Schlecht v EPM Operations Pty Ltd [2025] QDC 105

Schlecht v EPM Operations Pty Ltd [2025] QDC 105 | Case summary | Zoe

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[1] The plaintiffs, Mr and Mrs Schlecht, are spouses and are trustees of the Schlecht Super Fund. Mr Schlecht is a licensed builder and owns a construction company, Flowcrete Constructions Pty Ltd (Flowcrete). That is a company that mostly undertakes large construction projects.
[2] As trustees of the fund, Mr and Mrs Schlecht own a commercial property in Kunda Park (a suburb of Buderim), comprising a warehouse (with internal office space) that includes a mezzanine area and an external hardstand. The building was constructed by Flowcrete in about 2010 and, until late 2019, it was let by Mr and Mrs Schlecht to a business known as Roadtek, which is a commercial business operated by the Queensland Department of Transport and Main Roads.
[3] The first defendant, EPM Operations Pty Ltd (EPM), is the trustee of the EPM Operations Trust. Its sole director and secretary was the second defendant (Mr Chadwick) from incorporation to 23 May 2020. Since then his mother, the third defendant (Mrs Chadwick) has had those roles. From April 2020 until August 2022, EPM operated a commercial printing business from the premises in Kunda Park.
[4] On 3 April 2020, Mr and Mrs Schlecht, EPM and Mr Chadwick signed a lease of the premises for just under five years, expiring on 31 March 2025, but with an option to renew for another five years. The lessee was EPM and Mr Chadwick was the guarantor of EPM's obligations under the lease.
[5] In August 2022, EPM sold its business and, with Mr and Mrs Schlecht's consent, assigned the lease to a company controlled by two of its former employees. The assignee was still in possession of the premises at the time of the trial, although the lease was due to expire shortly thereafter (subject to whether the assignee had exercised its option to renew or agreed with the landlords to enter into a fresh lease). There is no direct evidence of whether the assignee would remain in the premises after the lease expired, whether under a renewed lease or under a different arrangement. The effect of the assignment and the related documents on any liability the defendants may have to Mr and Mrs Schlecht is one of the issues raised in this proceeding.
[6] The lease provided that the lessors would undertake "Landlord's Works" upon commencement of the lease. It was silent as to who would pay for those works. The plaintiffs contend that the parties subsequently agreed to share the cost equally, while the defendants contend that the plaintiffs were obliged to pay for them.
[7] Mr and Mrs Schlecht claim that the defendants are liable to them for a total of $276,357.10 plus interest. The principal amount comprises the following:

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[8] The defendants deny that they owe anything for the Landlord's Works, contending that they had reached an agreement with Mr and Mrs Schlecht that those works would be done at the landlords' expense. They admit that they are liable for the repair of two damaged items, respectively costed at $1,040 and $832. They deny that they are liable to pay for any of the other claimed items. As to those items, they variously contend that there was no damage or failure to clean or keep in good repair, the amount claimed has not been proved, alterations were authorised, and their make-good obligations arise only at the end of the lease (subject to any renewal or replacement of the lease). Finally, they contend that, if any of the plaintiffs' claims concerning unauthorised works or failure to maintain the premises are correct, the plaintiffs have suffered no loss because the assignee of the lease has taken on the tenant's obligations under the lease. That company has, in some cases, at its own expense fixed up some of the matters about which the plaintiffs complain, or that company will be liable, at the end of the lease or any renewal of it, to make good any damage or unauthorised alterations to the premises, again at its own expense.
[9] The defendants also contend that any liability for damages for any breach by EPM of an obligation under the lease to keep or put the premises in repair during the lease is limited, by the operation of s 112 of the Property Law Act 1974, to a maximum of the amount by which the value of the reversion in the premises has been reduced by its breach. They contend that any reduction in the value of the reversion does not exceed $50,000 and therefore the plaintiffs' claims for damages for breach of those obligations (if proved) are limited to that sum. The plaintiffs contend that the reduction in the value of the reversion is $200,000 and therefore they are entitled to the full amount of the damages they claim.
[10] For the reasons that follow, I find that:

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[28] The evidence of some of the witnesses unfortunately varied in its quality, as will become apparent.
[29] Mr Copley submitted that each of Mr and Mrs Schlecht had poor memories of events and made up parts of their evidence to suit their case.
[30] Mr Morris KC, appearing with Mr Erskine for the plaintiffs, made a substantial attack on the credit of both Mr Chadwick and Mrs Chadwick, principally on the basis of their business conduct before this lease commenced. It is necessary to consider those challenges because my conclusions as to their veracity and the reliability of their evidence may have a considerable effect on whether or not I accept that evidence.
[31] Frankly, I had difficulty accepting all the evidence of any of Mr and Mrs Schlecht and Mr and Mrs Chadwick. Each of them gave evidence that was, in some respects, exaggerated, was not reflected in contemporaneous documents, or was inconsistent with other evidence. I formed the view that Mr and Mrs Schlecht blamed EPM for any defects or damage that became evident in the premises, even when it was (or should have been) clear that it was not caused by EPM or it had been fixed by the new tenant. Obvious examples of this attitude are the claim for overgrown and untidy gardens (which have since been fixed by the new tenant), the claim for damage to the truck wash bay that was clearly done by the previous tenant, Roadtek, and the claim for impact damage to the internal block wall where it is clear that most of the damage was done by the new tenant after EPM vacated the premises.[3]
[32] Having said that, on the whole I accept most of the evidence of Mr and Mrs Schlecht, as much of it was supported by contemporaneous documents. But Mr Schlecht in particular had a tendency to take a poor view of any criticism of his building or any failure to keep it spotless. He ignored the facts that it is an industrial building and that he had allowed his tenant to carry on a business that was likely to produce dust, dirt and some staining of the premises. He also exaggerated the alleged effects on the building of some of the alleged breaches by EPM.[4] At times I considered that he was advocating his case rather than giving answers based on his true recollections.
[33] On the other hand, Mr and Mrs Chadwick both gave evidence in some respects that was inconsistent with contemporaneous documents or was simply not credible. Mr Chadwick, in particular, was unresponsive or evasive at times in his answers, principally in cross-examination but also sometimes in his evidence in chief.[5] Mrs Chadwick at times had a similar approach to her evidence.[6] He and Mrs Chadwick also appeared at times to be advocating their case rather than responding directly to testing questions. Mr and Mrs Chadwick also seemed to me to have a lackadaisical attitude to the maintenance of the premises, allowing them to become dirty and taking whatever steps they thought appropriate to alter the premises to suit EPM's business needs. This was particularly reflected in their failure to obtain clear written permission from Mr and Mrs Schlecht before making any changes to the premises and in refusing to take responsibility to fix problems identified or perceived by the landlords. It also seems, from some of the cross-examination of Mr Chadwick in particular, that he and Mrs Chadwick had at least some history of leaving premises in an unsatisfactory state at the end of a lease, which might be seen as consistent with their attitude to these premises.
[34] I discuss some clear examples of this attitude later, but for now I note clear damage to the mezzanine door and to the western external door, both clearly caused during EPM's tenancy, but for both of which Mr and Mrs Chadwick denied any liability.
[35] The plaintiffs also called Michael Howes, who was formerly employed by EPM as a printing machinist. I describe his evidence later. He was not cross-examined and I find no reason not to accept his evidence.
[36] Two witnesses who used to work for EPM and who might be expected to have been called by the defendants were not called. Mr Morris submitted that I should infer that their evidence would not have helped the defendants.
[37] One was Mrs Chadwick's husband, David Hayden, who was said by other witnesses to be responsible for the general garden maintenance of the premises and to have been present during an alleged conversation about one alteration to the premises that, according to Mr Chadwick, was orally approved by Mr Schlecht. Mr Hayden was in the back of the court during most of the evidence. Despite his involvement in the gardening and his presence during the conversation, the defendants did not call him to support their defence. Given his role as the gardener and his presence during the conversation, I am prepared to infer that his evidence, if he had been called, would not have assisted the defendants' case.
[38] The other witness was Colin Rawlings, who was the production manager for EPM. His evidence might well have been relevant to many of the issues about the state of the premises and his knowledge of conversations in which Mr Chadwick said Mr Schlecht approved alterations to the premises. He might also have given evidence about matters concerning the earlier operation of businesses by Mr Chadwick about which Mr Chadwick was cross-examined as to his credit. However, Mr Rawlings resigned from the employ of EPM, probably about three years before the trial when, Mr Chadwick said, they had a falling out. Mr Chadwick said he did not know how to contact Mr Rawlings. In the circumstances, I do not make any inference from the defendants' failure to call him as a witness.
[39] Ultimately, my findings on the evidence reflect which evidence of each witness I accept and which evidence I reject.

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[44] Mr Chadwick said that, at that meeting, he and Mrs Chadwick showed Mr and Mrs Schlecht around their premises, pointing out the types of printing machines that they used. He said they discussed their requirements for premises, including an air conditioned room for the digital printers, a second air conditioned room for a piece of offset equipment and some comparatively inconsequential matters. Mr Schlecht told them that the plaintiffs were happy to attempt to facilitate their requirements and that he was a builder, so his preference would be to do any modifications himself.
[45] Mrs Chadwick gave no evidence in chief about this meeting but, in her cross-examination, she said that, while she was showing the plaintiffs around the factory, she raised with Mr Schlecht whether, whatever works were to be undertaken to modify the plaintiffs' premises for the defendants' use, the defendants might be responsible to have them done in exchange for a three month rent free period or the plaintiffs might do them at their cost and Mr Schlecht said he would like to do the works as he was in the industry and it was his building. She was not involved in any further negotiations about the works. She said that there was discussion of an office on the factory floor and another room upstairs on the mezzanine floor, but she denied that Mr Schlecht put to her that he would pay for the downstairs office but the cost of the upstairs room would be shared equally between landlord and tenant.
[46] Mr Schlecht said that Colin Rawlings,[8] who worked for the defendants' business at Wises Road, was also at the meeting. He said that Mr Chadwick told the plaintiffs that the defendants were interested in taking a lease of the plaintiffs' premises and wanted to move in as soon as possible. Mr Chadwick told him that he would require the construction of an air conditioned room (using an air conditioner that the defendants would provide) on the warehouse floor to house a printer. Mr Schlecht agreed to construct such a room at the plaintiffs' cost, which he later estimated would be about $25,000.
[47] Mrs Schlecht gave no evidence about this meeting.
[48] Mr Smith did not give viva voce evidence, but his witness summary was tendered by consent, to stand as his evidence. He said that, during the meeting, Mr Chadwick requested the construction of an air conditioned room on the ground floor of the premises at the landlords' expense, to which the landlords agreed.
[49] I am satisfied that, at this meeting, Mr Chadwick made a request that a room be constructed on the ground floor of the building and Mr Schlecht agreed that he would do that at his expense. I am satisfied that Mr Chadwick also said that he would like the construction of another room on the mezzanine floor, as this was raised in an email that afternoon enclosing an application for lease.

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[50] In the afternoon of 16 March 2020, Mrs Chadwick sent an email to the plaintiffs' leasing agent, Mr Smith, attaching an application for lease. Mr Smith gave evidence that he would have passed on the application to the plaintiffs.
[51] In her covering email,[9] Mrs Chadwick proposed three alterations to the premises: an opening for forklift access to the mezzanine; the construction of a digital production room on the ground floor; and the construction of an office and separate work space at the rear of the mezzanine floor. She ended saying, "we are also open to completing this ourselves and then have a 3 month rent free period."
[52] The application[10] proposed that EPM be the lessee. On one page, the standard form asked, "Please compete the Asset and Liabilities Statement for each applicant and/or director where applicable." It was completed in the name of "Express Print & Mail" and showed assets of $3,276,000 (including debtors of $1,100,000 and chattels of $1,800,000) and liabilities of $2,200,000 (including creditors of $550,000, three "hire purchase/lease" liabilities and one "Heidelberg loan" of $1,200,000), resulting in net assets of $1,075,000. Below that statement was the following sentence, below which was Mr Chadwick's signature: "I certify that the above statement is true and correct and that I own all of the Assets and Liabilities listed above personally."
[53] Mrs Chadwick said that she prepared the application, but Mr Chadwick supplied the assets and liabilities statement to go into it. Both Mr and Mrs Chadwick were cross-examined about the statement of assets and liabilities in an apparent effort to damage their credit. I hope I do not do too much disservice to that cross-examination by saying that it relied particularly on the fact that EPM itself was a company without substantial assets at the time of the statement, as the assets and liabilities referred to in the statement were really those of Express Print and Mail Pty Ltd at the time, because EPM did not buy its business until shortly before the lease was executed. It suffices for me to say, in this respect, that I do not consider these facts in themselves damaging to the credit of Mr or Mrs Chadwick. While they were not EPM's assets and liabilities at that date, they do appear to have reflected broadly the assets and liabilities of the business then being carried on by Express Print and Mail Pty Ltd (the name of which appeared at the top of the statement), which EPM would acquire before the lease commenced. I do not draw any adverse inference as to Mr or Mrs Chadwick's credit from the presentation of this statement in the application for lease.

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[54] On 23 March 2020, a meeting took place at the premises. Some witnesses were not clear in their recollection of who was present, but I am satisfied that Mr and Mrs Schlecht, Mr Chadwick and Mr Rawlings were there and Mrs Chadwick was not.[11]
[55] Mr Chadwick recalled that they discussed a few things about how the factory might be set up, but he did not appear to recall the discussion in any detail.
[56] Mr Schlecht recalled that they discussed where different printers might be installed. Mr Chadwick and Mr Rawlings decided that they needed more room and they discussed having a second office, on the mezzanine floor, for Mr Rawlings. Mr Schlecht was shown a note later proved to have been taken by Mrs Schlecht. By reference to that note, he said that they agreed that he would look into the mezzanine room and then they would discuss the costs. He went on to say, by reference to the note, that they agreed that the tenant would pay for the mezzanine room, as the landlord had agreed to pay for the room on the factory floor. However, I do not accept that he recalled that being said, but rather he was merely attempting to interpret the note written by Mrs Schlecht.
[57] Mrs Schlecht confirmed that the note (exhibit 6) was made by her at that meeting. She recalled that Mr Rawlings wanted an office on the mezzanine floor. He and Mr Chadwick then said they no longer wanted a large room on the ground floor, but they did want such a room on the mezzanine. Mr Schlecht asked for the specifications of the machine they proposed to install in that room, as he was concerned that the floor may not support the weight of the machine. Mrs Schlecht could not recall what was said about who would pay for any such works. She could not explain the note.
[58] I consider that Mrs Schlecht was mistaken in her evidence that, at this meeting, Mr Chadwick said he no longer wanted a large room on the ground floor. That is inconsistent with her note (which records several items under the heading "Warehouse Room") and also with the subsequent emails to which I refer below.
[59] Under the heading, "Warehouse Room", Mrs Schlecht relevantly recorded:

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[78] At trial, the defendants sought to rely on that paragraph as evidence that they and the plaintiffs had agreed that the Landlord's Works would be undertaken at the plaintiffs' cost.[31] Mr Schlecht said that he did not instruct Mr Beirne to send that email and did not know about it at the time.[32] In cross-examination, he denied that what Mr Beirne said there was consistent with the instructions he had given Mr Beirne about the costs of the works. He insisted that he had had an agreement with the defendants that they would share the costs equally, although it was not in writing.[33] He accepted that he had never discussed with Mr Chadwick that Flowcrete, which undertook the works, would charge a builder's margin (which was included in an invoice that the plaintiffs sent to EPM in 2022 for 50% of the costs of the works), but said "that's what most builders do."[34]
[79] Mr Beirne gave evidence at the trial. He said that he did not have instructions to make any representation that the whole of the costs of the Landlord's Works were to be paid by Mr and Mrs Schlecht. He said that it was a typographical error by which the email omitted a number of words, apparently caused because he uses voice to text software to dictate and write his emails and he did not check this email before sending it. He said the email should have said that his client was bearing the whole of the costs of "working up the plans and specifications for" the Landlord's Works.[35]
[80] In answer to questions in cross-examination, Mr Beirne said that his instructions at the time were that the parties had discussed the costs of the Landlord's Works, but they had not been definitively determined. That is, there was no definitive agreement: there was a proposal that the tenant pay half of the costs but there were a number of items in the scope of works and he was to await instructions. He was instructed that the agreement would be the subject of an exchange of emails. He was not instructed that an agreement had been reached before the lease was signed.[36]
[81] Notwithstanding that evidence, he then said that, in the week leading up to the execution of the lease, he had received oral instructions "in broad terms" that the parties would share the costs 50:50. He was then taken to his email exchanges with Mr Schlecht about the lease and the Landlord's Works and he agreed that, between 2.34pm and 4.00pm on 2 April 2020, he had been instructed to remove the proposed clause 20.3. He said Mr Schlecht had instructed him orally that there was no agreement reached that the landlord pay the cost of those works particularised in paragraph 20.1 of the lease, that they were to be shared and he was to await further instructions as to the proportions in which each of those items would be shared. That led Mr Beirne to insert clause 14.5(a). At that stage, he was instructed, there were continuing discussions about the costs of the Landlord's Works and he understood that there was no definitive agreement about how the costs were to be shared. He understood his instructions to be that there was an agreement that items 1 and 4 were to be shared equally, and he was awaiting instructions in respect of further items to go into the scope of works and in what proportions those costs were to be paid.
[82] I accept Mr Beirne's explanation for how that wording appeared in his email. It is obvious from a number of other emails that the dictation system he used sometimes resulted in obviously incorrect words or phrases appearing in the typed emails, which Mr Beirne did not correct before sending the emails. It is entirely feasible that he might inadvertently release the dictation button during his dictation, or might forget exactly where he was up to upon resuming dictation in the middle of a sentence. Furthermore, the emails that he was exchanging with Ms Bruce at the time did not concern the division of the cost of the Landlord's Works, but how much EPM should pay for his firm's fees for drawing the lease.[37] Indeed, in a later email within that exchange, Mr Beirne gave a similar explanation, saying:[38]

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[98] Both Mr and Mrs Schlecht signed those minutes on 30 May 2022. Mr Schlecht sent to Mrs Chadwick a copy of those minutes by email on the same day.[52] Neither Mr nor Mrs Chadwick responded to that email or asserted that the minutes were not accurate.
[99] Mr Schlecht did not appear to recall what was said at the meeting about payment for the Landlord's Works, although he did appear to recall some of the other items discussed. Mrs Schlecht appeared to have a better recollection and she confirmed the minutes. She also said the defendants had never, by that stage, denied any liability or agreement to share the costs of those works, apart from the time that Mr Chadwick got angry and said, "I'm not going to pay all of that."
[100] Mr Chadwick said that he recalled attending the meeting and he recalled being given an invoice or some document that was handed to Mrs Chadwick at that meeting. He said that a figure of $80,000 was mentioned by Mr or Mrs Schlecht and he or Mrs Chadwick said, "We're not liable for this" and something along the lines of "We've been over this before."[53] Clearly that evidence was wrong, as there is no doubt that, by that stage of the meeting, he had left and gone elsewhere. I consider that he was confusing this meeting with the October 2021 meeting, when he had said, "I'm not going to pay all of that." I do not accept his evidence about this meeting.
[101] Mrs Chadwick said that she was not presented with an invoice or any paperwork at the meeting. She said that either Mr or Mrs Schlecht said, "that we had said we would pay for it, which we had never said." She said that she was told that the amount had increased from an earlier figure because Mr Schlecht had put on a builder's margin, but no actual figure was mentioned until she later received an invoice.[54] In cross-examination, she agreed that she had said that she would look at the costing information, but she denied saying that there was only ever a verbal discussion about costing. Rather, she said at the meeting that there was never, at any stage, an agreement that EPM would pay 50%.[55]
[102] I do not accept Mrs Chadwick's evidence, given the extent to which it is inconsistent with the minutes of the meeting and with Mr and Mrs Schlecht's evidence. I consider that it was, at the least, a reconstruction of the discussion to suit the defendants' denial that there had been any agreement to share the costs of the Landlord's Works. Again, I accept the accuracy of Mrs Schlecht's minutes, which were not disputed at the time by Mr or Mrs Chadwick,[56] nor were they challenged in cross-examination. I am also satisfied that Mrs Schlecht passed over to Mrs Chadwick a copy of a job activity sheet similar to one later sent to Mrs Chadwick by email, which showed the cost of the works totalling $124,486.84 before GST. That is consistent with the reference in the minutes to the "$120,000 renovation." Mrs Chadwick may have chosen not to look carefully at it, either then or later, which would be consistent with her prior conduct of attempting to put off or avoid any need to pay for some of the costs of the works.

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[106] The lease was executed on 3 April 2020. Mr Schlecht then arranged to undertake the Landlord's Works. The exact scope and likely cost of those works were not determined by the time the lease commenced. This is clear, for example, from an email to Mr Schlecht from an engineer, which Mr Schlecht passed on to Mr Chadwick on 8 April 2020, and an email from Mr Chadwick to Mr Schlecht on 9 April 2020.[60] In the first, the engineer, apparently engaged to advise what reinforcing to the mezzanine level was required in order to support the printing machines to be placed on that level, pointed out some issues that needed to be addressed. In the second, Mr Chadwick told Mr Schlecht what the ideal and tolerable slab sizes were (presumably for the extension to the mezzanine floor).
[107] Mr Schlecht organised for the works to be done over some time before and while EPM moved into the premises. He never sent a quote for the works to EPM. Nor, it appears, did Mr or Mrs Chadwick ever ask for a quote before the works were done. The works were completed in May 2020.
[108] A clear claim for half the costs of the alterations was not made until the meeting on 28 October 2021. While Mr Chadwick said then that he was not going to pay all the amount claimed, I am not satisfied that either he or Mrs Chadwick directly disputed that they had agreed to pay half the costs. Rather, they were no doubt taken aback by the figure that, for the first time, they were told amounted to EPM's share of the costs.
[109] It was not until 30 May 2022 that Mr Schlecht sent Mrs Chadwick an invoice for what he described as "50% of the renovation costs."[61] That invoice was for $82,161.32, comprising $74,692.11 plus GST of $7,469.21. Attached to it was a "Job Activity" sheet that divided the works between different contractors, materials and equipment hire. It showed the total cost of the works (before GST) being $124,486.84 and added a builder's margin of 20%, or $24,897.37, resulting in a total cost of the works (before GST) of $149,384.22. Half of that figure is of course $74,692.11.
[110] Behind the invoice and job activity sheet in the trial bundle (although not sent to the defendants with the invoice) is a group of invoices for some of the works described in the latter document. The last is an invoice from Flowcrete to Mr and Mrs Schlecht for the amount claimed as the "builder's margin".[62] That invoice described its subject as:

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[112] The lease itself does not expressly provide for who would pay the costs of the Landlord's Works described in clause 20.1. However, clause 14.5 provides for a separate agreement that may alter the scope of and liability for the costs of the works. Such an agreement would prevail if it was inconsistent with the lease itself.
[113] Earlier documents containing the genesis of a possible agreement were the emails exchanged between Mr Schlecht and Mr Chadwick on 24 and 25 March 2020[64] and the email that Mr Chadwick sent to Mr Schlecht on 31 March 2020.[65] The emails and discussions led to Mr Schlecht sending instructions as to the Landlord's Works in his email on 2 April 2020 to Mr Beirne,[66] which were then reflected in clause 20.1 of the lease.
[114] Mr Schlecht explained that, when he originally agreed to do and pay for alterations to the building, he was prepared to pay for them because they were limited in nature. However, as discussions progressed about the works that the Chadwicks wanted, the likely costs increased considerably so that he was no longer prepared to bear the entire cost burden of the works. That led him to agree with Mr Chadwick that they would share the costs equally.
[115] That evidence, if accepted, appears to me to be consistent with the lease itself. Although the lease did not expressly provide that the landlord would pay for the works, it did refer to them as Landlord's Works and it imposed an obligation on the landlord to undertake the works. In the absence of any agreement to the contrary, it might be implied that the landlord - the party to the lease with the obligation to carry out the works - would bear that burden (although limited to the works described in the lease).
[116] However, clause 14.5, of course, provided for the possibility of a separate agreement being reached as to a change in the scope of the works from those described in the lease and as to who might be liable to bear any portion of the cost of the works. That clause is inconsistent with any implication that the landlord was liable to pay for the works described in clause 20.1. The lease did not provide a mechanism for dealing with a situation where the parties could not agree on the scope or cost of the works but, in the light of my finding below that an agreement was reached, I need not consider what would have happened if they could not reach an agreement.
[117] I have no doubt that, as the works sought by Mr Chadwick changed, at least after the lease was signed, Mr Schlecht became concerned that they would be considerably more expensive than he had been prepared to bear. I have no doubt that he raised this concern with Mr Chadwick. Indeed, it was raised in the exchange of emails before the lease, on 24 and 25 March 2020, although that exchange did not, of itself, record any final agreement But even then Mr Chadwick appeared to be prepared to bear some of the costs, subject to seeing a quote (presumably before the works commenced). The issue is whether any final and binding agreement was reached at some later stage.
[118] I do not consider that Mr Beirne's email to Ms Bruce on 2 April 2020 recorded an agreement, nor that it was a statement on which the defendants relied. I accept Mr Beirne's explanation for the wording of that email, which was in error and inconsistent with his instructions at the time that the scope and costs of the works had not yet been agreed. The statement was not binding on Mr and Mrs Schlecht,[67] nor was it evidence of an agreement having been reached that might impose an obligation on them to pay for all the costs of the works that may be finally agreed.
[119] I am satisfied that the minutes of the various meetings that Mrs Schlecht prepared accurately summarised the discussions that occurred at those meetings. There was no suggestion that they were inventions of Mrs Schlecht (whether recent or invented at the times the minutes were created). I accept Mrs Schlecht's unchallenged evidence that she had a standard practice, when attending business meetings with Mr Schlecht, that she would be the "secretary", making notes of the discussions which she would then have staff type up as minutes and she would file.
[120] As I have said above, I do not accept Mr or Mrs Chadwick's evidence about the meeting of 24 May 2020. It is inconsistent with Mrs Schlecht's minutes, which were based on her contemporaneous notes. Mr Chadwick, of course, was not present at the relevant part of the meeting. Mrs Chadwick was either being untruthful or she has convinced herself, in the context of this litigation, that EPM never agreed to share the costs. Indeed, she could not have had any direct knowledge of whether or not there was an agreement, as there was nothing in writing and no suggestion that she was involved in any discussion about the costs. All of the discussions about the works requested by the defendant were apparently between Mr Schlecht and Mr Chadwick (perhaps also with Mr Rawlings present at some of them).
[121] I find that Mr Schlecht and Mr Chadwick, in discussing the works to be undertaken by the landlord, did discuss who would pay for those works. The works would benefit both parties. It was no doubt easier for them to agree to split the costs equally than to separate the costs in some manner, such as having the landlords pay for works that they had initially agreed to undertake and the tenant pay for some or all of the finally agreed works. It is inconceivable that, as the scope of the proposed works sought by Mr Chadwick increased considerably above the works that Mr Schlecht had originally agreed he would do at his cost, he would not raise his concerns with Mr Chadwick and seek agreement to share the costs in some way.
[122] There was clearly no final agreement at the time the lease was executed, but discussions continued thereafter. I am satisfied that, at some time before 27 May 2020, Mr Chadwick agreed orally with Mr Schlecht that the final cost of the works would be shared equally. Such an agreement was acknowledged by Mr Chadwick (by nodding) and not disputed by Mrs Chadwick in the meeting on that date. Mr and Mrs Chadwick did not insist on seeing and approving a quote for the works before they were undertaken but, in the light of the amount suggested by Mr Schlecht at that meeting, Mrs Chadwick expressed some concern about having to pay for it at that time.
[123] The subsequent conduct of Mr and Mrs Schlecht appears to be consistent with this conclusion. Mr Schlecht mentioned EPM's failure to pay in his email of 7 December 2020 to Mr Chadwick. Although Mr and Mrs Schlecht did not otherwise follow up in writing on any request for payment until May 2022 and no invoice was given to EPM until May 2022, I accept that Mr Schlecht raised it in discussions with Mr Chadwick in the interim and I accept Mrs Schlecht's explanation that they were prepared not to press for payment for some time, initially due to Mrs Chadwick's statement in the May 2020 meeting (in which the figures of $80,000 to $100,000 were first raised and the agreement to share the costs was referred to and not disputed) that EPM would need time to pay. I accept Mr and Mrs Schlecht's evidence that Mrs Chadwick made that statement as recorded in the minutes of the meeting.
[124] I also accept Mrs Schlecht's evidence about and minutes of the meeting on 28 October 2021. I do not accept the evidence of Mr or Mrs Chadwick about that meeting. Indeed, I note that Mr Chadwick's denial that anything was said at that meeting about the Landlord's Works or the costs of them is inconsistent with Mrs Chadwick's evidence as well as that of Mrs Schlecht.
[125] Although Mr Schlecht never sent an email to Mr Chadwick along the lines that Mr Beirne advised, I am, as I said, satisfied that he and Mr Chadwick orally agreed to share the costs equally. It would be implied that those costs would be reasonable, thus entitling Mr and Mrs Chadwick to see a breakdown and to challenge any costs that they considered not to be reasonable. But, subject to that implication, I find that they agreed to share the costs equally. They have not challenged the costs as unreasonable.
[126] However, I do not consider that there was any agreement that Mr Schlecht's company, Flowcrete, would be entitled to charge a builder's margin for its work (essentially Mr Schlecht's work) in managing the works. There is no suggestion that Mr Schlecht raised that with Mr Chadwick. Mr Schlecht chose to manage the works to keep them under his control. That was the nature of his expertise and he was prepared to undertake that task to ensure works were done well: no doubt, he expected them to be an asset to the building that he and Mrs Schlecht owned. (Notwithstanding paragraph 15 of Mr Beirne's email of 25 March 2020 to which I have referred at [68] above, the lease did not contain any provision that the tenant must remove the Landlord's Works at the end of the lease. To the contrary, clause 5.5 provided that, if the landlord had provided any fit out to the premises, then that fit out was the landlord's property.) He appears to have informally engaged his building company, Flowcrete, to do the works, no doubt because that company had relationships with contractors and suppliers. As between that company and the building owners, it was not inappropriate to charge a builder's margin: although I am speculating, there could be tax and other legitimate advantages to such an arrangement. But, as between him and EPM, the arrangement was that he and Mrs Schlecht, as the owners, would do the works, not that his building company would do them and charge a margin for doing so.
[127] Therefore, I conclude that the parties did agree to share the costs of the works equally, provided that the costs were reasonable, but EPM did not agree (and was not asked to agree) to the payment of a builder's margin as part of those costs.

[97]

[128] Having reached that conclusion, it is necessary to determine how much EPM is liable to pay Mr and Mrs Schlecht under that agreement.
[129] There was no real challenge to whether the costs claimed by Mr and Mrs Schlecht were in fact costs of the agreed alterations and were reasonable, apart from the builder's margin. In his final written submissions, counsel for EPM submitted that there was insufficient proof that the amounts claimed (as shown in the job activity sheet) were incurred by Mr and Mrs Schlecht. He pointed out that there was no written contract between them and Flowcrete and many of the invoices said to support the cost claimed are not to Mr and Mrs Schlecht, but to Flowcrete. The only invoices from Flowcrete to Mr and Mrs Schlecht were for labour and pump hire for the renovations to the mezzanine floor and for the builder's margin.[68]
[130] It is correct that the vast majority of the invoices in the trial bundle were directed to Flowcrete, although some were addressed to John Schlecht, Mr and Mrs Schlecht or the Schlecht Superannuation Fund. But Mr and Mrs Schlecht gave unchallenged evidence that the invoices were for the Landlord's Works and the works were undertaken by Flowcrete.
[131] This evidence is, perhaps, imprecise and there is no direct evidence that Mr and Mrs Schlecht paid all the amounts claimed. Nonetheless, given the close relationship between Mr and Mrs Schlecht and Flowcrete, I am prepared to infer that the costs of the Landlord's Works have either been paid by Mr and Mrs Schlecht or they are liable to pay Flowcrete for them.
[132] I am therefore satisfied that the total cost of the works was as reflected in the job activity statement, excluding the builder's margin, about which there was no agreement.
[133] I find that EPM is liable to pay Mr and Mrs Schlecht half of the amount shown as the "Grand Total" in the job activity statement at TB215, plus GST. That total is $124,814.11. Half of that sum is $62,407.06. GST on that sum is $6,240.70, resulting in a debt due of $68,647.76.

[99]

[137] Each of the parties tendered a report and called evidence from a witness said to be qualified to give evidence about the alleged damage caused by EPM (both the allegedly unauthorised alterations and the items allegedly constituting breaches of the maintenance and repair obligations under the lease) and the work necessary to rectify them. Mr and Mrs Schlecht called Mr Martin Galbraith and EPM called Mr Andrew Montgomery Hribar. In addition to their individual reports, those gentlemen conferred and produced a schedule having the effect of a joint report, in which they recorded the items on which they agreed and those on which they disagreed. That schedule was later added to by including two extra columns that set out opinions that had been expressed by a jointly appointed quantity surveyor, Mr Moises Lopez. For the purposes of determining the contents of the joint report, those columns were ignored until Mr Lopez confirmed the opinions stated in them (which he later did). Essentially, therefore, the joint report presented in that manner became a summary of the opinions of each of Mr Galbraith (where they were not disallowed by me), Mr Montgomery Hribar and Mr Lopez.[69]
[138] Although I disallowed Mr Galbraith's opinions on multiple items, where Mr Montgomery Hribar has agreed with those opinions, I consider that I can take into account his agreement, given that his expertise in respect of those items and his adoption of them was not challenged.[70] Thus I disagree with an assumption made by Mr Copley in his written submission that, where Mr Galbraith gave his opinion in relation to matters ruled inadmissible in his report, the same ruling applies to that part of the joint report. It does insofar as Mr Montgomery Hribar did not agree with Mr Galbraith's opinion as to the alleged defect or the work required to remedy it, but where an item was agreed in the joint Scott schedule, it is open to me to accept Mr Montgomery Hribar's evidence about it (adopting Mr Galbraith's opinion) if I am persuaded by that evidence. That evidence included multiple photographs annexed to his report, which he took during his inspection of the premises on 13 June 2024. In that inspection, he observed each item in Mr Galbraith's report and, in his report, he expressed his opinion on each item and any necessary remedial work.
[139] The cost of rectifying each item was assessed by the jointly appointed quantity surveyor, Mr Lopez. He prepared two reports that became exhibits,[71] in the first of which he assessed the costs of each item, based on the work described as necessary by Mr Galbraith. In the second report, he undertook a similar exercise, but he also considered Mr Montgomery Hribar's opinions expressed in his report[72] and he separately listed the cost of each item in a separate column according to whether they had been agreed or not by Mr Galbraith and Mr Montgomery Hribar.
[140] Mr Copley, appearing for the defendants, objected to Mr Lopez' reports. It was apparent from those reports and from his evidence that his costings were of the work described by Mr Galbraith as necessary to rectify each item. However, I had disallowed Mr Galbraith's evidence about a number of the items and all of his opinions on the costs of rectification.[73] Therefore, to the extent that Mr Lopez relied on Mr Galbraith's opinion as to the work required and where Mr Montgomery Hribar had not agreed with his opinion on an item, I agree with a submission by Mr Copley[74] that, unless the necessary works to be done as described by Mr Lopez were proved by other evidence, including possibly that of Mr Schlecht (given that he is a qualified and very experienced builder, even though not an independent expert), Mr Lopez' opinion is based on assumptions that have not been proved and therefore the cost of rectifying those items about which Mr Montgomery Hribar did not agree has not been proved.[75]
[141] I said to Mr Copley, during the discussion of his objection, that it seemed to me that, if Mr Montgomery Hribar were later to give evidence that supported Mr Galbraith's opinion, and Mr Lopez had taken that into account in his final report, then surely Mr Lopez' evidence would be admissible. It appeared to have been based upon Mr Schlecht's description of the alleged defects, as specified in the schedule, and Mr Montgomery Hribar's opinion (either in agreement with Mr Galbraith or not) as to whether they are defects and, if so, what works needed to be done to rectify them.
[142] Rather than consider the evidence for each item individually, I reserved my decision on which items referred to in Mr Lopez' reports were or were not supported by other evidence. But I allowed the reports into evidence subject to that qualification. I shall consider this issue in my discussion of each item below.
[143] Mr Copley also challenged Mr Lopez' assessment of particular costs in some cases. I shall consider those in dealing with the claimed damage and rectification of each item.
[144] The allegations, EPM's responses and the opinions of each expert were helpfully summarised in the Scott schedule that became exhibit 16. That schedule divided Mr Lopez' opinion as to the costs of rectification of each item between those in which Mr Galbraith and Mr Montgomery Hribar had agreed that work was required and on the extent of rectification work and those items where they had not agreed. The amount identified by Mr Lopez in each case was not, in most cases, in dispute although, as I have said, the defendants contend that many of the descriptions of the necessary work have not been proved and, to that extent, Mr Lopez' opinions have not proved the cost of rectification of any items that I may find to have existed in breach of the lease.
[145] I shall now consider whether each item has been proved. The issues are, in each case: did the item occur or exist; if so, was it in breach of the lease; does it require rectification; and, if it does, what work is necessary and how much will it cost? I shall consider later whether the defendants are liable for any such costs.

[102]

[148] Mr and Mrs Schlecht claim that EPM breached the lease by erecting unapproved signs on the southern elevation, causing holes in the structural walls in a manner likely to cause damage. They contend that, in installing the signs, EPM breached each of the sub-clauses of clause 4.2 of the lease that are set out in paragraph [13] above. They claim that, to fix this breach, the signs would have to be removed, the holes plugged with suitable waterproof material and the entire southern wall would have to be painted. They claim $5,408 as the cost of undertaking those works (which have yet to be done).
[149] The defendants do not dispute that they installed the signs, but they deny that the installation of the signs was unauthorised or otherwise a breach of the lease, on two bases. First, they contend that Mr Chadwick and Mr Schlecht orally agreed that EPM could install the signs. Alternatively, they contend that the signs were standard business signage which EPM was entitled to install under clause 4.2(h) of the lease or, if the landlord's consent was required under clause 4.3, Mr and Mrs Schlecht could not have refused consent because to do so would have been unreasonable.
[150] Mr Schlecht gave evidence that he orally approved the installation of a sign on the western elevation, with a stipulation that any fixings used were not to penetrate the flashing above the top awning. A sign was installed on that elevation but also two signs were installed on the southern wall, which he never approved. He said that each of the latter signs was affixed to the wall at 72 points, each fixing penetrating the wall.[76] He went on to say that the fixings meant that there are 144 holes in a concrete wall that relies on a calcium membrane to provide water protection. If the membrane is penetrated, then moisture can attack the steel reinforcement, which will eventually cause concrete cancer.[77]
[151] Mr Chadwick gave evidence that the signs were installed in August 2020 under an oral agreement in a conversation between Mr Schlecht and himself in late May 2020. He said that, at a meeting with Mr and Mrs Schlecht, he and Mrs Chadwick showed them concept artwork for the proposed signs and said that there would be two signs on the southern wall. Mr Schlecht suggested that they add the number 510 (the street number of the building) to the signs so that the number remained visible. Mr and Mrs Chadwick agreed to do that, which ultimately happened.[78]
[152] The signs in question on the southern wall were large: about 4½ metres high and 6 metres long and comprising six panels each.[79] I accept Mr Schlecht's evidence that they involved the use of 72 fixings (apparently screws into the wall) each. The sign on the western wall was the height of the flashing at the top of the wall, apparently attached to the flashing by screws or another form of fixing.[80]
[153] Mrs Schlecht's minutes of the meeting on 27 May 2020, to which I have already referred, relevantly record:

[104]

[154] I find that, during the meeting on 27 May 2020 between Mr and Mrs Schlecht and Mr and Mrs Chadwick, there was a discussion about signage to be put up on the building. I accept that some form of artwork (possibly just on a computer screen) was shown to Mr and Mrs Schlecht and Mr Schlecht gave permission (although not in writing) to install a sign on the western wall. I am not satisfied that Mr Schlecht agreed to the signs on the southern wall and the method of fixing them. I consider that Mr and Mrs Chadwick simply took his agreement to the western wall sign to constitute agreement to all the signs that they intended to install.
[155] Whether or not Mr Schlecht gave oral permission, though, it is clear that he gave no written permission to install the signs on the southern wall and in the manner in which it was done. Under clause 4.2, the tenant could erect standard business signage, but the size and nature of affixing these signs was not, in my view, standard. The allowance for the erection of standard business signage was still subject to the separate obligation not to make any holes in any walls or other parts of the premises. These signs were affixed to the southern wall with many screws, obviously causing many holes in the walls.
[156] EPM was not entitled to affix the signs with screws, nor to install such large, non-standard, signs on the southern wall without the written consent of the landlord. Therefore, even if Mr Schlecht had given oral consent to EPM to install the signs, oral consent was not sufficient: any consent was required to be written. No written consent was sought or given. In my view, if it had been sought, it would have been perfectly reasonable for Mr and Mrs Schlecht to refuse their consent to the southern wall signs given the size of the signs and, more particularly, the intended method of affixing them.
[157] On the other hand, the western wall sign was more of a standard sign. Provided that it was not affixed to the building or the flashing with screws or other penetrating equipment, EPM did not require Mr and Mrs Schlecht's consent to install the sign. I shall consider whether any damage has been caused by the western sign in dealing with item 40.
[158] Therefore, I find that EPM breached the lease by affixing the signs to the southern wall of the building.
[159] Mr Montgomery Hribar essentially agreed with and adopted some of Mr Galbraith's intended evidence about the steps necessary to rectify the damage caused by the signs. That is, the signs would have to be removed and the fixing holes would have to be filled with a non-shrink grout with a colour to match the tilt slab. Mr and Mrs Schlecht contended that the entire southern wall would have to be repainted, but Mr Montgomery Hribar disagreed.[81]
[160] Mr Lopez assessed the cost of removing the signs and fixing the holes on the southern wall would be $5,408. I adopt that sum as the amount required to take those steps. I shall consider later whether any of the defendants is liable to Mr and Mrs Schlecht for that sum.

[105]

[161] Mr and Mrs Schlecht allege that, without their permission, EPM installed ventilation equipment for one of its printers by cutting a hole through the southern wall of the building, which breached the fire protection of that wall.
[162] EPM admits altering the wall, but it denies that by doing so it breached the lease. It contends that there was an oral agreement between Mr Schlecht and Mr Chadwick in May 2020 that EPM could cut a hole through the wall to install the ventilation, provided that the work was undertaken by Mr Schlecht's nominated contractor GNK Cooke Pty Ltd trading as Complete Concrete Cutting. In accordance with that agreement, the work was done by that company. Alternatively, EPM contends that it would have been unreasonable for Mr and Mrs Schlecht to refuse permission to make the hole and therefore any breach has not resulted in any liability to them.
[163] Mr Schlecht described the hole as a 176 millimetre diameter hole bored through the wall within maybe 200 ml of a joint in the panels, thereby damaging the structural integrity of the wall. He said that nobody asked him for permission to make the hole.[82] He later agreed that it was made to ventilate a printer that EPM had installed, but he denied that he had approved the installation of the printer, that Mr Chadwick had told him he needed to ventilate the particular printer and that he had said EPM should use Complete Concrete Cutting to do it. He said that he had engaged that company to demolish a block wall, which may have led Mr Chadwick to use its services. He said he did not notice the hole or the ventilation pipe protruding through the wall until some time in 2021.[83] Mrs Schlecht also said she was never asked about this matter.[84]
[164] Mr Chadwick said that he called Mr Schlecht, explained why he needed to ventilate this particular machine and Mr Schlecht said EPM could use Complete Concrete Cutting to cut a hole. Mr Chadwick was familiar with that company because he had seen its personnel on site doing other work for Mr Schlecht. He said he was not present when the hole was cut. He said the first time he received a complaint from Mr Schlecht about the hole was in about mid 2022.[85]
[165] In cross-examination, Mr Chadwick said that he raised the need for the ventilation with Mr Schlecht in about May or June 2020 when Mr Schlecht was on site doing some of the Landlord's Works. Mr Schlecht said that was fine as long as EPM used Complete Concrete Cutting, who would be best placed to advise the exact location to cut the hole.[86]
[166] Michael Howes is a printing machinist who worked for EPM and its predecessor for about eight years, as a printer and then as production manager. He now works at the same premises for the new tenant. He was called by Mr and Mrs Schlecht and gave evidence that he was present when the hole was cut to install the ventilation pipe for the printer. When some people arrived to cut the hole, he was present with Mr Chadwick and Mr Rawlings. Mr Howes asked Mr Rawlings, "Does John know about this?" Mr Rawlings shook his head and said, "Nuh." Mr Chadwick made no response to either the question or the answer.[87] Mr Copley did not cross-examine Mr Howes.
[167] Mr Howes' evidence (if I accept it) does not, of course, prove the truth of what Mr Rawlings said. It is relevant only to whether I should believe Mr Chadwick's evidence that he discussed the proposed hole with Mr Schlecht. If he had obtained Mr Schlecht's approval, one might think that he would have said so on this occasion. However, Mr Chadwick said that he was not present when the hole was cut and did not recall anyone asking whether Mr Schlecht had approved it.[88] It is also not clear whether, even if he was present, he heard Mr Howes' question, which was directed to Mr Rawlings. So, even if he was present, any non-response to the question by him is not indicative that he had heard or accepted Mr Rawlings' response.
[168] Mr Chadwick's evidence about his conversation with Mr Schlecht was somewhat unsatisfactory. At first he said he called Mr Schlecht and later he said that he spoke to him when he was on site. That alone casts doubt on the accuracy of his recollection of the alleged conversation. Also, Mr Schlecht strikes me as being keen to maintain control over any works conducted on his premises. I do not consider that he would have agreed to a hole being cut into the wall, if at all, without his determining the location of the hole and his close supervision of the works. He would definitely have wanted to decide where any such hole would be cut. I am not satisfied that the conversation related by Mr Chadwick occurred.
[169] But, even if such a conversation had occurred and Mr Schlecht had approved a hole being cut in the wall, that does not mean that the works were not a breach of the lease. As with the installation of the signs, the tenant was not permitted to make any hole in any wall without the written consent of the landlord. There is no suggestion of written consent about the ventilation hole. EPM was therefore in breach of the lease by having the hole cut. It comprised altering the premises and doing building work, as well as making a hole in the wall of the premises, without the landlord's written consent.
[170] The evidence about the work necessary to remove the ventilation system (which is still being used by the new tenant) and to reinstate the wall was brief. I ruled that Mr Galbraith's evidence about it was inadmissible. Mr Montgomery Hribar's relevant evidence was at paragraphs 56 and 59 of his report, in which he said:

[111]

[174] At the time EPM took possession of the premises, there was a stainless steel sink installed on the internal southern wall on the ground floor.
[175] It is not in dispute that, in or about May or June 2020, EPM removed the sink to allow for the installation of a printing press. The drain hole that had been below the sink was left open and was allegedly used to dispose of various solutions from the printing presses.
[176] Mr and Mrs Schlecht contend that these actions were in breach of the tenant's obligations under the lease not, without the landlord's prior consent, to damage the landlord's property, alter the premises or do any building work, nor to interfere with any drains or water supply.
[177] The defendants again contend that there was an oral agreement made in May 2020 between Mr Schlecht and Mr Chadwick, in which Mr Chadwick said words to the effect that the sink required removal because it was a health and safety risk and Mr Schlecht said words to the effect that he agreed to the removal of the sink. Mr and Mrs Schlecht deny such an agreement.
[178] Mr Schlecht gave evidence that, in August 2022, when the defendants vacated the premises, the sink was not reinstalled, and he could not locate the sink. He raised this with the current tenants, who were able to locate the sink. He also said that, in October 2022, when he inspected the premises with Mr Galbraith, he observed approximately half a dozen chemical bottles sitting in the location where the sink had been. Someone had also covered in the hole using a PVC pipe.[89] The sink has not been reinstalled.
[179] When it was put to him that Mr Chadwick had discussed its removal with him due to workplace health and safety issues, he said, "Never happened." He was not present when it was removed and he did not notice its absence until about the time that he noticed the ventilation pipe through the wall. At that time, he asked where it was and was told it was outside. That was of concern to him because they did not ask him and it was outside under a garden tap that was used to clean paintbrushes. He said he also saw people pouring what he assumed were chemicals into the drain pipe where the sink had been located.[90]
[180] Mr Chadwick said that, in about early April 2020, he spoke with Mr Schlecht about the sink, explained that it would block access to part of a particular printer once it was installed and it needed to be removed. He said Mr Schlecht agreed, so the sink was removed, the water was capped and the sink was placed outside.[91] He also said that, every four to six weeks, it was necessary to "dump the waters": a mixture of pure alcohol and water was used on the printers and the mix, primarily of water, was poured down the drainpipe.[92] He agreed that, when the press is removed, the sink would have to be reinstalled where it was.[93]
[181] Mrs Chadwick give similar evidence about the reason for removing the sink and denied that any chemicals were, to her knowledge, poured into the drain. She was not present to hear any approval for its removal. The first time any issue was raised about it was in a meeting in August 2022.[94]
[182] I accept Mr Chadwick's evidence that he told Mr Schlecht that he would need to move the sink and the reason for it. I doubt that that is the sort of conversation that Mr Schlecht would necessarily remember some years later. I accept that Mr Schlecht agreed that it could be done. Of course, no written consent was given by him or Mrs Schlecht.
[183] The sink is "Landlord's Property" and as such it is part of the "Premises," as both terms are defined. I am not satisfied that the sink or any other part of the premises has been damaged by its removal. Nor do I consider that its removal constitutes alteration of the premises. However, capping of the water technically constitutes interference with the water supply, in breach of clause 4.1(j). The landlord did not give written consent to that action, which was therefore in breach of the lease.
[184] I am not satisfied that there has been any contamination of the drain and sewer by chemicals. I accept that only alcohol and water were, occasionally, poured down the drainpipe. There is no evidence that that practice contaminated the drain or the sewer. This part of the claim is purely speculative.
[185] The appropriate step is to reinstate the sink, as Mr Montgomery Hribar and Mr Galbraith agreed. Mr Lopez has estimated that cost at $2,080, but that includes the cost of a new sink, which appears to be unnecessary and goes beyond the evidence of those two gentlemen. The only cost I will allow, therefore is $480 for the labour involved to install it.

[114]

[192] Mr and Mrs Schlecht allege that EPM installed a chiller system and, to do so, it moved furniture in the staff outdoor seating area without consent. They contend that its installation was an alteration to the premises or building work and therefore constituted a breach of clauses 4.1(f) and 5.4(1) of the lease.
[193] Mr Schlecht said that, at about the time that EPM had fully moved in in 2020, Mr Chadwick asked him if he could install a chiller system for one of the printers on the mezzanine floor. Mr Schlecht suggested that a platform be built outside on the ground to house that chiller, but Mr Chadwick did not wait and instead just installed the chiller on the ground in the area of a table and bench seats for staff use that were bolted to the ground. The table and bench seats were unbolted and moved and the chiller installed.[96]
[194] Mr Schlecht went on, in re-examination, to say that he had agreed to it being installed about two to three metres away from where it currently is, external to the outside seating area. He would have required a small ground slab to be poured to sit it on and a screen built around it with sound buffering.[97]
[195] EPM sold the chiller to the new tenant, which continues to use it.
[196] The defendants deny that the installation of the chiller was a breach of the lease. Mr Chadwick agreed that he and Mr Schlecht had a conversation in which Mr Schlecht suggested building a platform to house the chiller on the ground. Mr Chadwick said that he organised for the chiller to be placed in the only available position on the ground, although without a platform and with the plumbing and electrical services also sitting on the ground from their sources to the chiller. He said that he told Mr Schlecht that he would simply place it on the ground and Mr Schlecht replied, "Fair enough."
[197] Mrs Chadwick also said that she had a conversation with Mr Schlecht in which he said that the chiller was too heavy to go on the awning with other air conditioners, so he wanted it installed on the ground. (It is not clear whether she was simply present during the conversation between Mr Chadwick and Mr Schlecht or had a separate conversation, but certainly no separate conversation was suggested to Mr Schlecht.)
[198] Mr Galbraith, in his report, opined that the chiller could, with the landlord's consent, be moved and installed in a better way, by relocating it away from the staff table and benches (which could be reinstalled in their original position), forming a hardstand and a low retaining wall around it and using appropriate conduits for the electrical services to it (which are currently open). Mr Lopez costed those works at $17,568.
[199] Mr Montgomery Hribar disagreed that the steps proposed by Mr Galbraith were necessary. He opined that the chiller can simply be removed and the table and benches reinstalled at the end of the lease.
[200] I do not consider that placing the chiller on the ground where it is constituted alteration of the premises or building work. Similarly, although the table and benches were unbolted and moved in order to place the chiller where it is, I do not consider that to constitute alteration to the premises or building work. Therefore, the installation of the chiller was not done in breach of the lease.
[201] If it were a breach of the lease, I do not accept that all the steps described by Mr Galbraith and costed by Mr Lopez were necessary in order to remedy the breach. All that would be necessary would be to move the chiller to a slightly different location and to reinstall the table and benches to their original location. Using Mr Lopez' trade break up figures,[98] that cost would be about $2,080 plus materials comprising 30% of the cost of relocating the plumbing and electrical services, amount to $384. The total cost would therefore be $2,464. Alternatively, the tenant could simply remove the chiller at the end of the lease and replace the table and benches at its cost.

[115]

[202] At one end of the factory floor, there was a small recess in the concrete floor: about 80mm deep and perhaps one to 1½ metres square. Mr Schlecht said that he built that recess to enable a personnel lift to be installed if it ever became useful to do so. In the meantime, he installed a steel plate to cover the recess.
[203] Mr and Mrs Schlecht complain that EPM filled that recess with concrete without their consent. Mr Schlecht said that EPM did not seek his consent to the work. He acknowledged that the steel plate is still on the premises. He did agree that all that would be necessary to reinstate the recess would be to remove the concrete and to reinstall the steel plate.
[204] Mr Copley suggested to Mr Schlecht that Mrs Chadwick's husband, David Hayden, had had a conversation with him about the recess and said that he would install concrete in it to replace the steel plate, to which Mr Schlecht had agreed. Mr Schlecht denied that any such conversation occurred.
[205] Mr Chadwick gave no evidence about having, or being present during, any conversation with Mr Schlecht about the recess. He said that he saw the work being done by Mr Hayden, who removed the steel plate, put in some plastic sheeting at the bottom and filled the recess with self-levelling concrete. That work was done in about August or September 2020.
[206] Mr Hayden was not called to give evidence about the conversation that Mr Copley put to Mr Schlecht. The current evidence is therefore that of Mr Schlecht, denying that any such conversation occurred. Mr Hayden actually sat in the public gallery of the court for some time during the evidence, especially that of Mrs Chadwick. Each of Mr and Mrs Chadwick agreed that there was no reason why he could not have been called to give evidence. In the circumstances, I infer that Mr Hayden's evidence, if he had been called, would not have assisted EPM in this respect. Therefore, on the evidence before me I am not satisfied that the conversation in fact occurred.
[207] Mrs Chadwick said that the steel plate did not cover the whole recess and, when a forklift drove over it, the plate would tip, making the forklift unstable. She said that, in April 2020, she raised it with Mr Schlecht and asked if EPM could fill it in with concrete. Mr Schlecht said that would be ok as long as it was easy to remove in case a lift had to be installed. Her husband then did the work, which she described similarly to Mr Chadwick.
[208] The work involved in installing the concrete does, in my view, constitute building work. Undertaking the work without the landlord's written consent (whether or not Mr Schlecht orally consented) is strictly a breach of the lease. However, the simple remedy is that, on the expiration of the lease, the tenant remove the concrete and reinstall the steel plate. Mr Lopez estimated the cost of that work at $4,300, but that included the supply of a new steel plate (which is unnecessary) and significant labour to install it. Additionally, he allowed for 2 men working for two days to sawcut the slab and remove and dispose of the concrete, which I consider to be excessive given that it was installed deliberately to make it easy to remove.
[209] I will allow for the labour of one man for two hours (which I consider generous) at the rate specified by Mr Lopez: a total of $160.

[123]

[214] Mr Schlecht said that he observed dirty walls in around October 2022 and he has since then paid a contractor to clean all except the southern wall, for which he paid something less than $4,700, but he could not remember how much. No invoice for any such work was tendered. He said that he took photographs of the walls, but they were not put into evidence. As to staining, he said that it appeared that chemicals were being washed off tools that stained one wall. There are no photographs of any such staining. I do not accept that any material staining has occurred and certainly not sufficient to require an entire wall to be cleaned.
[215] I disallowed Mr Galbraith's evidence about this item. Mr Montgomery Hribar disagreed that the walls were damaged by vegetation or damage to flashings (allegedly caused by the installation of one of the southern and western wall signs[99]). He agreed, in the joint report, that there was evidence of "brush type staining marks" on the western wall, as well as evidence of leaching. As to the former, he seemed to attribute it to EPM (although it is not clear in what manner). As to the latter, he said that the streaking shown in his photograph 3 was a common occurrence, called autogenous healing, in which calcium contained in the concrete mix is exuded from the wall. He said the leaching may be caused by the attachment of the flashings to the concrete walls, but it is unlikely to have been caused by the installation of the signs, as their attaching screws were only small and such small holes do not often leach.[100]
[216] Similarly, photograph 24 in his report shows clear evidence of leaching from the connection points between the concrete wall and the cladding. Mr Montgomery Hribar seemed to attribute this to poor construction methods.[101] He did not agree that the leaching was caused by EPM.
[217] I am not satisfied that any vegetation caused damage to any external wall, particularly during EPM's occupation. The only close photograph of the western wall that showed vegetation were attached to Mr Montgomery Hribar's report.[102] No damage was apparent in that photograph.
[218] I am not satisfied that the apparent leaching was caused by EPM in any manner. It is caused by the manner in which the building was constructed, which is the responsibility of the landlord.
[219] Mr and Mrs Schlecht's claim for this item fails.
[220] Mr Lopez allowed a cost of $4,992 to pressure clean the outside of the whole building. EPM is not liable for that sum.

[125]

[221] Mr and Mrs Schlecht claim that these walls require painting due to damage caused by vegetation and staining from ink and chemicals. Apart from the additional details about alleged vegetation damage to walls, this item appears substantially to replicate item 2, as Mr Schlecht appeared to concede.[103]
[222] Mr Schlecht gave evidence that he saw mould, vines growing up the walls and marks on the walls that had not been there before.
[223] Mr Montgomery Hribar could not see any damage to the walls caused by any vegetation. He also disagreed that the walls required painting, as they are concrete walls that were not originally painted.
[224] I have compared Mr Montgomery Hribar's photographs 2 and 3 with a more distant photograph of the western wall in the leasing information memorandum.[104] While Mr Montgomery Hribar's photographs appear to show leaching, they do not appear to me to show any damage caused by vegetation. The vegetation in his photographs appears to be of similar size and location to that in the information memorandum. Similarly, photographs of the eastern wall taken by Mrs Chadwick shortly before EPM moved in show no damage to the wall from vegetation and no apparent stains from leaching.[105] There are no photographs of the eastern wall after EPM moved in.
[225] Mr Schlecht also said that the existing tenant (the assignee of the lease) has maintained the vegetation and garden beds since it took possession.
[226] I am not satisfied that any vegetation has caused damage to the walls. Nor is there any satisfactory evidence of ink or chemical staining of any wall. Mr and Mrs Schlecht's claim for this item also fails.
[227] In his first report, Mr Lopez estimated a cost to sand, patch and paint concrete wall and awning at $6,656. However, that estimate was based on a part of Mr Galbraith's report that ultimately was not in evidence Even if I were satisfied that some damage had been caused to the western wall by vegetation, I am not satisfied that the entire wall would need to be painted, especially as the original wall is not painted. Rather, I expect some cleaning and perhaps sanding and patching might be required, for which no discrete costing has been supplied. Therefore I would not allow any amount for this item.

[129]

[230] Mr Schlecht said that, after Roadtek vacated the premises and before EPM took possession, he arranged for make-good works to be done (having been paid $100,538.90 by Roadtek in settlement of its make good obligations).[107] He then arranged for works to be undertaken. He identified the invoices for those works,[108] which included sweeping and pressure cleaning the internal and external floors (including the hardstand).
[231] In cross-examination, Mr Schlecht was shown photographs of the hardstand area taken by Mr Montgomery Hribar in June 2024. He accepted that the rubbish, debris, vegetation and litter that were present in October 2022 were no longer present. He said the new tenant had recently had the hardstand cleaned, the bin areas tidied up and someone pruning the vegetation. There were a few pallets still there, but they were to do with the new tenant. However, he said about 80% of the hardstand had still not been cleaned and there were large amounts of glue stuck to it and still there from the time of EPM's occupation.[109] However, he did not produce any photographs of those areas.
[232] Mr Chadwick said that EPM used the hardstand area to keep some shipping containers for extra storage, as well as pallets, chemical drums, delivery of supplies and parking.
[233] Mrs Chadwick said that, when EPM took over the premises, she pressure cleaned both the factory floor and the entire hardstand, the latter to remove oil and tyre marks left by the previous tenant, Roadtek.[110] That was the only occasion on which she pressure cleaned those areas. During EPM's occupation, the hardstand was used for staff parking and there were rubbish bins and two shipping containers. The bins were left for the new tenant and she subsequently sold the shipping containers.
[234] Mr Smith exhibited to his statement (admitted in evidence[111]) several photographs showing broad views of the hardstand, taken after Roadtek had vacated the premises. They appear to show it as broadly clean, but reflecting the fact that it had been used for industrial purposes for some nine years. One photograph, taken from the north-western corner of the hardstand, shows what appears to be a considerable amount of staining. It is evident from the Ray White Information Memorandum (particularly in photographs at TB333 and 337) that that area had been used by Roadtek to store a lot of heavy material.
[235] Mr Galbraith reported that there was extensive dirt, rust staining and chemical staining to the hardstand that required removal of debris, rubbish and vegetation litter, a mould wash, scrub and rinse and deep cleaning and abrading of badly stained areas. He attached two photographs of some areas that showed considerable staining in limited areas.
[236] Mr Montgomery Hribar said that, when he saw the hardstand in June 2024, it had normal dirt and discolouration and any rubbish appeared to be that of the new tenant or the owner.
[237] Mr Montgomery Hribar's report contains three photographs of areas of the hardstand, taken by him in June 2024.[112] None of them shows any areas that are particularly stained and dirty, although the north-western area appears to have similar stains to those that were present after Roadtek vacated. These photographs indicate to me that, whatever the state of the hardstand during EPM's occupation, it has been cleaned up by the new tenant. Where it remains stained in the north western corner, the stains appear to have been present for many years and are probably very difficult to remove. However, they appear to me to be fair wear and tear from the use of the handstand as part of heavy industrial premises. Indeed, they appear to have been present since before EPM occupied the premises.
[238] It is possible that, during EPM's occupation of the premises, it did not keep the hardstand tidy and clean. That would be a breach of the lease. But any detriment then caused has been rectified by the new tenant fulfilling its own obligations under the lease. I shall consider later whether that fact affects EPM's liability to pay Mr and Mrs Schlecht an amount sufficient for them to have undertaken the cleaning, had they done so.
[239] As for the cost of cleaning the hardstand in its state in October 2022 (when Mr Schlecht and Mr Galbraith inspected the premises), Mr Lopez estimated a cost of $10,752, comprising grinding, patching and making good the slab ($6,400), removing rubbish and pallets ($1,280) and materials ($3,072). I accept those figures, which were unchallenged. I shall consider later whether EPM is liable for any of those costs.

[130]

[240] Mr and Mrs Schlecht complain that EPM failed to maintain the gardens and vegetation around the premises. They contend that this was in breach of the tenant's obligations under clauses 5.2(a) and (b) of the lease, which I have set out at [13] above.
[241] The works allegedly required to remedy the default were to clean rubbish from garden beds, prune and maintain plants, dress, fertilise and mulch and then maintain regularly. In his report, Mr Montgomery Hribar said he did not agree with the proposed remedial action, but in the joint report with Mr Galbraith he agreed that these actions were appropriate.
[242] Before I consider the allegations, it is necessary to make some comments about clause 5.2. That clause distinguishes between (a) keeping the Premises clean and tidy and (b) keeping the Tenant's Property clean and tidy. Maintaining the gardens and other external areas is expressed in clause 5.2(b) as being a requirement of keeping the Tenant's Property clean and tidy, but those areas are not Tenant's Property. It is clear that the words in sub-clause (b), "including the maintenance of lawns, gardens, garden beds, driveways, walkways," should not have been there, but rather in sub-clause (a) before the word "consistent." EPM did not contend that it did not have to maintain the gardens, etc on the strict reading of this clause, no doubt because it would make a nonsense of the clause. There is clearly an error in the lease and I construe it as if those words were in the correct place, as I have indicated, so the obligation arises under sub-clause 5.2(a).
[243] Mr Schlecht said that, when he inspected the premises in October 2022, he observed overgrown vegetation, bushes, shrubs and trees and weeds, all around the property where there were gardens (the east, west and northern boundaries).[113]
[244] In cross-examination, Mr Schlecht accepted that there was no longer any rubbish in the garden beds and there had been some pruning and maintenance of the plants since his inspection in October 2022, but he said they needed to be re-mulched.[114]
[245] Mr Chadwick said that EPM had an informal garden maintenance program, undertaken by Mr Hayden, who would do work around the garden beds every week or two. Mrs Chadwick said that the gardens were regularly maintained by her husband. As I have said earlier, Mr Hayden himself did not give evidence. I infer that any evidence he might have given would not have assisted EPM's defence.
[246] I am satisfied that the gardens were not adequately maintained by EPM during its occupation of the premises, leading to them becoming overgrown and unsightly. However, they appear to have been tidied by the new tenant.
[247] Mr Lopez estimated that the cost of pruning and bark dressing the gardens would be $4,992. I accept that estimate. I shall consider later whether EPM is liable to pay that sum.

[133]

[258] This claim is for damage to an external bollard and safety rail situated on the northern side of the building.
[259] Mr Schlecht said he observed the damage in October 2022. The bollard is dented and scuffed and the handrail is bent. He thought it was likely caused by a forklift. He considered that they needed to be replaced and could not be repaired.
[260] Mrs Chadwick initially denied seeing any damage to a bollard. However, she later agreed that, in her witness summary of her proposed evidence, she had said that, when it was raised that the bollard was damaged, EPM said it was happy to fix it. It was put to her that the summary was inconsistent with her evidence, in response to which she said there were several bollards, one of which had a slight dent in it that might been caused by Roadtek. I considered her evidence about this damage, both originally and in cross-examination, to be dissembling and disingenuous. There clearly was damage to a bollard, as the defendants appear previously to have accepted. I infer (and the defendants appear previously to have accepted) that it was caused during EPM's occupation.
[261] Mr Galbraith photographed the bollard, but not the handrail. He said there were also loose or damaged fixings to the ground. He opined that it could be repaired by preparing and painting.
[262] Mr Montgomery Hribar considered that the bollard and rail remain fit for their purpose, but he had been instructed by Mr Chadwick that EPM would pay for a new items. In the joint report with Mr Galbraith, they expressed the opinion that they required replacing.
[263] Mr Lopez has not estimated the cost of replacing the bollard and rail, but does estimate the cost of preparing and painting it and replacing bolts and fixings. His estimated cost is $1,456, which is not challenged and which I accept.
[264] I find that the bollard concerned and the associated handrail were damaged during EPM's occupation and it is liable for the cost of fixing the damage or replacing the items. The best I can do in terms of amount is to adopt Mr Lopez' estimate. EPM is liable to pay $1,456 for this damage.

[135]

[273] The complaint is that the carpet to the office was damaged by wide spread ink stains. The remedy sought is to replace carpet to match. In its defence, EPM denied the allegation and asserted that professional cleaning was undertaken weekly and any alleged damage was fair wear and tear.
[274] Mr Schlecht said that there were ink stains "all over", as well as a large circle about 400mm in diameter where EPM had trialled an embossed sticker to regulate COVID (by which I infer he was referring to a sticker indicating the required separation between individuals). The carpet comprises tiles and the stains were still there. He went on later to say that there were probably a hundred ink stains on the carpet in the office, which he speculated are probably from printing ink on shoes worn into the office.
[275] Mr Schlecht was cross-examined about the alleged stains, in part by reference to photographs of some parts of the office included in the Ray White Information Memorandum. At TB472, marks are obvious on some parts of the carpet. Mr Schlecht said that he replaced carpet tiles after Roadtek had moved out. Subsequently, however, he said that he had made enquiries in about 2023 and was no longer able to obtain carpet tiles similar to those in the office. He therefore proposed to replace all the office carpet with new carpet.
[276] Mr Chadwick said that, when EPM moved in, the carpet was old and there were stains on it. During EPM's occupation, he did not notice any widespread ink stains.
[277] Photographs, apparently of areas of the carpet in the office, were put to Mr and Mrs Chadwick in cross-examination. Mr Chadwick did not accept that they were taken in July 2022 or reflected the condition of the carpet at that time, but Mrs Chadwick accepted that they were consistent with its condition as she observed it in July 2022. Those photographs[119] show quite a large number of small stains in one area in front of a desk and quite a large stain in a separate area near a wall.
[278] Mr Galbraith's evidence about the carpet was disallowed. Mr Montgomery Hribar opined that, at the time he inspected the premises, the carpet did not require cleaning other than the tile with the circular mark identified by Mr Schlecht. He appended two photographs of areas of the office that did not appear to show any stains. He suggested that the tile with the circular mark be replaced or be relocated to a less obvious area.
[279] Mr Lopez estimated the cost of patching and replacing carpet at $1,792. He has not estimated a cost of replacing the entire carpet, nor of cleaning it to remove stains if possible.
[280] I am satisfied that, during EPM's occupation, a number of stains, probably from printer's ink, were caused to some areas of the carpet in the office. I do not accept that the extent of staining was as Mr Schlecht described: his evidence is not supported by an extensive range of photographs demonstrating clearly the extent of any damage to the carpet. It must be kept in mind that the carpet is in an industrial building and is now some 15 years old, so one would reasonably expect that it would have become worn and stained to some extent by now.
[281] I do not consider that the entire carpet needs to be replaced. If the stains cannot be removed by cleaning and replacement tiles are not available, then stained tiles could be switched with other tiles from less obvious areas, if necessary.
[282] I adopt Mr Lopez' estimate as a reasonable proxy for the cost of cleaning, replacing or moving badly stained carpet tiles.

[137]

[283] This item is described in the statement of claim as damage to office and ancillary areas, including light switch, holes in walls and impact damage to walls. The remedy proposed is to repair the damaged light switch and to make good holes and impact damage. The defendants did not admit the damage and contended that any damage was fair wear and tear.
[284] Mr Schlecht said that, in August 2022, he observed that every room had holes in the walls, which he could not explain as he had repainted the office in 2020. In cross-examination, he identified the ancillary areas referred to as the bathrooms, amenities, kitchen and boardroom. He said part of one light switch had been removed and not replaced.
[285] Mr Chadwick said he was aware of a damaged light switch in a store room, which EPM had damaged when it moved in. Mr Morris put to him a photograph of a damaged light switch in a corner of the office.[120] Mr Chadwick said that he had never seen any such damage and it did not exist during EPM's occupancy.
[286] Mr Morris also put to Mr Chadwick photographs of holes in a wall. Mr Chadwick did not accept that they were of any wall in the premises. Those photographs had not been identified by Mr or Mrs Schlecht and were not admitted into evidence.
[287] Mr Galbraith's evidence about this item was disallowed. Mr Montgomery Hribar said that, when he inspected the premises in June 2024, he did not observe holes or impact damage in the walls, nor a damaged light switch cover. He observed a cover that did not fit a light switch in one room.
[288] I am not satisfied, on the evidence, that there were holes in any of the walls. I am satisfied that one light switch did not have a cover or was damaged, as Mr Chadwick accepted. I am not satisfied that the photograph of the damaged light switch was sufficient to demonstrate that the damage had been caused by EPM.
[289] Mr Lopez estimated that the cost of labour and materials to replace a damaged light switch would be $416. While that seems a lot, I accept his evidence, which was unchallenged. Subject to other factors to be discussed later, EPM is liable to Mr and Mrs Schlecht for that amount.

[138]

[290] This complaint in the statement of claim is that there were redundant fixing holes in a tiled wall in the amenities, heavy dirt build up to surfaces and mould to sealant. The defendants did not admit the allegations.
[291] Mr Schlecht said that there were two or three holes in tiles and mould in the grout joints. In cross-examination he said he had no idea what caused the holes. He identified the holes by reference to a photograph taken by Mr Galbraith.
[292] Mr Chadwick acknowledged that the holes were present but he did not know who had made them.
[293] Mrs Chadwick said that the holes were present when EPM moved into the premises. As for the dirt and mould alleged, she said the amenities were professionally cleaned weekly.
[294] Mr Galbraith identified three holes in a photograph reproduced in his report. He also said that there was mould and dirt build up requiring a deep clean or regrouting and resealing.
[295] Mr Montgomery Hribar expressed the opinion that the holes appeared to have been made during construction, as they appeared to be for the hand drier which, if installed there, would have interfered with something else, so it had to be moved. He also said that perimeter edging tiles require periodic cleaning to remove mould in the silicon sealant.
[296] I am not satisfied that the holes were made by anyone during EPM's occupation of the premises. As for the build up of dirt and mould in the grout and sealant, although the amenities were cleaned weekly, such a build up is common in well used toilet facilities and, as Mr Montgomery Hribar said, it requires periodic cleaning (I infer, more than just a standard weekly clean). There is no evidence that EPM caused such cleaning to be undertaken. Although one might consider such a build up to be fair wear and tear, given the express requirement in the lease that the tenant keep the premises clean I consider that there is an obligation on a tenant to undertake such special cleaning periodically and, if necessary, regrouting and resealing.
[297] Subject to other matters discussed later, I find that EPM is liable for the cost of regrouting and resealing the perimeter of the amenities. Mr Lopez assessed the cost of that work at $1,664 for labour and materials, which I accept.

[141]

[301] Mrs Chadwick gave evidence[122] that printing ink would sometimes be spilt on the floor, but they are soy-based inks that wash off with water. Chemicals used in the printing process might also spill sometimes but again they would not contaminate the floor and could easily be cleaned with water. The factory staff were required to clean the warehouse floor every Friday afternoon, including mopping it where necessary. Mr Chadwick gave similar evidence about Friday cleaning.[123]
[302] I did not allow into evidence Mr Galbraith's opinion on this item. Mr Montgomery Hribar, in his report, simply referred to two photographs taken by EPM before it moved into the premises: one that showed the state of part of the warehouse floor and Mrs Chadwick cleaning it with a pressure cleaner and the other, taken from the mezzanine, showing the whole warehouse floor after it had been cleaned. He also referred to a photograph that he took of the warehouse from the mezzanine, showing the printing machines and stock in place, with corridors of bare floor between them. The latter showed some stains in various places on the floor.[124] Mr Montgomery Hribar opined that the floor could be completely cleaned only after all the machines were removed at the end of the lease.
[303] In cross-examination, Mr Montgomery Hribar said that, when he visited the site, the floor that was exposed to view was quite clean, it was not contaminated with chemicals, ink or glue. He also disagreed that the floor would need to have an epoxy or other finish applied after cleaning to protect the slab from future contamination.[125]
[304] I accept that there were some stains on the floor around some of the printers. The extent of stains was not clear, although Mr Schlecht asserted that there would be around 1,000. With respect, I cannot accept that estimate, which seems likely to be a gross exaggeration.
[305] While some stains appear in the corridor areas, as shown in the photograph in Mr Montgomery Hribar's report to which I have referred, at the time that photograph was taken the floor does not seem to be excessively dirty in the exposed areas. Such stains as appear to exist are, in my view, likely to be the result of the authorised use of the premises for industrial printing. While the entire floor may need a clean at the end of the lease, I disagree that the tenant would have to apply some form of protective coating on it. There is no evidence that there was any such coating on the floor at the commencement of the lease. In my view, any stains that were not easily removable by pressure cleaning would comprise fair wear and tear arising from the ordinary and approved industrial use of the premises.
[306] Additionally, clause 5.2(a) of the lease requires that the premises be kept clean and tidy "consistent with the nature of the business conducted on the Premises." Mr and Mrs Schlecht's complaints about the factory floor ignore this clause and do not make sufficient allowances for the fact that this was an operating major printing business.
[307] Mr Lopez costed the work involved in cleaning the factory floor, comprising grinding, patching and making good the concrete slab, at $7,168. He was not asked about that in his cross-examination, so I accept that figure if that extent of work were necessary. However, I do not accept that the floor would require cleaning to such an extent, given my conclusion that stains that could not easily be removed would be fair wear and tear. I would allow one person working for one day to pressure clean the floor. Utilising Mr Lopez' costing of labour and materials, that would amount to labour of $640 and materials (at 40%) of $256, a total of $896.
[308] As with the other items, I shall consider later whether EPM is liable for that sum.

[143]

[314] The complaint in the statement of claim is that the western exit door has been damaged and needs to be repaired or replaced. In their defence, the defendants do not admit the damage, which they plead was not known to them.
[315] Mr Schlecht gave evidence that, while EPM was in occupation, it wedged this door (which is a fire door with an automatic closer) open during operating hours. That has caused damage to the bottom of the door, as well as moisture damage apparently caused by rain seeping into it while open on wet days. He said that with the closer attempting to close the door and the wedge keeping it open, ultimately that bowed the door, especially when it gets wet. It also caused the door not to close properly, preventing the security system from arming.[129]
[316] In cross-examination, Mr Schlecht agreed that the current tenants continue to wedge the door open. He also accepted that it was properly closed at night "most of the time." He estimated that it would take two people about half an hour to remove the door from its hinges and about three hours to install a new door.[130]
[317] Mr Chadwick simply said that the door was propped open in summer but it would be closed when it rained. It was not opened in winter. There was no noticeable damage when EPM occupied the premises. He disagreed that it needs replacing.[131]
[318] Mrs Chadwick said the door was propped open in summer on extremely hot days, but not commonly. She was shown photographs of the door (exhibit 27) and she appeared to agree that, when EPM left the premises, it was in the condition shown in those photographs.[132]
[319] Mr Galbraith provided a photograph of the door that he took in October 2022 and that shows it in a similar state of repair to the photographs in exhibit 27. He opined in his report that the damage was at its base and was partly caused by the wedge and partly due to water splash. He did not mention any bowing, buckling or difficulty in closing.
[320] Mr Montgomery Hribar acknowledged some damage, noted that the door appeared to have been installed when the building was constructed and considered that it could be repaired by a carpenter in about four hours. He said he tested it for functionality and found it to be compliant and he could not detect any twist or bending in it. In the joint report (exhibit 16), he and Mr Galbraith agreed that the door was damaged and required repair and that the remedial action needed was "carpentry repair and make to finishes." That was not explained in either his or Mr Galbraith's oral evidence, but I infer that it meant that the necessary remedial action was to undertake some carpentry and then repaint the repaired door.
[321] Mr Lopez undertook his cost estimate on the basis that the door needed to be removed, repainted and replaced, for which he allowed for two labourers to work for one day and two hours. In my view, his estimate of the time to remove and replace is excessive and not supported by the evidence. The evidence before me was that it might take half an hour to remove and three hours to install a new door. I infer that it would take about the same time to replace the existing door after it was repaired. Mr Lopez' estimate to repaint it is appropriate, but he does not appear to allow any time for a carpenter to repair it before painting.
[322] I am satisfied that the door was damaged during EPM's occupation of the premises. There is no evidence that it has been further damaged by the new tenants. The damage was to the base of the door. I am not satisfied that it has bent or bowed.
[323] Doing the best I can on this evidence, I shall allow four hours to remove and replace the door, two hours for carpentry and two hours for painting: a total of eight hours for two labourers. At the cost allowed by Mr Lopez of $80 per person per hour, plus materials at 60%, that amounts to $2,048.

[146]

[328] Mr Chadwick was asked to identify which parts of the report he considered to be wrong. As to the mezzanine door, he said that his recollection was that the closer was working, but the door probably did need repainting.[137]
[329] Mrs Chadwick was shown the photographs and identified them as being of the door. She was asked whether the relocation of the closer happened while EPM was in occupation and denied it. It was put to her that Mr Chadwick had pushed the door so hard that it had ripped the closer off the door. She denied that, saying that an employee did that while EPM was in occupation. She then agreed that the attempt to refix the closer was done during its occupation. She agreed that a photograph showed the door edges being filthy, which had come from EPM's staff handling the door with hands covered with ink and other substances as they went in and out.[138]
[330] Mr Howes was also asked about the damage to this door. He said the closer had been damaged three times. The first time was when Mr Chadwick and Mr Rawlings had had a heated argument and, on leaving the mezzanine, Mr Chadwick had slammed the door, which ripped off the strut (which I take to mean the closer).
[331] Mr Chadwick was asked by Mr Copley whether he recalled ever slamming and damaging the door. He did not answer directly, saying, "Well, it had a self-closer, so it would have made it very difficult to slam." He said that, while EPM occupied the premises, there were no issues with the self-closer of which he was aware.
[332] I disallowed Mr Galbraith's evidence on this item. Mr Montgomery Hribar said that, when he inspected the premises, the closer had been removed from the door. He said a new closer would have to be supplied and fitted and a carpenter would have to attach it and repair the damage to the door. He estimated that it would take a carpenter about four hours and a door closer would cost $345.
[333] I am satisfied that the door closer was pulled off the door and replaced incorrectly during EPM's occupation. The photographs of the door in exhibit 29 show clearly that the original fixings have been pulled out of the door with some force, leaving unsightly holes. As Mrs Chadwick conceded, the door is generally dirty and scuffed and, as well as filling the holes and properly fixing a new closer, it requires a full repaint.
[334] Mr Lopez allowed $2,560 for this item, calculated in the same way as item 32. With respect, again I consider that he has allowed too long for the labour and materials. I would allow for two men to take four hours (ie, $640) to repair and repaint it, plus the cost of the paint and a closer. At 40% of the labour, I allow $256 for paint and I also allow $345 for the closer. The total allowed is therefore $1,241.
[335] Subject to the other matters that I shall discuss later, EPM would be liable for this expense.

[150]

[338] He identified pictures of the mezzanine floor and extension in the trial bundle at a time before EPM occupied the premises and while the Landlord's Works to the mezzanine were being undertaken. At that stage, the floor was vacant and appeared to be relatively clean. In cross-examination, he was taken to photographs appearing in Mr Galbraith's report at items 35 and 36. He said (and it is apparent) that they were both of the concrete floor of the extension, not of the timber floor. He also said that the current tenant had cleaned and repainted some of the floor.
[339] Mr Chadwick said that he took the photographs at TB488 and 499, which showed the cleaning that the defendants did before moving in. He went on to say that he did not observe any spilled ink or chemicals on the timber floor that might require a deep solvent clean. Most of the machines on that part of the floor used a toner powder, not ink; one machine used chemicals and had a spill tray underneath it in case of spills. Another was cleaned with chemicals. He also said the timber floor was painted, but the concrete floor was not. On the concrete part, the printer had a potential to drop chemicals, but he did not observe that ever occurring.[141]
[340] Mrs Chadwick also identified the photograph at TB498. She said the floor when the photograph was taken, shortly after EPM moved in, was black with oil. She only realised that the timber was painted after she had cleaned it.[142] TB498 was a photograph of the remainder of the timber floor after part of it was cleaned, showing an employee still cleaning it.
[341] Mrs Chadwick also identified a series of photographs of that floor, which she agreed showed the state of the floor when EPM vacated the premises.[143]
[342] Mr Galbraith said, in his report about item 35, that the timber floor had black marks all over from pallet jacks and other trolleys used to move various goods. However, the photograph that he appended to that comment was not of the timber floor, but of the concrete floor, as Mr Schlecht identified. I disallowed his evidence of item 36.
[343] Mr Montgomery Hribar, in his report and in his oral evidence, said he saw no signs of dirt, ink stains or spills, but it was in similar condition to that shown in the photographs that are at TB498 and 499. He appeared to say in his report that the floor installed by the landlord should have been suitable for the heavy printing industry that was to operate there. He did append a photograph of a part of the timber floor that showed it was clean and spill trays had been placed under containers of liquid:[144] this, of course, at a time when the new tenant had been in possession for some 22 months and he accepted that he was able to inspect only about 30% of the floor due to the presence of machines and stock. But he disagreed that the floor was heavily soiled by spilled ink and chemicals in places that required a deep or solvent clean before repainting.[145]
[344] Mr Galbraith and Mr Montgomery Hribar, in their joint report, agreed that the floors required cleaning, but that is as far as they went.
[345] The photograph in Mr Galbraith's report at item 35 certainly shows some marks on the concrete floor (although he identified it as the timber floor), which one might consider needed cleaning. The photographs shown to Mrs Chadwick show that, when EPM vacated the premises, the timber floor had a large number of stains and what appear to be pallet trolley wheel marks. However, I note Mr Schlecht's evidence that parts of the floor have been cleaned and repainted by the new tenant. That seems consistent with Mr Montgomery Hribar's evidence that the floor, so far as he could see it, was clean when he inspected it in 2024.
[346] I am satisfied that, when EPM vacated the premises, the mezzanine floor did have a lot of spillage, stains and wheel marks on it in the exposed areas, that would have required some effort to clean them. I am not satisfied that any other areas were so dirty. Mr Galbraith's description of the state of the exposed floor appears to have been correct. However, there is no evidence from anyone such as an industrial cleaner, who might have been able to tell the court what steps would be necessary to clean it. In the absence of such evidence I infer, from the fact that the new tenant has cleaned at least some areas since it took over, that it was not too hard to clean. Probably a pressure cleaner, similar to that used by Mrs Chadwick to clean the factory floor and the hardstand at the commencement of the lease, would be sufficient, as the photograph at TB499 appears to demonstrate (taking account of the apparently cleaned area contrasted with the uncleaned area). Of course, it may be difficult to do that while the machines and other equipment remain on the floor but some dirt and marks would be expected during the operation of the business. My comment at item 25 about clause 5.2(a) and the ongoing operations is apposite to this complaint.[146]
[347] Mr Lopez costed the work of cleaning the mezzanine floor at $3,776 for item 35 (although he identified that part of the floor as concrete, not timber) and $5,376 for item 36. The works involved for both were grinding, patching and making good the concrete slab and, for item 36, a light sand, patch and skim coat of paint to the walls.[147] He has presumably allowed for this to be done to the entire area of the mezzanine floor rather than only the exposed areas. In my view, no basis for such an extent of work has been shown, although obviously some expense would be involved in cleaning the entire floor upon vacation of the premises, as well as in cleaning the exposed parts while the business was operating.
[348] In the absence of evidence of what would be required to clean the exposed parts of the floor and of how long that might take to do, taken with Mr Schlecht's evidence that the new tenant has cleaned a lot of it, Mr and Mrs Schlecht have not demonstrated any loss for items 35 and 36.

[169]

[370] The plaintiffs' complaint in the statement of claim is, "Contamination of hardstand and bio/storm system, contamination ground adjacent west elevation." The remedy sought in the statement of claim is, "Remove and dispose of contaminated surface material including filtration media; specialist clearance testing, reinstate." The defendants deny the allegations and assert that they did not use the bio/storm system and there is no damage to it.
[371] Mr Schlecht's evidence about this item was that there is a 40,000 litre water tank underground that services the toilets and he was concerned that dust and fumes and possibly chemicals had got into that tank. Also, he asserted that chemicals got into the bio-retention system along the western boundary which had sedging plants grown to filter water before it got into the bio basin, into which stormwater flows before going into the council stormwater system on the street. He said that there was rubbish in the north western corner and chemicals had originally been stored there.[160] In dealing with item 2, Mr Schlecht also said that he saw chemicals being washed out of tools into a stormwater pit on the western side of the building.[161]
[372] Mr Schlecht expanded on that evidence in cross-examination. He was concerned that the bio-retention system may have been contaminated by runoff from the chemical drums stored near the north western boundary. However, he had not had the system tested, so he did not know if that had in fact happened, but he assumed that it had.[162]
[373] Both Mr and Mrs Chadwick said they were not aware of any contamination of the biostorm system. Mr Chadwick added, in cross-examination, that there were no chemicals that ever washed into the system.[163]
[374] Mr Galbraith's evidence about this item was disallowed. Mr Montgomery Hribar said, in his report, that the rain water tank would not have been contaminated and the suggestion that it would be indicated a misunderstanding of how they were used (which he explained). He did not address the assertion that the biosystem may have been contaminated with chemicals. He was not asked about this item in his oral evidence.
[375] In their joint report, Mr Galbraith and Mr Montgomery Hribar agreed that the presence of any contamination is unknown and water in the tanks requires testing to assess if any further remediation is required. Mr Lopez assesses the cost of obtaining an environmental assessment report at $2,000.
[376] I am not satisfied that any chemicals or paint washed into either the water tank or the bio system. The plaintiffs' case in this regard is wholly speculative and there is no obligation on the defendants to pay for any environmental testing or assessment.

[179]

[384] In appendix H to his report, Mr Lopez produced an earlier version of exhibit 16, in which he allowed preliminaries of $138,142.90 on items that had been agreed between Mr Montgomery Hribar and Mr Galbraith and $62,646.40 for items on which they had not agreed.[164] In his oral evidence, Mr Lopez was cross-examined by Mr Copley about those amounts. He said he would have to recalculate the amounts based on the subtotal of the plaintiffs' claims as pressed at trial, as they are based on a percentage of the total scope of works.[165]
[385] In the trade summary and detailed costings in his second report (exhibit 17), Mr Lopez subdivided the figure of $138,142.90 into items for site staff, insurance and fees, coordination, materials handling, plant, equipment and miscellaneous and profit at 30%. Mr Copley asked him questions in respect of a number of those items.[166] As to the figure for profit, which he had allowed at 30% of the total costs, Mr Lopez explained that that percentage was on the high side, but remedial building work is generally considered undesirable by builders, who charge a profit of 20 to 30%, sometimes more. He considered 30% to be appropriate for this job because a builder would consider it difficult to do. He applied that percentage to the total cost of the works that he had estimated, based on Mr Galbraith's report as provided to him.
[386] Mr Copley asked him if that would change if the owner of the building was also the builder who would manage the building works. Mr Lopez agreed that it would, because the owner would not have to engage a separate contractor, but would manage the works itself. The owner would not charge a profit to itself.
[387] Mr Lopez said that his estimate of preliminaries was based on the items described by Mr Galbraith in his report. He took into account that there was a tenant in the building carrying on its business, so any repair works would have to be carried out around the tenant and outside normal business hours, which led to allowances for staging and out of hours work and the time (five weeks) that he allowed for the works to be done. He also allowed for scaffolding and other equipment hire for a period of time that he estimated based on the amounts and types of work to be done for which they would be needed.
[388] In re-examination, Mr Lopez explained that, if the figures for agreed and not agreed items altered, then he would need to recalculate the preliminaries, applying the 30% profit margin to the altered figures, plus reconsidering the hours needed to complete the works, the staging costs, etc.
[389] All of this evidence about the preliminaries is very difficult to apply to my determination of what items and amounts are allowable in respect of unauthorised works or breaches of the obligation to maintain the premises. Apart from the profit margin of 30% and insurance, staging costs and out of hours works (totalling 51%), Mr Lopez has not calculated the preliminaries as a percentage of costs, but instead has estimated the time and equipment needed to complete the works. Apart from those items, it is difficult for me to do a similar estimate based on the works that I have found need to be done and the cost of those works.
[390] When I expressed concern about how I could calculate a figure for preliminaries, Mr Copley accepted that it would be appropriate to allow an amount for preliminaries and submitted that I would have to apply a broad brush approach in determining that amount, depending on such things as the extent of works that I have found necessary and whether, for example, scaffolding or a scissor lift would be needed and for how long.[167]
[391] Unfortunately, Mr Morris and Mr Erskine did not explain to me how the total figures for preliminaries, included in their schedule of amounts claimed that formed part of their written submission, were calculated. It may be that it was simply done as a percentage of the figures in the statement of claim, reduced by the figures for items no longer pressed. However, it is clear from Mr Lopez' evidence that that is not how preliminaries are determined, apart from calculating the profit margin (and, I infer, the other items within the preliminaries that are determined as a percentage of the total cost of works). As to the profit margin, he said:[168]

[181]

[392] He went on to say that that is what builders do, in his experience. It is clear from his report that he undertook this process in determining the total costs of the items in Mr Galbraith's report.[169]
[393] I do not consider that it is appropriate to apply a broad brush, percentage based, approach to the calculation of all items within the scope of preliminaries. I can use that approach for the items constituting part of the preliminaries that Mr Lopez calculated as percentages of the total costs, but not otherwise. In my view, other than those items (which, again, are insurance, staging costs and out of hours works), in the case of many items the evidence is not sufficient to enable me to determine precisely an amount for preliminaries.
[394] Nevertheless, I am obliged to do the best that I can based on the evidence. Therefore, in determining preliminaries, I shall determine the total costs of rectification or other works, before any builder's profit margin, and apply to that cost the percentages identified by Mr Lopez in his trade breakup (totalling 51%).[170] Where possible, I shall estimate the other expenses based on my assessment of the extent of the works needed and Mr Lopez' assessment of the need for and costs of any special equipment needed.
[395] I need to address one other aspect of such a methodology, which is whether I should not allow a profit margin (whether 30% or some other rate) on the basis put by Mr Copley to Mr Lopez - that no profit margin would be payable where the owner is a builder who manages the works. Mr Copley did not address this in his final submissions, but clearly the intent of his questions was to allow me to consider whether Mr and Mrs Schlecht, as owners of the building, would themselves be undertaking the role of the builder and therefore would not ordinarily charge themselves a margin for those works.
[396] This situation is different to the issue of whether EPM agreed to pay a builder's margin for the Landlord's Works. It will not be Mr and Mrs Schlecht who undertake the works on any items requiring rectification for breaches of the lease. They would either engage contractors to do the works or, more likely, they would arrange them through their company, Flowcrete. It would be entitled to charge a margin to the building owners (or indeed to EPM or the new tenant, if it undertook the works for them). I accept Mr Lopez' evidence that the remediation works would be more difficult to do than straightforward building works, especially when the new tenant remains in possession and carrying on its business, justifying a margin of 30% on the works. That will be the case even if Flowcrete undertakes the works.
[397] Therefore, I find that I should take into account a builder's margin of 30% on the cost of the works before preliminaries. Consequently, in determining what loss has been caused to Mr and Mrs Schlecht by the breaches I have found, I shall allow a 30% builder's margin on the basic costs of the works and, for preliminaries, 51% of those costs (before the margin) plus an appropriate sum for any necessary equipment hire. I shall calculate the total of these items later.

[186]

[402] Mr Copley submitted that many of the items of loss alleged by Mr and Mrs Schlecht have not in fact been suffered by them, for one of two reasons. First, the current tenant has clearly undertaken works around the premises that involve cleaning and tidying them and there is no suggestion that it is not, at least mostly, fulfilling its obligation to keep the premises tidy and in good repair. Therefore, many of the complaints about the state of cleanliness or maintenance of the premises in July 2022 no longer apply. They have been fixed by the present tenant and therefore Mr and Mrs Schlecht have suffered no loss arising from any breaches that did occur while EPM was in possession.
[403] Secondly, at the end of the lease the current tenant had or will have the obligation to remove the tenant's property, to clean the premises and to make good any damage to the premises (apart from fair wear and tear). To the extent that any of the alleged damage, lack of cleanliness or maintenance, or unauthorised works then still require rectification, the new tenant may be expected (and is obliged) to remedy the unauthorised works and to make good the premises.[172] Again, therefore, Mr and Mrs Schlecht have suffered and will suffer no loss for those items unless the new tenant does not fulfil its obligations at the end of the lease or any extension of it.
[404] Mr Morris submitted that these submissions ignore a principled methodology for the determination of damages for breach of contract. As he put it, damages are determined at the date of the breach and are not reduced as a consequence of any later adventitious event that may mean that the offending item has been rectified by somebody else or has been overtaken by some later event.[173]
[405] Mr Morris relied, in particular, on two cases in support of this proposition.[174] They concerned claims for business interruption insurance payments as a result of government imposed COVID-19 restrictions in 2020 and 2021. The relevant issue was whether payments such as Jobkeeper allowances and government grants to businesses, or landlords' reduction in or forgiveness of rent, were to be treated as having reduced the insureds' losses or were unnecessary to take into account in that assessment. At first instance, Jagot J relevantly held that an insurer was not liable to indemnify the insured for losses that had been reduced by Jobkeeper payments.[175] Nor was the insurer liable for rent payable under the insured's lease of business premises where the lessor had reduced or not charged the rent in compliance with certain COVID-19 related regulations.[176] Her Honour's reasoning was that the payments or reductions in liability (respectively) had the intention and effect of reducing the cost to the insured of the business interruption caused by COVID-19. On the other hand, ex gratia payments[177] were not to be taken into account in determining the loss to which the policy responded. Her Honour's determinations in these respects were upheld by the Full Court. Of course, these decisions concerned the proper construction of contracts of indemnity, not general contractual principles.[178]
[406] In the circumstances of this case, Mr Morris submitted, the plaintiffs' loss arising from each breach of the lease is properly determined at the date of the breach and is measured by the cost that the plaintiffs would incur to rectify the consequences of the breach at that time. It is irrelevant if the new tenant or somebody else has subsequently partly or fully rectified the breach, as that would be analogous to another person voluntarily giving the plaintiffs an ex gratia payment to mollify their sense of grievance rather than to reduce or expunge their loss. In that sense, the new tenant's actions would be adventitious and should have no effect on the plaintiffs' entitlement to damages for EPM's breaches of the lease.

[191]

[409] Mr and Mrs Schlecht were contractually entitled to the preservation of the premises in its condition at the start of the lease (excluding fair wear and tear) and without alterations to which they did not consent. Insofar as they claim damages for such alterations, the proper measure of damages is the loss sustained by the failure of EPM to perform that obligation; and that loss is prima facie the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached.[181] That is, they are entitled to damages comprising the cost of rectification of the unauthorised alterations made by EPM.
[410] Similarly, insofar as they claim damages for failure to maintain the premises in good and clean condition, they would also prima facie be entitled to damages comprising the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached.
[411] However, in the case of some of the alleged breaches, it is clear that the new tenant has rectified the effects of the breaches, or it will be obliged to rectify those effects, given that it has taken on the obligations under the lease. Its actions in carrying out its obligations under the lease, such as maintaining the premises in good and clean condition, cannot properly be described as adventitious. I consider that any effective rectification by the new tenant of a prior breach by EPM would have the effect of reducing the loss suffered by Mr and Mrs Schlecht and therefore reducing the damages to which they are entitled. It would be contrary to justice to award damages where the plaintiffs have not suffered loss because the cost of rectification of a breach has been borne by someone other than the plaintiffs or the defendants who has assumed the obligations under the very lease that the defendants breached. To do otherwise would not be to compensate Mr and Mrs Schlecht, but to give them a windfall.
[412] I have found that items 5 and 6 have been rectified by the new tenant. Mr and Mrs Schlecht have suffered no loss for those items. Applying these principles, I do not allow their claims for these items, leaving a loss for the other maintenance works (before builder's margin and preliminaries) totalling $12,009. The total of the costs that I have allowed for rectification works is $8,336. A profit margin on those figures at 30% amounts respectively to $3,602.70 and $2,500.80. By way of preliminaries, a percentage of the costs (before the margin) for insurance, staging and out of hours works in accordance with Mr Lopez' evidence (between them, 51%) is $6,124.59 and $4,251.36 respectively. I would also allow boom lift hire for four days to remove and repair the signs ($1,480[182]) and scissor lift hire of one day each ($260 per day[183]) for patching and painting the block wall and removing the security cameras. The total (including preliminaries and builder's margin) for the maintenance items is $23,476.29. The total (including preliminaries and builder's margin) for the rectification items is therefore $15,348.16.
[413] Therefore, the total cost to repair the items that I have allowed for rectification and maintenance works is $38,824.45.
[414] I shall not allow, as part of the damages to be awarded, GST on that sum because, although Flowcrete will be obliged to charge GST to Mr and Mrs Schlecht, as the premises are commercial and the lease requires the tenant to pay them GST on the rent and outgoings,[184] they will be entitled to offset the GST they pay to Flowcrete against GST that is payable to them by the tenant and that they would otherwise be obliged to pay to the Australian Taxation Office. The situation is different, in the case of damages, to GST payable as part of the debt for half the costs of the Landlord's Works. Those costs included GST, although the beneficiaries of the works would be entitled to offset that GST against GST otherwise payable by them. The debt is for works that attract GST and therefore is properly treated as including GST.

[192]

[415] As I mentioned in the summary, in August 2022 EPM sold its business and, with Mr and Mrs Schlecht's consent, assigned the lease to a different company controlled by two of EPM's employees. The contract of sale of the business and a separate contract for the sale of other assets associated with the business are in evidence.[185] The fact of the sale (which was arranged without the landlord's consent, although that consent was later granted) was not relied on by Mr and Mrs Schlecht as constituting one of the breaches alleged. The deed of consent to the assignment of the lease[186] may be relevant to any continuing liability of EPM and Mr and Mrs Chadwick for the losses arising from EPM's breaches of the lease. It is therefore necessary to consider the effects of that deed on each of the defendants' liability to Mr and Mrs Schlecht.
[416] A possible effect of the assignment arises from the new tenant's acceptance of the obligations under the lease, including those to keep and place the premises in repair and to "make good" any damage to the premises at the end of the lease. Does the adoption of those obligations by the new tenant reduce Mr and Mrs Schlecht's loss or EPM's and Mr Chadwick's liabilities?
[417] Mr Copley accepted that EPM and Mr Chadwick were not relieved of their obligations under the lease for any breaches prior to the assignment and for any make good obligations that might arise at the end of the lease. He submitted (as I understood him) that the evidence of whether the lease would be extended under an exercise by the new tenant of the option to renew, or whether a new lease would be granted to the new tenant, was unsatisfactory and vague. But he accepted that, whether or not the option were exercised or a new lease was entered into at the expiration of the original lease, the make good obligation would, at the end of that or any such lease, be owed by both the original tenant and guarantor and the new tenant and guarantors (subject to the specific terms of the deed of consent).[187]
[418] Mr Morris submitted:[188]

[211]

[427] One immediately obvious effect of the deed is that Mrs Chadwick, who had not previously been a guarantor of EPM's obligations, became guarantor of the obligations assumed by the new tenant upon assignment of the lease. Also, having been defined as an "Existing Guarantor" for the purposes of the lease and having executed the guarantee of the obligations of the "Tenant" under the lease, in my view she also became a guarantor of EPM's obligations under the lease to the extent that they continued after the assignment became effective. The terms of the guarantee within the deed, at first blush, extend her guarantee to those of the new tenant even under a renewed or replacement lease. However, her obligations as guarantor under clause 15 are subject to the operation of clauses 3.4 and 4.3. Those clauses clearly limit the exposure of EPM and the "Existing Guarantors" (that is, both Mr and Mrs Chadwick) to the original term of the lease: thus not applying to any renewed or replacement lease. In my view, notwithstanding clause (k) of the guarantee, clause 4.3 of the deed limits both Mr and Mrs Chadwick's liability under their respective guarantees to breaches occurring during or at the end of the original term of the lease.
[428] Mr and Mrs Schlecht's claim is against Mrs Chadwick, as well as EPM and Mr Chadwick, for damages arising from all EPM's breaches of the lease, even though they were all allegedly committed before Mrs Chadwick became guarantor. The basis of the claim against Mrs Chadwick (as well as against Mr Chadwick) is pleaded at paragraphs 33 and 34 of the statement of claim in this manner:
1. Pursuant to clause 4 of the Deed of Consent [to the assignment of the lease], each of the Second Defendant and Third Defendant agreed as Existing Guarantors to continue to be bound under the Guarantee and the Indemnity and to indemnify the Plaintiff against any and all Claims.[191]
2. Pursuant to clause 3.1 of the Deed of Consent any claim for Landlord had against the Defendants for unremedied breaches of the Lease or right of action, claim for compensation or reimbursement or liability incurred by or to be made or recoverable by the Landlords as at the date of the Assignment were reserved to the Landlords.
[429] In their defence, the defendants deny those allegations "because clauses 3.1 and 4 of the Deed of Consent is not to the effect pleaded."
[430] Although Mrs Chadwick was described as an "Existing Guarantor", she was not, in fact, a guarantor of EPM's obligations under the lease before the deed was executed. She did not have any "Existing Guarantor's Obligations" at the date of the assignment. The terms of the guarantee that she then signed as part of that deed were not, on their face, applicable to past breaches by EPM or outstanding debts owed to or claims by Mr and Mrs Schlecht. No other evidence alters that conclusion.
[431] Therefore, I am not satisfied that Mrs Chadwick is liable to Mr and Mrs Schlecht for these claims. There is no suggestion that the new tenant breached the lease in any respect before the expiration of its initial term, for which she may be liable.
[432] The deed of assignment expressly maintained Mr and Mrs Schlecht's rights against EPM and Mr Chadwick, as the existing guarantor, for any claims then outstanding against them.
[433] The result is that, although Mr Chadwick is liable, under his guarantee, for Mr and Mrs Schlecht's proven claims against EPM for breaches of the lease, Mrs Chadwick has no such liability.

[212]

[434] Under the lease and the deed of consent to assignment of the lease, where the new tenant and the new guarantors and EPM and Mr Chadwick under his guarantee all have obligations, such as to maintain the premises in good and clean condition and to make good any alterations to or other issues with the premises, those obligations are joint and several.[192] Therefore, although the new tenant and the new guarantors assumed, for example, the obligation to make good, EPM and Mr Chadwick retained that obligation. Similarly, where the lease was breached during EPM's occupation and the breach has not been remedied, EPM and Mr Chadwick remain liable for any loss caused by the breach, even though any failure of the new tenant to remedy the breach (or to make good at the end of the lease) may result in the new tenant and the new guarantors also being liable.
[435] Being joint and several obligations, Mr and Mrs Schlecht are entitled to sue any of the liable parties for damages for their loss. They have chosen to sue EPM and Mr and Mrs Chadwick. If I find that any of the defendants is liable - for example, for the cost of rectifying the unauthorised alterations - then the extent (if any) of the liability of the new tenant and the new guarantors (under their make good obligations) may be affected, but the defendants have not been released from their liability by the assignment of the lease or the execution of the new guarantee.
[436] Thus, EPM and Mr Chadwick remain liable for any defaults existing before the end of the lease in March 2025. However, as I have held, Mrs Chadwick is not liable for breaches occurring before she became one of the new guarantors. One might think that, upon the make good obligation arising at the termination of the lease (even if a new lease was entered into), she became liable for that obligation from that date. However, there is no evidence that any obligations arising at the end of the lease were not carried out by the new tenant or were not forgiven by Mr and Mrs Schlecht as part of the grant of a new lease. Therefore, there is no evidence that Mrs Chadwick has breached her obligation that would have arisen if the new tenant did not carry out its obligations at the end of the lease.
[437] Consequently, only EPM and Mr Chadwick are liable to Mr and Mrs Schlecht for damages for the unauthorised works and the failures to maintain the premises.

[216]

[443] I have found that the total loss suffered by Mr and Mrs Schlecht as a consequence of EPM's breaches of the lease, was $38,824.45. At first blush, one might think that EPM and Mr Chadwick are therefore liable for that loss. However, the defendants contend that any liability they may have to pay damages to Mr and Mrs Schlecht for any breaches of EPM's obligations cannot exceed the amount (if any) by which the value of the reversion in the premises was diminished owing to the breaches. They rely in this respect, on the Property Law Act 1974, s 112 and they submit, based on the evidence of a valuer, Mr Lewis, that any reduction in value is limited to $50,000. Therefore, they submit, any damages payable by them are limited to that sum.
[444] In response to that defence, Mr and Mrs Schlecht pleaded that s 112 applies only to those parts of their claim that comprise damages for breach of the obligation on EPM to keep or put the premises in repair during the lease and not for any other part of their claim. The parts of their claim that they contend are not within the purview of that section appear to be (by reference to schedule B to the amended statement of claim) items 1, 8, 9, 12, 14, 17 and 28.[193] They contend that the value of the reversion has been reduced by a figure derived from the cost to rectify the other breaches and the reduction in value is $200,000, which is above the amount they claim for those items. Therefore they are entitled to the full amount of the damages that they claim (to the extent that I allow them).
[445] Of course, item 17 was a failure to maintain the premises, not an unauthorised alteration. I have distinguished between the cost of unauthorised alterations and the costs of maintenance of the premises. It is only the latter that are within the purview of s 112, being breaches of the covenant to keep or put premises in repair during the currency of the lease. But whether or not that were the case, the total cost of remedying all the breaches that I have determined is only $38,824.45.
[446] That being the case, one might think that these issues do not matter, given the total of the rectification and repair costs for which I have found the defendants liable. Whether I were to accept the estimate of either party, the damages are below either reduction in value. The defendants' liability for the sum I have found would not be affected by s 112. In that case, it would be strictly unnecessary for me to consider this issue further. However, each valuer considered that any reduction in the value of the reversion would be at least broadly related to the cost of repairing major defects left by the tenant. That may mean that any reduction in the value of the reversion in this case should be determined by reference only to the items that I have found to recoverable by Mr and Mrs Schlecht.
[447] Each party called evidence from a valuer as to what effect EPM's breaches have had on the value of the reversion. Each valuer produced a report, they produced a joint report and each valuer was cross-examined.
[448] Mr Duncan, who was instructed by the plaintiffs, opined that the value of the reversion had been diminished by a total of $200,000, while Mr Lewis, instructed by the defendants, considered that the diminished value was only $50,000.
[449] Both valuers opined that the reduction in value was related to the cost to rectify any damage caused by a relevant breach. In their joint report, they agreed that:[194]

[226]

[455] The items that he newly considered to be material to the value of the reversion were items 2, 4, 10, 11, 32, 35, 36 and 40. The total cost that he accepted for the items that he then considered material was $51,936 (before builder's margin and preliminaries).
[456] In that schedule, Mr Lewis also accepted that, if he had been instructed to take into account all the items in schedule B to the statement of claim (consistently with Mr Duncan's instructions) additional items would have been material. The total of those items was $96,512 (before builder's margin and preliminaries).
[457] Thus the total (before builder's margin and preliminaries) of the items that Mr Lewis, in the joint report, accepted were material to a purchaser was $148,448. In comparison, Mr Duncan's total was $137,576.
[458] In a letter produced by Mr Lewis during the trial in response to updated instructions,[201] with the qualification that he had not had much time to consider the new instructions, he responded to an amended list of items about which he was asked to consider whether they had an effect on the value of the reversion. Listing those matters by reference to his conclusions in the schedule to the joint report, he identified their total cost at $44,836 and concluded that the value of the reversion was reduced by the same amount.
[459] I accept that a willing but not overly anxious purchaser and vendor are likely to take into account an estimate of costs to rectify items that would be considered to have a material impact on value, in determining what price to offer or to accept for the premises. It seems unrealistic to assume that the ultimate price would necessarily reflect either party's estimate of the costs of repair. I accept the effect of both valuers' evidence that only some items would be taken into account in determining value. I also accept that, to some extent, the costs of necessary repairs are a guide to or a reasonable proxy for the reduction in the value of the reversion.
[460] Mr Duncan's evidence was based on the estimates of Mr Lopez for the costs of each item claimed by the plaintiffs. Notwithstanding the plaintiffs' acceptance that s 112 applies only to the covenants (effectively) in clauses 5.1 and 5.2 of the lease, Mr Duncan took into account all items in the plaintiffs' claim. Arguably, he was wrong to do so, but that may have been due to his instructions. Mr Copley noted that the plaintiffs do not allege that clause 5.1 or 5.2 was breached in respect of items 1, 6, 8, 12, 14, 15, 19, 28 and 36d. Therefore, he submitted, those items should not be taken into account in determining the diminution in the value of the reversion. On the other hand, each of the alterations to the premises, if not repaired at the end of the lease, might constitute damage to the premises that, under clause 5.1, EPM had covenanted to repair.
[461] Having regard to their individual and joint reports and their oral evidence, I have far more confidence in Mr Duncan's methodology than in that of Mr Lewis. While even Mr Duncan's opinions and the figures from them, particularly in the schedule to the joint report, are somewhat confusing, in the light of all his evidence, contrasted with that of Mr Lewis, I find that the reduction in the value of the reversion would be likely to reflect broadly the cost of the more substantial items (in works or cost) that I have allowed, including a builder's margin and preliminaries. I find that the value of the reversion would not be reduced by less important or less costly items, except perhaps by an additional global amount.
[462] The items that I have allowed for breaches of clause 5 that, in my opinion, would be considered material to the value of the reversion, are 4, 11, 17, 23, 32 and 34. The cost of fixing those items is $9,240. Adding a builder's margin ($2,772) and preliminaries ($4,712.40) brings the cost of repairing those items to $16,724.40. Allowing an additional global sum for other minor items, I consider that the value of the reversion would be reduced by the clause 5 breaches by about $20,000.
[463] Section 112, therefore, limits the recoverable amounts for breach of the covenants in clause 5[202] to $20,000. The section does not affect the recovery of damages for the breaches of clause 4 in the sum that I have found ($15,348.16). Therefore, Mr and Mrs Schlecht's recoverable damages are $35,348.16.

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