Pozetu Pty Ltd v Alexander James Pty Ltd

The Lease 9 The Lease is pursuant to the Real Property Act 1900 and utilises the form produced by the Law Society of New South Wales. 10 The Lease is executed by all the parties including the guarantors. The guarantor's liability is unlimited and clause 13.8 relevantly states: The terms of this guarantee apply even if this lease is not registered, even if any obligation of the tenant is only an equitable one, and even if this Lease is extended by legislation. 11 Clause 1.2 relevantly states: This lease is a deed even if it is not registered. 12 The commencing rent as noted previously is $135,000.00 a year by monthly instalments plus GST. The rent review is stated at item 16 of the Schedule of Items in Annexure A referencing clause 5.4 of the Lease and states: Method 1 (being an increase of 5% from the previous year's rent) on each anniversary of commencement of the lease. 13 Other clauses that are relevant are clauses 5.4-5.6 of Annexure B : When and how is the rent to be reviewed? 5.4 The rent is to be reviewed on the rent review date stated in item 16 of the schedule. If this lease is extended by legislation, the rent review dates include each anniversary of the latest rent review date stated in item 16 in the schedule (or if none is stated each anniversary of the commencement date which falls during the extension. 5.5 The tenant must continue to pay rent at the old rate until the new rate is known. After that, the tenant is to pay the new rent from the next rent day. By that rent day the tenant is also to pay any shortfall between the old and new rate for the period since the rent review date. Alternatively, the landlord is to refund to the tenant any overpayment of rent. 5.6 There are three different methods described here for fixing the new rent on a rent review date. The method agreed by the landlord and the tenant is stated at item 16 in the schedule. The tenant is entitled to a reduction if the method produces a rent lower than the rent current just before the review date. 14 Relevantly there are special clauses in annexure C to the Lease which amend Annexure B and in particular clause 19(1)(b) states: Delete clauses 5.7 to 5.11 inclusive. 15 That amendment has the effect of deleting the explanation of the relevant methods of rent increases being method 1, by a fixed amount or percentage, and method 2 by reference to consumer price index as provided in clauses 5.8 to 5.11 inclusive. Clause 5.12 of the Lease remains and this clause sets out the procedure for a current market rent review being method 3 as follows: 5.12 In this case the rent is to be current market rent. This can be higher or lower than the rent payable at the rent review date and is the rent that would reasonably be expected to be paid for the property, determined on an effective rent basis, having regard to the following matters: 5.12.1 the provisions of this lease; 5.12.2 the rent that would reasonably be expected to be paid for the property if it were unoccupied and offered for renting for the same or a substantially similar use to which the property may be put under this lease; 5.12.3 the gross rent, less the landlord's outgoings payable by the tenant; 5.12.4 where the property is a retail shop, rent concessions and other benefits that are frequently or generally offered to prospective tenants of unoccupied retail shops; and 5.12.5 the value of the goodwill created by the tenant's occupation and the value of tenant's fixtures and fittings are to be ignored. 5.13 The landlord or the tenant can inform the other in writing at least 60 days before the rent review date of the rent that the landlord or tenant thinks will be the current market rent at the review date. 5.14 If the landlord and the tenant agree on a new rent then, that rent will be the new rent beginning on the rent review date and the landlord and the tenant must sign a statement saying so. 5.15 If the landlord or the tenant do not agree on the amount of the new rent 30 days before the rent review date, the current market rent will be decided by a valuer appointed under clause 5.16. 16 As stated earlier there is an option to renew for a further 5 years. At item 13 of the Schedule of Items in Annexure A the rent for the further period stated in item 12A is to be the: Greater of: (a) Current Market Rent; and (b) 105% of the rent in the last year of the previous term. 17 Clause 4.6 of the Lease relevantly states: 4.6 A new lease will be the same as this lease except for: 4.6.1 the new rent; 4.6.2 the commencement date and the termination date; 4.6.3 the omission of clauses 4.2, 4.3, 4.4, 4.5 and 4.6 and items 12A and 12B in the schedule in the last lease allowed in item 12 of the schedule; 4.6.4 item 12B becoming item 12A; 4.6.5 adjustment of item 12C in the schedule; and … If the new rent is to be current market rent it will be decided in the same way the current market rent is to be decided under Method 3 stated in clause 5 assuming that this lease and the new lease were one continuous lease and the commencement date of the new lease was a rent review date.

Contentious issues between the parties 18 Alexander James in its Application for Original Decision file number COM 14/45920 claimed: (a) that Pozetu had repudiated its obligations under the Lease by causing to be registered the strata plan without seeking consent from Alexander James and thereby disallowing itself the ability to comply with its obligations under clause 4.6 to provide a new Lease, (b) that Alexander James accepted the repudiatory conduct of Pozetu and treated the Lease as a month-to-month tenancy, consequently Alexander James was entitled to and did give one month's notice to Pozetu to end the lease and vacate, (c) an adjustment of overpayment of land tax as an outgoing, and (d) refund of overpaid rent on the basis that clause 19(1)(b) of the Lease amended Annexure B to the effect of deleting the annual fixed rent increase of 5%, however that claim was subsequently abandoned during the course of the hearing. 19 Pozetu by its Application for Original Decision file number COM 14/45929 claimed: (a) damages for loss of rent consequent upon the repudiation by Alexander James of its obligations under the Option Lease by its abandonment of the premises, (b) damages for costs of reletting and failure to make good on leaving the premises, and (c) rectification of the Lease consequent upon elimination of the rent review methodology on exercise of the option to determine the rent for the first year of the new term (new rent) which requires the Lease to be rectified to confirm the alleged agreed annual fixed rent increase of 5% (in effect a double rectification application). 20 Affidavits were filed from Mr Sam Ballas, director of Pozetu and from Christopher Hancock, direction of Alexander James. Both were extensively cross examined. Valuation reports were filed by both parties and the respective valuers were also cross examined. For reasons later explained the Tribunal finds most of this evidentiary material not relevant to assist in determining the issues between the parties.

Non Registration of the Lease 21 In the submissions on behalf of Alexander James, Mr Southwick makes a number of points suggesting that the effect of non-registration of the Lease means that Pozetu cannot rely on certain terms of the Lease. Section 53 of the Real Property Act, 1900 was referred to in that a lease of over three years is required to be registered and consequently pursuant to section 127 of the Conveyancing Act, 1919 the Lease became a monthly tenancy at will pending registration. (See Kemp v Lumeah Investments (1983) 3 BPR 9203). 22 Mr Southwick cited Young J in Chetcuti v Scarf & Ors (2000) NSW SC 637 where His Honour stated when discussing s53 of the Real Property Act [10 and 14]: [10] Section 53 prevents a lease for more than three years from having operation at law unless it is registered. The effect of s16(2) of the Retail Leases Act is thus that if a lease is not registered it cannot take effect at law at all. and [14] The Plaintiff will only have leases in equity if he has agreements which can be specifically enforced; Chang v Register of Titles (1976) 137 CLR 177. 23 This concept is explained by Young AJA in a recent decision in Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (2014) NSWSC 792 at [18 and 19]: [18] Under s53 of the Real Property Act leases of the torrens land over three years must be registered if the lease isn't registered, it operates merely as a lease in equity, and at law, a tenancy at will terminable on one month's notice pursuant to s 127 of the Conveyancing Act, 1919. [19] However, all the terms of the invalid lease would be incorporated save for those which were inconsistent with a tenancy at will terminable on a month's notice. The only term that would be inconsistent would be a provision allowing a landlord to terminate the lease with less than one month's notice. See Kemp v Lumeah. 24 This is correct and as the Lease was not registered on title Alexander James held an equitable right governed by the terms of the Lease. However the Lease is a deed between the parties, as noted above pursuant to clause 1.2 which stated "this Lease is a deed even if it is not registered". As the parties covenanted with each other that the Lease was a deed, then all of the agreements and covenants including the exercise of the option survive as enforceable obligations. The discussion regarding the effect of s53 of the Real Property Act and its interrelationship with s16(2) of the RL Act is more to do with protection pursuant to s42(1)(d) of the Real Property Act against purchasers of the freehold for unregistered leases under three years. This issue is not relevant here. Consequently, there is nothing in the submissions by Mr Southwick to lead the Tribunal to find that the non-registration of the Lease has the effect of vitiating any terms of the Lease to assist Alexander James in its claims.

Registration of the Strata Plan 25 The major issue between the parties is whether the registration of the strata plan had the effect of causing Pozetu to repudiate its obligations under the Lease to deliver an Option Lease on the same terms as the Lease. 26 The leading cases on this issue are the decisions by Young J in Ashington Holdings Pty Ltd v Wipema Services Pty Limited No. 1 (1998) NSWSC143 and No. 2 (1998) NSWSC414 and then the Court of Appeal's decision in Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (1999) BC9908429.

Ashington's case 27 In Ashington No 2, Young J examined specifically what happens when the property is converted to strata pursuant to the registration of a strata plan. He said: There is surprisingly little legal analysis in the textbooks or reported cases as to what happens when land is affected by registration of the strata plan. In my view, the proper analysis is that to speak of "land" is to mislead oneself. What is popularly "land" is in legal analysis a right against the Crown being an estate in fee simple held in the Crown in free and common socage. The socage rent was redeemed somewhere in the 19th century by a quit rent. An estate in fee simple was a congerie of rights with respect to the property which passed so each was inheritable and free from conditions. It follows that when a strata plan is registered the congerie of rights that constituted the grant of a fee simple over the whole parcel is now re subdivided so that various rights are created in different groups of cubic meterages of air space. The sum total of the whole of those rights will equal the sum total of the congerie of rights in the original certificate of title, but they will be completely redistributed. Alternatively, the old rights in land have been cancelled and new rights whose totality is the same quantum are created. It matters little for present purposes which it is. Because of the redistribution of rights, or because of other legislation, the rights of the freeholder in a strata will be different to the rights of the freeholder who was say a tenant in common of the whole property with a contractual right to use a particular part of the building. 28 Young J then undertook an examination of the changes to the relationship between the landlord and the tenant with reference to the various obligations of each under the lease as a consequence of registration of the strata plan. In summary Young J touched on the following: (a) cleaning services was supplied by the landlord for the building, but now was the responsibility of the owners corporation (b) services to the building such as the lifts and air conditioning again promised by the landlord under the lease, were now controlled by the owners corporation, not the landlord; and (c) the landlord had covenanted with the lessee that there would be twenty four hour access to the premises and again this was now in the control of the owner's corporation. 29 His Honour after analysis came to the view that the rights and obligations of parties were different under strata to that which had previously prevailed when the property was not strata and in conclusion he said: In my view, looking at all those matters that I have just discussed as a whole, the new lease proffered by the landlord cannot be said to be one which is in accordance with its promise under clause 20 of the former lease. 30 Importantly, he added the following coda: I should add that it will not be every case where a strata plan is registered after the initial lease that it will be impossible for the option to be performed. When the lessor seeks to argue along these lines, its own act of registering the plan may operate to defeat that argument. In any event, each lease needs to be considered on its own facts and circumstances. 31 The decision of Young J was overturned by the Court of Appeal in Ashington Holdings Pty Limited v Wipema Services Pty Limited (1999) BC 9908429 (Ashington CA). It was overturned specifically on the basis of conventional estoppel in that the tenant had consented to registration of the strata plan. The court, consisting of Mason P and Handley JA upheld the appeal and Fitzgerald JA dismissed the appeal. 32 In the leading judgment Mason P said [at 32 33] the following: [32] Young J regarded the changes as significant and practical effect in the lessee's submissions sought to emphasise their significance. [33] I shall indicate below why I consider it unnecessary to detail the extent of those changes. I content myself with the following observations as to the materiality of the changes: I am not persuaded that the physical area of the demised premises has changed. The alterations to the lessor's rights over the building as a whole are not relevant to the position as between lessor and lessee. It is true that the strata scheme clearly excludes from Lot 8 the space occupied by boundary walls and the slab of the ceiling above and the floor below level 7. But this involved no reduction in the area of exclusive occupation previously enjoyed by the lessee. It is not self evident that the original lease gave rights to occupy any of the solid spaces forming the physical boundaries to the interior of level 7, even the exterior walls and windows. · The original lease itself apparently "excluded the common areas". · The lessor's covenants with respect to use of lifts and air conditioning and the cleaning of the premises were always expressed in terms of its (best) endeavours. Those obligations remained in identical terms in the new lease proffered by the lessor. The fact that the lessor could be put into breach through the conduct of the owners corporation did not alter the substantive or formal operation of the covenants any more than would be the position if the lessor had subcontracted its obligations to cleaning and maintenance firms after. · The commencement of a strata scheme undoubtedly altered the quantum of the lessor's outgoings referable to level 7, if only because Lot 8 became separately rateable… Furthermore, the amount payable by the lessee would have changed because the unit entitlement of Lot 8 under the Strata Scheme of 7.2% compared with 8.09% being the lessee's share of total incorrect outgoings for the building under the original lease…. · The lessee, adopting the reasoning of Young J submits that these matters gave substantially different effect to (the clause) which obliged the lessee to pay a share of the outgoings. Again, I would doubt this. After all, (the clause) was never intended to deal with a position fixed in concrete in 1992. Outgoings necessarily vary with needs and with obligations as they apply from time to time. A new tax might be a proper outgoing. Care should be taken not to confuse the constant substantive effect of the relevant covenant and its varying impact from time to time. 33 Another case on point is Lawrom Nominees Pty Limited v Kingsmede Pty Ltd & Anor (2000) NSWSC 1048. In relation to a commercial city building the owner wished to lodge a strata plan and the lessee of the whole of level 6 objected and sought injunctive relief on the basis that by procuring the registration of a strata plan the lessor would be in breach of the terms of the lease or give rise to a threat of breach. His Honour Hodgson CJ in Equity after examining the issues and in particular the obligations of the landlord regarding services to the tenant decided that subject to the owner/lessor providing a deed poll to the lessee to contract that it would uphold its obligations under the lease, upon registration of a strata plan and incorporation of an owners corporation, no injunctive relief would be granted. That is registration of a strata plan would not mean a fundamental change to the lease and the contractual arrangements between the parties. 34 The Tribunal notes the coda of Young J in Ashington No.2 that "in any event, each lease needs to be considered on its own facts and circumstances". In this regard, on the front page of the Lease reference is specifically to Shop 1, 82 Queen Street, Woollahra and lock up garage and those are the premises that are being leased. As Young J noted in Ashington No.2 the actual title details should not be viewed as predominant. Rather, the more substantive fact is that what area is being leased. Is the area actually being leased by Alexander James (which was the physical space comprising the shop) the same after registration of the strata plan (other than a minor alteration through the definition of cubic space in the Strata Title legislation which is of no relevant effect to the occupation of the shop). The evidence, of which there was only passing reference suggests no change, and certainly Mr Southwick made no submission that the physical aspect of the premises changed. 35 Following Mason P in Ashington CA and the decision in Lawrom, it is important to examine the obligations of Pozetu under the Lease. The relevant provisions are found in clauses 3.4 and 11.3 which state: 3.4 If the property has facilities and services shared in common with other persons in the same building as the property, clause 11.3.2 applies to those common facilities. The tenant shares the common facilities with the landlord, and other tenants of the landlord. The landlord can set reasonable rules for sharing these common facilities. 11.3 If the property is part of the building owned or controlled by the landlord- 11.3.1 the landlord must maintain in reasonable structural condition all parts of the building that the tenant can use under this lease; and 11.3.2 if the property has the facilities and service connections shared in common with other persons, the landlord must - 11.3.2.1 allow reasonable use of the facilities and service connections including: • the right for the tenant and other persons to come and go to and from the property over the areas provided for access; • access by the tenant to service connections; 36 Clauses 3.4 and 11.3.2 regulate the delivery of services to the building for the benefit of the lessee where the premises are situated and which are shared with other occupiers, not dissimilar to a strata arrangement. The Tribunal understands that Pozetu owned all the units in the strata plan at the time of exercise the option to renew, as noted from the copy Land Tax Return annexed to one of the affidavits of Mr Ballas. Consequently Clause 11.3 is relevant as Pozetu controlled the owners corporation. As Mason P in Ashington CA allowed the landlord there to be able to comply with its obligations by reference to outsourcing the supply and obligations regarding services but still maintain the contractual obligation for their supply, there is no real difference here in interposing the owner's corporation to do these things similar to the subcontracting of the supply of services to the building and tenancies. 37 It is worthwhile reviewing and the terms of the exercise of the option to renew submitted by Alexander James which were as follows. "Alexander James Pty Ltd, the tenant from Pozetu Pty Ltd under the lease commencing on 1 September 2003 of the premises known as shop 1, 80-82 Queen Street, Woollahra (lease) being part Folio Identifier 1/109260 gives you notice of its exercises of its option of renewal of lease". 38 Mr Southwick submitted that it was significant that Alexander James, in its exercise of the option used the exact title reference from the Lease. Of course, that title was cancelled upon registration of the Strata Plan, and new titles issued. Mr Southwick says that the emphasis in the exercise should be on the title reference that was the subject of the exercise of option. However, the Tribunal sees the words in the exercise of option in a slightly different light. It is the use of the description of the shop premises that is of significance, as Alexander James sought a new lease over the premises, Shop 1, 80-82 Queen Street, Woollahra. As observed by Mason P, in Ashington CA where the physical shape and area of the premises do not change as a consequence of registration of a strata plan then the physical area (the subject of the lease) is basically the same. Alexander James was not directly interested in the title to the premises. It was the shop premises which was the focus and that did not change consequent upon conversion to Strata. 39 Further, it is the view of the Tribunal that there is too much emphasis placed on the exact title reference which was cancelled and that new titles were issued. Such emphasis does not take into account that titles are often cancelled caused for example by resumption of part of the land or in the past, where the use of manual titles system meant that there was no longer any room to note changes in the schedules on the manual title, the title was cancelled and a totally new title with different folio numbers was issued. Cancellation and reissue of titles does not change the underlying land and would not mean of itself that an Option Lease with new title references was not in conformity with the original Lease. As Young J observed in Ashington No. 2 the actual title details should not be viewed as predominant. 40 The other change in the proposed Option Lease as a consequence of registration of the Strata Plan was the share of outgoings and in some respects the change may have been overall beneficial to Alexander James. Again, as Mason P said in Ashington CA: Outgoings necessarily vary with needs and obligations as they apply from time to time. 41 A significant amount of the evidence put forward by Alexander James and a major feature of the submissions of Mr Southwick went to the reasons why Mr Ballas apparently did not inform Alexander James about the proposed registration of the strata plan. The only relevance in assessing the conduct of Pozetu comes from the coda of Young J in Ashington No. 2 that "when the lessor seeks to argue along these lines its own act or registering the plan the plan may operate to defeat that argument". Mr Southwick did not make his submissions directly in that way but as a general submission concerning the conduct of Pozetu, that there was a purpose of cover up and non-disclosure for which Pozetu should be regarded as engaging in repudiatory conduct. 42 Mr Ballas in his evidence referred to discussions with Mr Hancock about plans to lodge a strata plan, but these discussions are refuted by Mr Hancock. Mr Ballas annexed copies to his affidavit of faxes of invoices issued to the accounts manager at Alexander James after registration of the strata plan noting new strata lot number for the premises and recalculation of the outgoings. Mr Ballas also sent a copy of the strata plan to the accounts manager. Notwithstanding the submissions made by Mr Southwick ascribing motive for keeping the strata plan a secret, the Tribunal notes from the evidence that Mr Ballas did not refrain from informing Alexander James of registration of the strata plan. Further, the comment by Young J as to conduct disentitling one party to make the case of inability to perform its obligations rests with that party and in this case, Pozetu is arguing that it can still perform its obligations, not the other way round that because of acts it caused it can no longer comply. 43 The Tribunal observes that the conversion to strata of this building was not such a fundamental change that meant that Pozetu could not provide a lease in conformity with its obligations. Pozetu controlled the building through the owners corporation. The terms of the lease, clause 3.4 and 11.3.2 in particular meant no change in the delivery of services to Alexander James because the premises were now in a strata building. The area of the premises for shop 2 did not change. The relevant title details changed but that is not unusual and does not disentitle a landlord to be able to provide an Option Lease. Pozetu could and did perform its obligation to provide an Option Lease. The only outstanding question is what is the new rent for the first year of the Option Lease?

Rent review for first year of the term under the Option Lease 44 As noted in the Lease, Item 13 of the Schedule of Items, Annexure A stated that the rent for the first year of the option lease was to be the greater of either current market rent and 105% of the rent in the last year of the previous term. 45 Section 18(3) of the RL Act provides that: (3) A provision of a retail shop lease is void to the extent that it: (a) reserves or has the effect of reserving to one party a discretion as to which of 2 or more methods of calculating a change to base rent is to apply on a particular occasion of a change to that rent, or (b) …, or (c) provides for base rent to change on a particular occasion in accordance whichever of 2 or more methods of calculating a change would result in a higher or highest rent. 46 Section 7 of the RL Act states: This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with the provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease. 47 In Menuko Pty Ltd v Tinine Group Pty Ltd [2007] NSWADT 149 Judicial Member Higgins stated at [40]: Where a retail lease contains provisions that are inconsistent with the provisions of the Retail Leases Act, which includes the above sections, then the provisions of the lease are void to the extent of the inconsistencies. 48 The submission by Ms Francois on behalf of Pozetu is that the rent review provision is void in that it contravenes Section 18(3) (c) of the RL Act. Mr Southwick agrees. Consequently, Ms Francois says if the Court does not accept that the parties agreed to the new rent of $175,000.00 which was the figure in the draft lease submitted by Pozetu's lawyers to James Legal acting on behalf of Alexander James, then the new rent under the Option Lease should be $172,298.00 which is the amount arrived out by calculating the rent of the last year of the lease with the 5% annual increase. A third position was also put that if neither of the above, then the new rent would be current market rent. 49 Both parties produced valuations and each valuer gave evidence and was cross examined. Pozetu provided a report from Mr Gunning, who determined that the fair market rent as at 1 September 2008 would have been $170,000.00. This amount was close to the rent inserted into the Option Lease of $175,000.00. Mr Ballas said in evidence that this amount was inserted based upon his consultations with local agents in the area. Alexander James provided a report from Mr Perkins to the effect that the market rent at 1 September 2008 was $125,000.00. Both valuers were cross examined and both valuations are problematic. However, the Tribunal finds it not necessary to closely examine these valuations as will be shown later in these Reasons. 50 The Tribunal will quickly dispose of the two submissions from Ms Francois as to an agreed rent or a market review. Ms Francois submitted that there was sufficient evidence to the effect that by producing the Option Lease nominating the "new rent" at $175,000.00 and the fact that this was not rejected by Alexander James supports the assertion that Alexander James accepted the new rent. The Tribunal could see no agreement to this amount of rent and does not accept the proposition that by Alexander James not responding it impliedly consented to that amount of rent. The Tribunal finds no agreement between the parties as to the amount of the "new rent". 51 Then Ms Francois submits that the new rent should be pursuant to a market review partly on the basis that this was referred to in the agreed rent review and partly on the basis of giving business efficacy to the parties' agreement. Mr Southwick in his submissions says at paragraphs 63-65: 63 The Landlord appears to be asserting an entitlement to review to market rent on the exercise of the option. This claim appears to be based on the void provision of the original lease, and it assumes the tenant is bound by the terms of the original lease (despite the landlord's repudiation thereof. The landlord would also have to persuade the Tribunal to extend the time limits imposed by clause 15.21 of the original lease, and that the deletion of clause 15.12.4 affected by clause 10 of the lease does not contravene Section 31 of the RL Act. 64 assuming the landlord (contrary to these submissions) was entitled to market rent then market rent would fall to be determined under s.31 RL Act. 65 the parties having never agreed (to) the appointment of a specialist retail valuer, and the Tribunal having never appointed one, it is submitted there is no basis on which the landlord can proceed with this claim. 52 The Tribunal agrees with the first submission by Mr Southwick. The only reference to current market rent review in the Lease is in the words struck out. The Tribunal cannot see how pursuant to the remaining terms of the Lease any agreement for current market rent to be applied to determine the new rent. In relation to the argument to provide business efficacy to the parties agreement, it is uncertain as to what the parties agreed to for the new rent. Any of the new choices would give efficacy. However the Tribunal does not have to make the choice.

Rent Under the Option Lease 53 The parties came to the view that the Lease did not correctly reflect an annual rent increase of 5% as a consequence of the operation of clause 19 (1) (b) to delete clauses 5.7 to 5.11 of the Lease, being the clauses detailing the rent increase methodology of the Method 1 and Method 2. Pozetu sought to have the Lease rectified to show an annual 5% rent increase was reflected. Initially rectification of the Lease to confirm an annual 5% rent increase was opposed by Alexander James. This was not pursued in part because Alexander James dropped its claim for overpayment of rent and refund. However, as consequence of s7 and s18 (3) of the RL Act removing the methodology for calculating the new rent under the Option Lease, Ms Francois makes application for rectification of the Lease to confirm the 5% increase to the annual rent in the Option Lease so that the new rent can be calculated using this methodology to arrive at $172,298.00. 54 Notwithstanding the understanding of the parties that the operation of clause 19(1)(b) of the Lease clouds the annual rent review, the Tribunal is of the view that the Lease operates satisfactorily to permit an annual rent review of 5%. It is quite clear to the Tribunal that pursuant to clause 5.4 of the Lease which states "the rent is to be reviewed on the rent review date stated in Item 16 of the schedule" and when one goes to the Schedule, Item 16 specifically states that method 1 being an increase of 5% from the previous year's rent on each anniversary of the commencement of the lease is in fact the rent review that is clearly stated. Clause 5.7 merely repeats that fact in stating "in this case the new rent beginning in each review date is stated in item 16 in the schedule". Clause 5.7 may be superfluous. Clauses 5.8, 5.9, 5.10 and 5.11 deal with the CPI increases and therefore are not relevant. Consequently, it is the Tribunal's view that the Lease stands by itself and does not need rectification. It is quite clear that the parties have committed to a 5% annual rent review as stated in clause 5.4 and item 16. 55 However does this mean the Lease requires rectification? Such a question raises the issue of whether the Tribunal has jurisdiction, as pursuant to s 72 (1)(e) of the RL Act the Tribunal can only order rectification if there is consent by the parties. 56 As noted earlier Alexander James opposed rectification of the Lease even though it dropped its claim for overpayment of rent on the rent increases. Mr Southwick took issue with the decision by this member of the Tribunal in Toga v Permanent Nominees & Anor ( 2012 ) NSWADT 80 that notwithstanding lack of consent so that orders could not be made under s72 ( 1) (e ) the Tribunal could in certain circumstances make orders under s 72 (1) (f)(ii) declaring the rights and liabilities of the parties. Without revisiting that issue of jurisdiction there is even a more fundamental problem with an application for rectifying a provision in a lease that becomes void as a consequence of the operation of legislation. What exactly did the parties agree to for the new rent? As Mr Southwick correctly points out the parties agreed to an alternative method which is illegal. There was no evidence notwithstanding the lengthy affidavits and cross examination of the two directors as to what was agreed other than as recorded, obviously accurately in the Lease. The parties did not contemplate any other method for calculation of the new rent, so rectification cannot operate to assist in what seems to be an impasse. 57 As the Tribunal is of the view that the Lease reflects an annual 5% increase, then does this mean that the new rent as submitted by Ms Francois is the previous rent in the last year of the term plus 5%? In short, the answer is no, as will be discussed later. In relation to the rent review on exercise of the option, Ms Francois finds a total void in item 13 for the new rent as a consequence of the operation of s7 and s18 (3). However that is not correct. Only the methodology being the two alternate methods is struck down, not the words "For the further period in item 12A. From the commencement date to the first rent review date (for example: current market rent". There is no reason why these words are to be removed, they do not transgress any provision of the RL Act. There is no total void. 58 The Tribunal believes that the new rent can be determined pursuant to the terms of the Lease and the Option Lease. First, the annual rent is increased by 5%. The Lease is quite clear about this, notwithstanding earlier issues between the parties regarding the effect of deletion of clauses 5.7 to 5.11 inclusive. These clauses are appropriately deleted as they do not relate to a fixed increase. Clause 5.4 states that the rent is to be reviewed on the rent review dates state din item 16 in the schedule being the anniversary of the commencement date. Item 16 of the schedule notes Method 1 being an increase of 5% and references clause 5.4. Secondly, clause 5.6 identifies three different methods for fixing the new rent on a review date. Relevantly it states "the method agreed by the landlord and the tenant is stated at item 16 in the schedule". Thirdly, clause 5.5 states that the tenant must continue to pay rent at the old rate until the new rate is known. Once determined, the tenant is to pay the new rent from the next rent day. Fourthly, the effect of ss7 and 18(3) of the RL Act is to delete the methodology of calculating the "new rent" for the further period of the option. So opposite the words in Item 13 For the further period item 12A: From the commencement date to the first rent review date (for example: current market rent) is now blank. 59 The commencement date of the Option Lease is 1 September 2008 and the first rent review date is 1 September 2009. But it is often the case in leases generally that the rent for the first year of the Option Lease is not known at the commencement date particularly regarding a determination of market rent. The Lease covers this situation in clause 5.5, which provides for the tenant to pay rent at the old rate until the new rate is known. The old rate would be the rent paid by a tenant in the previous year, namely the last year of the term of the previous lease. 60 Alexander James having exercised its option for a new lease would continue to pay rent under the Option Lease pursuant to clause 5.5 at the "old rate" until the new rate is known. The new rate is not determined by a market review, but in accordance with the terms of the Lease and the Option Lease which states at Item 16 Rent Review Method 1 a 5% increase on the anniversary date. The first rent review of the Option Lease is 1 September 2009 being the anniversary date. 61 Consequently the rent for the first year of the Option Lease is the rent paid by Alexander James in the last year of the Lease, that is the annual rent of $135,000.00 increased annually by 5% payable for the period 1 September 2007 to 31 August 2008, that is the new rent under the Option Lease in accordance with Clause 5.5. As noted the rent would be increased annually by 5% from 1st September 2009.

Breaches of the Lease by Alexander James 62 The Tribunal finds, the Lease valid and enforceable, notwithstanding failure to register the Lease, and the exercise of the option a binding contractual agreement between the parties, able to be performed by Pozetu notwithstanding registration of the Strata Plan over the property and the new rent in the Option Lease determinable on the terms of the Lease itself. Alexander James vacated the premises on 31 March 2009 in breach of its obligations under the Option Lease. Pozetu claims $7,700 make good costs, letting fee of $11,000, legal costs of $5,500 at the time of lodgement of the claim and the difference in rent obtained between the rent payable under the Option Lease and the rent under the lease of the premises to the new tenant Trelise Cooper Pty Ltd which took a lease of the premises from 1 November 2009, at a reduced rent of $125,000.00 per annum. 63 There can be no questioning by Alexander James regarding the re letting of the premises at a reduced rent, which was in line with the market rent review amount determined by its expert Mr Perkins. The Tribunal notes the length of time the premises were vacant as seven months and on the evidence of Mr Ballas not challenged by Alexander James, the issue of whether Pozetu did enough to mitigate its loss and discharge its obligations thereunder are satisfied. 64 The question of costs for make good is always vexed. The evidence as to the state of premises at the commencement of the Lease and the obligations of Alexander James to restore the surfaces in a style and to a standard of finish originally used is unsatisfactory. There appears to be a problem of rising damp in the premises, which is a matter for Pozetu, not Alexander James. It is unclear as to whether the work undertaken by Pozetu after Alexander James vacated was to rectify rising damp or complete the make good obligations of Alexander James. In the circumstances the Tribunal does not allow the claim for make good.

The Guarantors 65 The liability of the guarantors is covered by Section 13 and in particular Clauses 13.2 and 13.8 of the Lease. Clause 13.8 provides for the guarantee to extend, even though the Lease is not registered and the obligations of Alexander James are equitable, as is the case with this Lease. Further clause 13.2 states: The guarantor guarantees to the landlord the performance by the tenant of all the tenants obligations (including any obligation to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created. Accordingly the guarantee extends to the Option Lease.

Land Tax Adjustment 66 As noted there was a claim by Alexander James regarding overpayment of land tax. Reference in the submissions by Mr Southwick was to s27 of the RL Act and the threshold, but perhaps more relevant is s26. In any event unless there is a matter of legal interpretation the Tribunal indicated to the parties that appropriate adjustment could be made between them in conformity with s26 of the RL Act.

Summary 67 The Tribunal has determined the following regarding the Lease: (a) The Lease, though not registered, was a deed between the parties and contained enforceable covenants; (b) One of those covenants was the ability of the tenant, Alexander James to exercise the option to renew, which it did. (c) Notwithstanding registration of a strata plan during the term of the Lease Pozetu could and did perform its obligations under the Lease to deliver an Option Lease, subject to the new rent. (d) Rectification of the Lease regarding an annual rent increase of 5% is not necessary. (e) The new rent under the Option Lease, notwithstanding the operation of s7 and s18 (3) (c) of the RL Act to strike down the methodology for determining the new rent in the Lease, can be determined from the remaining terms of the Lease and is the rent paid by Alexander James in the last year of the Lease. (f) Alexander James repudiated its obligations under the Option Lease by vacating the premises on 31 March 2009 and must pay to Pozetu damages as follows: (i) the letting fee; (ii) the difference in rent obtained for the period of Option Lease less rent received from Trelise Cooper (iii) interest on these amounts pursuant to clause 5.1.5 of the Lease. (g) The guarantors are liable for the default of Alexander James. 68 The Tribunal has made no determination on costs. Submissions on costs can be made, however the Tribunal notes that this Lease had a number of defects in it which complicated the dispute between the parties. The Lease was submitted by Pozetu. If Submissions are to be made they should be made within twenty-eight (28) days of this date of these Reasons and to be determined on the papers by me. 69 The Tribunal agrees with the submission made by Ms Francois that "upon the Tribunal making its determination in relation to the issues such as repudiation, rectification, the cross claims and the new rent, the parties should be asked to undertake the relevant calculations and bring in agreed orders to reflect the Tribunal's findings." 70 Accordingly I ask the parties to so undertake and bring in agreed orders to be listed before me.

Civil and Administrative Tribunal of New South Wales I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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 November 2014