms of Issue 4, it follows that where the current market rent as determined by a market rent review is either less than or significantly more than the rent payable in the year prior to the Market Rent Review Date ("the previous rent"), the rent payable in the second and subsequent years after a Market Rent Review Date can be less than the previous rent or more than 8% higher (5% Schedule 2 plus 3% ratchet increase) than the previous rent.
35 The parties are to bring in orders to give effect to these reasons. I otherwise reserve the question of costs and will hear any submissions from the parties in respect of this issue.
[1] Lease, Schedule 1, Item 8 (exhibit LKD-1 to the affidavit of Lachlan Kirwan (21 February 2017)).
[4] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at 656-7 [35].
[5] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at 656-7 [35].
[7] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486 at 491 [16]-[7].
[8] Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556, [12]-[16].
[9] Defendant's List of Issues and Written Submissions (24 May 2017), [5] ("Defendant's List of Issues").
[10] Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556, [15].
[11] Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556, [42].
[12] Growthpoint Properties Australia Ltd v Australia Pacific Airports (Melbourne) Pty Ltd [2014] VSC 556, particularly [33]-[41].
[13] (Plaintiff's) List of Issues (17 May 2017) ("List of Issues").
[15] Defendant's List of Issues and Written Submissions (24 May 2017), [1].
[16] Defendant's List of Issues and Written Submissions (24 May 2017), [9].
[17] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426-7; and see Lewison and Hughes The Interpretation of Contracts in Australia (Law Book Co, 2012) at 407 [9.01] and following.
[18] Plaintiff's Written Submissions (17 May 2017), [19]-[21].
[19] Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109.
[21] Cf Plaintiff's Written Submissions in Reply (26 May 2017), [7].
[23] Cf Plaintiff's Written Submissions in Reply (26 May 2017), [7].
Point Cook Community Entertainment Facility Pty Ltd
Geelong Football Club Ltd [2017] VSC 313
(1973) 129 CLR 99
(2014) 251 CLR 640
(2015) 256 CLR 104
(2017) 91 ALJR 486
(1982) 149 CLR 337
(1956) 95 CLR 420
(1979) 144 CLR 596
(1968) 118 CLR 429
(1982) 149 CLR 571