Steel & Stuff Pty Ltd v Fallon Street Properties Pty Ltd

Supreme Court of NSW|2005-11-04|Before: Palmer J

CITATION : Steel & Stuff Pty Ltd v Fallon Street Properties Pty Ltd [2005] NSWSC 1148

DECISION : Plaintiff's claim for damages upheld; Defendant's claim for possession refused.

CATCHWORDS : LANDLORD AND TENANT - Whether oral agreement that half stipulated rent would be payable until building work completed - whether the lessor, in failing to complete building work, breached implied term of lease.

H.J.A. Neal - Plaintiff/Cross Defendant COUNSEL : B.J. Sharpe - Defendant/Cross Claimant

Dick & Williams - Plaintiff/Cross Defendant SOLICITORS : JL & Sons - Defendant/Cross Claimant

1 By a lease dated 1 May 2003 the Defendant leased to the Plaintiff factory and office premises known as 49 Fallon Street, Albury ("the Premises"). At the time of the lease all building work on the Premises had not been completed. The Plaintiff says that its Managing Director, Mr Atkinson, made on oral agreement with the Plaintiff's Managing Director, Mr Colquhoun, shortly before the lease was executed to the effect that the rent stated in the lease, namely, $55,000 per year by instalments of $4,583 per month, would not be payable in full because of the unfinished state of the Premises, and that only half of the rent stipulated would be payable until the building work was completed. 2 The Defendant denies that such an agreement was made. The Defendant says that at some time after the lease was signed there was an agreement that the Defendant would accept half of the rent stipulated in the lease until such time as the Plaintiff established itself in the Premises and became operational. 3 The Plaintiff says that building work on the Premises has never been completed, so that the full amount of the stipulated rent has never become payable. Further, it says that because the Premises remained in an uncompleted and unsatisfactory state in breach of the covenants in the lease it was compelled to seek alternative premises in which to carry on its operations. 4 In September 2004 the Defendant gave the Plaintiff a demand for possession of the Premises on the ground that it had terminated the lease for the Plaintiff's breach of the covenant to pay the rent in full. The Plaintiff then commenced proceedings seeking an order restraining the Defendant from retaking possession of the Premises. 5 The relief which the Plaintiff now claims includes a declaration that there is a binding agreement between the parties that the Defendant would accept half of the rent stipulated in the lease until such time as the Defendant had completed all construction work on the Premises, or a declaration that the Defendant is estopped from resiling from representations to that effect. Further, the Plaintiff seeks damages for breach of express and implied covenants in the lease which, the Plaintiff says, required the Defendant to complete the building work required to make the Premises fit for occupation and use within a reasonable time. The Plaintiff says that because such work was not carried out the Premises remained entirely unsuitable for the Plaintiff's business so that in June 2004 it was compelled to transfer the major part of its business operations to new premises which it leased for that purpose. The Plaintiff claims by way of damages the cost of transferring its business to the new premises and the rent payable in respect of the new premises, subject to certain deductions, on the grounds that such expenses would not have been incurred had the Defendant not breached the covenants in the lease. 6 The Defendant cross claims, seeking an order for possession of the Premises and outstanding rent in the sum of $132,131.46. 7 There are a number of subsidiary issues relating to various items disputed between the parties, to which I will come in due course. The first question is: was there an oral agreement between the parties to accept half of the stipulated rent, as the Plaintiff alleges?

8 Negotiations for the lease were conducted by Mr Rodney Atkinson on behalf of the Plaintiff, and Mr Kenneth Colquhoun on behalf of the Defendant. The negotiations were in train by April 2003. At that time it was obvious that building work on the Premises was far from complete. The extent of incomplete work is set out in an Interim Occupation Certificate issued by the Albury City Council on 13 June 2003. 9 Mr Atkinson says that in mid-April 2003 he had a discussion with Mr Colquhoun to the following effect: "Me: 'Ian, I cannot use the offices or toilets and other amenities in the building because they are not complete. We need to put something in the lease about that.'

Colquhoun: 'I'd rather not do that as financiers get nervous when they see terms like that in Leases.'

Me: 'Well, I am not prepared to pay full rental until the building is complete because I won't be able to utilize it fully until then.'

Colquhoun: 'I understand. You have been most accommodating to my financial situation to date, so I am happy for you to pay half the full rental until the building is finished. I will do that as soon as my financier allows further drawdown of funds. I am hopeful this will be soon.'

Me: 'We need to record that somewhere. I need you to give me receipts recording the reduced rental figure.'"

Mr Atkinson says that in reliance upon this agreement he agreed to execute the lease on behalf the Plaintiff on 1 May 2003. 10 Mr Colquhoun denies that any agreement was made in mid-April 2003 as Mr Atkinson alleges. Mr Colquhoun says that in May 2003, after the lease had been signed, he said to Mr Atkinson, "I will allow you to pay half rent until I think you are fully operational" . He says that he came to the view in November 2003 that the Plaintiff had become fully operational in the Premises and he demanded rent in full under the lease as from 1 December 2003. 11 There is no contemporaneous document recording expressly and unequivocally the agreement alleged by Mr Atkinson or, indeed, the agreement alleged by Mr Colquhoun. Accordingly, whether there was an agreement in the terms alleged by Mr Atkinson or in the terms alleged by Mr Colquhoun depends entirely on issues of credit. I have no hesitation in preferring the evidence of Mr Atkinson in finding that in mid-April 2003 there was an oral agreement made between the parties in the terms which he alleges. My reasons are as follows. 12 First, Mr Atkinson gave his evidence in a clear and forthright manner. He was not shaken in any aspect of his evidence during the course of cross examination. 13 Second, Mr Atkinson's evidence is corroborated by the fact that on about 12 May 2003 Mr Atkinson gave to Mr Colquhoun a cheque for two months rent in advance calculated at half of the monthly rent stipulated in the lease. Mr Colquhoun signed the receipt for that payment in the following terms: "Received from Steel & Stuff Pty Ltd $4583.00 as payment for rent at 49 Fallon Street Albury for the period of two months 1.5.03 to 30.6.03 the rent being an interim rent until the building is 'complete '. [signed] Director [Emphasis added.]

The terms of that receipt relating to the nature of the rent payment, which are expressed in Mr Colquhoun's own words, are consistent with the terms of the oral agreement as alleged by Mr Atkinson and are inconsistent with the terms as alleged by Mr Colquhoun. 14 Third, on 31 March 2004 Mr Colquhoun gave Mr Atkinson a document setting out a list of work still to be done to complete the Premises. The document concluded, "On satisfactory completion of the list above full lease rent is to be paid less $1,000 per month as part payment for the goods supplied by Steel & Stuff" : see Ex P2, p.63A. Reference to "goods supplied" was to material supplied by the Plaintiff for construction of the Premises which had not yet been paid for. This document directly contradicts Mr Colquhoun's evidence in two respects. First, it contradicts what he says on a number of occasions in his evidence, viz, that the building work was complete either by the time of execution of the lease or by December 2003; second, it contradicts his assertion that he had required payment of full rental in December of 2003 in accordance with the terms of the oral agreement as he alleges them to be. 15 Fourth, in November 2004 Mr Atkinson wrote to Mr Colquhoun saying, amongst other things: "Our arrangements on the monthly payments is based on increasing the rent to full rent when the building is completed. I have no idea when the remainder of the work is likely to be carried out, for example, gutterings fitted, electrics on doors, et cetera".

Mr Colquhoun did not deny receiving this letter. He did not suggest that he responded to the letter in any way denying the terms of the oral agreement as Mr Atkinson asserted them to be. 16 Fifth, I regard Mr Colquhoun as an unsatisfactory witness. He made repeated assertions that the building work was completed, when film evidence, the reports of the Plaintiff's expert builder, various council certificates and orders, including an order issued on 26 August 2005 requiring work to be done, and even his own expert builder, all made it quite plain that to this day the building work on the Premises remains far from completed. 17 Mr Colquhoun was confronted with a letter which he wrote to Mr Atkinson on 18 November 2003 stating, "I am the first to admit that the office space is not ready to be used" . This statement contradicted his earlier evidence that the office space was completed. His attempted explanation of the inconsistency was prevaricating and made no sense. Mr Colquhoun's attempted explanation of what he meant in the statement referred to in para.14 above was likewise prevaricating and made no sense. 18 I accept that the lease was subject to an oral term that the full rent stipulated would not be payable until the building work was completed. I accept, further, the evidence of the Plaintiff's expert, as supported by the film evidence, the council certificate and the order from council issued on 26 August 2005, that the building work remains substantially uncompleted to this day. 19 Mr Sharpe of Counsel, who appears for the Defendant, submits that even if there was an oral agreement in the terms alleged by the Plaintiff the terms were so vague as to be void for uncertainty. I am unable to accept that submission. All that was required to make the full rent payable under the lease and under the terms of the oral agreement was ascertainment of a readily ascertainable fact, namely, that, at the very least, the building work stipulated in the Interim Occupation Certificate issued by the Council had been carried out. 20 I find that it was an oral term of the lease that the full rent stipulated was not payable until the building work on the Premises was completed, at least to the extent required in the Interim Occupation Certificate. I accept the evidence of the Plaintiff's expert, as supported by film evidence and by the order of the Council issued on 26 August 2005, that the building work has never been completed to the extent required. I conclude, therefore, that the Plaintiff has never been obliged to pay more than one half of the rent stipulated in the lease. I turn now to the Plaintiff's claim for damages.

21 The Plaintiff says that there was a term implied in the lease that the Defendant would complete the building work on the Premises, at least to the extent required by the initial Development Consent and the Interim Occupation Certificate, within a reasonable time from the commencement of the lease. The Plaintiff says that that implied term is necessary to give business efficacy to the lease, it is fair and reasonable, and is so obvious that it does not require statement. 22 The Defendant denies that any such term should be implied in the lease. It says that it is not necessary to give the lease efficacy as the Premises could be used for the storage of equipment. Indeed, that is the use to which the Plaintiff is presently putting the Premises. Further, says the Defendant, the abatement of one-half of the rent was an express agreement which the parties made to cover the circumstance that building work on the Premises had not been completed so that no other term needs to be implied to deal with that circumstance. 23 I am unable to accept the Defendant's submissions. It seems to me that an implied term is to be read into the lease in accordance with the Plaintiff's submissions. My reasons are as follows. First, it was made known to the Defendant by the Plaintiff in the course of negotiations in April 2003 that the Plaintiff required the Premises not only for the manufacture and storage of goods and materials, but also for the sale of goods to the public. In order that the Premises be suitable for the sale of goods for the public, clearly they had to be of a sufficient standard of completeness, safe and convenient for access by the public. In this regard, I accept Mr Atkinson's evidence of a conversation with Mr Colquhoun in early April 2003, which Mr Atkinson gives in the following terms: "Me: 'What I am looking for is a display, administrative offices and outlet centre and somewhere I can relocate my roll forming machines and make retail sales from.'

Colquhoun: 'When it's complete my building should be ideal for those purposes. It appears that my deal with the tenant I was proposing to lease the building to may shortly fall through so we should be able to do a deal. When would you want to take it on?'

Me: 'As soon as possible.'" 24 That this conversation occurred as alleged is borne out by the fact that Clause 6.1 of the lease provides as follows: " USE How must the property be used? 6.1 The tenant must -

6.1.1 use the property for the purpose stated in item 17 in the schedule and not for any other purpose.

6.1.2 open for business at times usual for a business of the kind conducted by the tenant."

Item 17 in the schedule to the lease provides as follows: " Permitted use : The manufacture, storage and sale of steel related products and associated activities, including (cl 6.1) the fabrication of buildings and the manufacture of roll forming and associated products." 25 It is clear from the terms of the lease that the use of the Premises which the Plaintiff intended included not only manufacture and storage of goods, but sale of goods. It seems to me that the positive requirement contained in the lease that the Plaintiff not only use the Premises for the stated purpose but actually keep them open for business at times usual for a business of the kind conducted by the Plaintiff, means that the Premises must be in a condition to permit the Plaintiff to do just that and therefore to comply with its contractual obligations in the lease. 26 I am satisfied by the evidence that the condition of the Premises as at the date of the lease was unsuitable to allow not only the conduct of administration of the Plaintiff's business within the office premises, but was even more unsuitable to permit ready access by the public for the purpose of sale of the Plaintiff's goods. 27 In this regard I have paid particular attention to the evidence relating to the lack of car parking space required by the council, to the lack of footpaths, to the lack of any convenient access and to the general condition of the Premises as revealed by the photographs and the film, which show that the Premises were obviously incomplete. 28 The positive requirement in the lease that the Plaintiff use the Premises in a specified way mean that a term must necessarily be implied that, insofar as it is within the power of the Defendant to do, the Defendant is obliged to put the Premises in a state in which that use can be effectuated by the Plaintiff. Accordingly, I am satisfied that there was a term implied in the lease that the Defendant would complete the building works, at least to the extent specified in the Development Consent and in the Interim Occupation Certificate within a reasonable time after the commencement of the lease. 29 I am satisfied that by the time that the Plaintiff moved out of the Premises in June 2004, a reasonable time for the carrying out of that building work had elapsed. 30 As I have noted, the council issued, on 13 June 2003, an Interim Occupation Certificate itemising the work which still had to be done. That certificate required the work to be done within sixty days. It had not been done a year later. Accordingly, I am satisfied that by the beginning of June 2004, the Defendant was in breach of a term implied in the lease that the Defendant would carry out the building work required to complete the building to the extent stipulated in the Development Consent and in the Interim Occupation Certificate. One turns then to the question of what damages flow from the breach of the implied term.

31 The Plaintiff says that it was required to move the substantial part of its operations to new factory premises ("the Factory") not far away and to enter into a lease of the Factory for five years. 32 The Defendant says that the Plaintiff's decision to move into the Factory was not at all caused by the state of completion of building work in the Premises. Rather, the Defendant says, it was the Plaintiff's intention, by June 2004, to expand its operations and it wanted additional and larger premises for that purpose. In other words, the Defendant says that the Plaintiff's move to the Factory was not caused by any breach of the lease by the Defendant, but was a decision made by the Plaintiff for its own commercial purposes. That suggestion was repeatedly put to Mr Atkinson and he resolutely denied it. I accept Mr Atkinson's evidence. 33 It is clear that the Plaintiff did want a larger area for its factory and office premises than it had had just before it entered into the subject lease in May 2003. It was then carrying on business in premises in Metry Street, Albury and, when it entered into the lease with the Defendant, the Plaintiff remained at the Metry Street premises operating its business from both sites. 34 Mr Atkinson says that the Premises, together with the Metry Street premises, would have been sufficient for the Plaintiff's purposes. However, because he became convinced that the Premises were entirely unsuitable for manufacturing processes, and particularly for sale of goods to the public because of the Defendant's failure to complete the building work, he decided in June 2004 that he ought to transfer the substantial business operations elsewhere. In the event, the major part of the business operations of the Plaintiff were transferred to the Factory and the Plaintiff presently uses the Premises for the storage of certain material. 35 In my view, there is no reason to doubt the evidence of Mr Atkinson as to the reason for moving the substantive operations away from the Premises. The evidence as to the state of building work within the Premises and as to its appearance supports Mr Atkinson's assertion that the Premises were unsuitable for retail operations and that it was necessary to relocate for that purpose, if for no other. 36 I accept Mr Atkinson's evidence that the move of the substantive operations from the Premises to the Factory was occasioned by the failure on the part of the Defendant to complete the building work in respect of the Premises. 37 Mr Sharpe says that the costs associated with the move of the Plaintiff's substantive operations from the Premises were not caused by any breach of contract on the part of the Defendant. In particular, he says that such expenses do not naturally or reasonably flow from the Defendant's breach of the lease, nor could it be said that they would have been reasonably within the contemplation of both parties at the time that the lease was entered into. I am not able to accept this submission. 38 As I have noted, it was clearly within the contemplation of the parties, by reason of their discussions prior to the lease and by reason of the terms of clause 6 and Item 17 in the Schedule, that the leased Premises would be used not only for manufacture and storage of goods, but for sale of those goods. 39 If the Premises were unsuitable for that purpose, it must have been obvious that in order to avoid closing down its business, the Plaintiff would have to locate the business somewhere else, in suitable premises. 40 Relocation during the term of the lease of the Premises would have been unnecessary had the Premises been suitable for the purpose for which they were required and for which the lease obliged the Plaintiff to use them. It seems to me that the cost of removal of the Plaintiff's business was loss or damage not only reasonably flowing from the breach by the Defendant of the implied term in the lease, but was also such as was reasonably within the contemplation of the parties. 41 I deal now with some of the minor aspects of the matter which will reflect on the quantification of the Plaintiff's claim.

42 First, it will be apparent from what I have said that the lease has not been validly terminated by the Defendant for non-payment of the full amount of the rent stipulated. It will also be apparent that, as the Plaintiff is still in occupation under an existing lease, some rent ought to be payable. 43 Mr Neal, of Counsel, who appears for the Plaintiff, says that as from January 2005, no rent is payable under the lease by reason of the collapse of gates at the front of the Premises which occurred in January. The evidence makes it clear that the gates leading from the roadway to the Premises collapsed on 11 January 2005. WorkCover then issued an order prohibiting the use of the gates until substantial work was done to make them safe. That work has not been done. The gates have been locked in the meantime. 44 Mr Neal submits that the locking of the gates has, in effect, deprived the Plaintiff of the practical use of the Premises and that it must be an implied term of the lease that in such a circumstance no rent should be payable at all until the Plaintiff is restored to useful occupation of the Premises. 45 I am not able to accept that submission. It is clear that, notwithstanding the locking of the main gates to the Premises by reason of the WorkCover order, access to the Premises is still possible to the Plaintiff through another set of gates. I accept that it is by no means convenient for the Plaintiff to have access to the Premises through the side gates rather than the main gates. However, the use to which the Plaintiff is now putting the Premises is not one which involves access by the public. The Plaintiff is using the Premises to store materials, and it is clear, in my view, that such access as presently exists is sufficient for that limited purpose. 46 Because the Plaintiff has not been denied all practical use of the Premises, it seems to me there is no warrant for implying any term to the effect that in the present circumstances the Plaintiff is absolved from paying any rent. It seems to me, therefore, that the Defendant has remained liable at all times, from the commencement of the lease until the present time, to pay rent under the lease at one half of the amount stipulated. 47 I deal now with the question of the cost of some roller doors. 48 The facts, in brief, are that large roller doors were installed in the Premises, which were to be operated electrically. At the end of November 2003 four of these external roller doors were removed by the supplier or installer because the Defendant had not paid for them. The removal of the external roller doors left the Premises wide open and unsecured. Obviously some measures were required to make the Premises safe and secure. 49 The Plaintiff, as a short term measure, engaged security guards to guard the Premises. There were discussions between the Plaintiff and the Defendant about replacement of the doors. 50 The Plaintiff says that it was agreed that the Plaintiff would, on the account of the Defendant, purchase roller doors and have them installed and that the cost of the doors, together with the cost of the security guards which the Plaintiff had had to engage, would be deducted from the rent payable. The Defendant denies that any such agreement was made. Mr Colquhoun admits that there was an agreement that the Plaintiff should purchase new roller doors for the building, but he says that he did not agree that the cost of the replacement doors, nor the cost of the security guard, would be deducted from the rent. 51 What happened was that, in December 2003, the Plaintiff purchased from the supplier who had supplied the original roller doors to the Premises, the same roller doors and had them installed. Mr Colquhoun says that he specifically instructed Mr Atkinson that he did not wish the Plaintiff to acquire replacement roller doors from the previous supplier. 52 On 9 December 2003, Mr Atkinson wrote to Mr Colquhoun in the following terms: "As you are aware the security situation at the factory is costing a considerable amount for either the Insurance Company or Fallon Street Properties Pty Ltd.

I believe that I am able to obtain suitable doors that will fit the premises, however, I need your agreement that if we pay for the doors and their installation that Fallon Street Properties Pty Ltd will acknowledge that this cost is in fact repayable to Steel & Stuff Pty Ltd in due course.

Your written confirmation of this would be appreciated as soon as possible to enable us to obtain the doors before they are committed to another party.

Regards, [signed] Rod Atkinson"

Mr Colquhoun returned a copy of that letter to Mr Atkinson with a handwritten note in the following terms: "9.12.03 Dear Rod, If these doors are satisfactory I would appreciate the installation as soon as possible. [signed] K.I. Colquhoun" 53 The dispute between the parties is as to whether the cost of the replacement roller doors and the cost of providing security is deductible from the rent. 54 Mr Sharpe points out that the letter of 9 December 2003 requires Mr Colquhoun to acknowledge that the cost of the doors and the security will be "repayable to Steel & Stuff in due course" rather than stating that the cost is to be deducted from the rent. 55 While I appreciate the force of this submission, I nevertheless am confronted by evidence of Mr Atkinson to the effect that there was an agreement that these costs be deducted from the rent. I have no reason to doubt the accuracy of Mr Atkinson's evidence and I prefer his evidence generally to that of Mr Colquhoun. It would not be at all improbable or unlikely that such an agreement should have been made, bearing in mind that the state of the Premises was unsatisfactory to the Plaintiff and that at that time the Defendant was indebted to the Plaintiff for the payment of materials supplied in the course of construction of the Premises. It seems to me entirely probable that the agreement alleged by Mr Atkinson should have been made, and I so find. 56 The next issue for debate is whether the cost of the roller doors is a reasonable cost or is otherwise chargeable in the amount claimed. 57 Mr Colquhoun says that he specifically instructed Mr Atkinson that he did not wish the replacement doors to be purchased from the previous supplier. Even if one accepts this to be the case, it is quite clear that replacement doors had to be provided. There is no evidence from the Defendant that the doors originally supplied were unsuitable for use in the Premises, or that they were unduly expensive, so that it would have been unreasonable, on the part of the Plaintiff, to have reacquired the doors. 58 Seeing that the doors had been commissioned and ordered by the Defendant in the first place, it can hardly be said that they were unsuitable for use in the Premises. It seems that the only reason that they were removed was that the Defendant had not been able to pay for them. 59 In the absence of any evidence that similar satisfactory doors could have been purchased by the Plaintiff, at less than the amount which it actually paid to the original supplier, I am satisfied that the costs of the doors actually acquired are reasonable costs and are properly chargeable to the account of the Defendant and are to be offset against the rent payable by the Plaintiff. 60 The Plaintiff has provided a schedule showing the calculation of its damages. That schedule shows damages under a number of headings. The first is extra rent payable in respect of the Factory. The calculation of that rent is as set out in paragraph 58 of Mr Atkinson's affidavit of 11 October 2005. 61 It is clear, in my view, that the Plaintiff has applied the correct principle in calculating its claim for additional rent. What has happened is that the Plaintiff has ceased operating at its Metry Street premises and conducts its operations at two sites, the substantive part of the operations being at the Factory and a subsidiary part of the operation, consisting essentially of storage of materials, being at the Premises. Had the move to the Factory not been required by reason of the Defendant's breach of the lease, the Plaintiff would have carried on its business at two sites, namely, the Premises and the Metry Street premises. Accordingly, in calculating the damages occasioned by the necessity to move, the Plaintiff has deducted from the rent payable in respect of the Factory the rent it would have had to pay in respect of the Metry Street premises had it been conducting its operations, as it had hoped to do, at the Premises and the Metry Street premises. There has really been no complaint by the Defendant as to the basis of the extra rent calculation. I think it is entirely appropriate. 62 The second head of damages is relocation costs. This was not the subject of serious challenge by the Defendant. There was some attack on Mr Atkinson's evidence that some $4,500 in transport costs were incurred when, in fact, the Plaintiff's own trucks had been used to effect the removal. However, I accept that the Plaintiff's trucks would have been available for charge-out to customers, at the rate stipulated in the evidence, had they not been required for the transportation of the Plaintiff's materials and goods to the Factory. I think that the hire charges lost by use of this resource are to be included in the relocation cost damages. 63 I am satisfied that the relocation costs, summarised in the Plaintiff's schedule of damages and as to which there is a deal of evidence, are made out. 64 As I have indicated, I am satisfied that the third item of the Plaintiff's schedule of damages, namely security costs, is likewise made out. There has been no challenge to the calculation of the items as shown in that schedule under this heading. 65 The fourth item of claim is a sum of some $10,000, being the value of materials and equipment stolen from the Premises. The Plaintiff says that the theft was caused by the fact that the Premises were, in breach of the lease, left in a condition in which they were not secure. There is clear evidence, which I accept, that there was no proper flashing around roller door so that it was easy for someone to insert a hand behind the door and activate the button raising it. The failure to make the Premises secure in this way is, so the Plaintiff says, a breach of the implied covenant to make the Premises suitable for the purpose for which they were required, as well as being a breach of clause 7.1 of the lease. That clause is to the following effect: " Who is to repair the property? 7.1 The landlord must - 7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects; 7.1.2 maintain the property in a structurally sound condition; and 7.1.3 maintain essential services." 66 I have some doubt whether the failure to make the Premises secure so as to prevent a theft in this way falls within the obligations of the landlord under clause 7.1.1. This doubt arises from the fact that this clause is concerned with maintenance rather than an obligation to effect certain works. However, it seems to me that there is certainly an implied obligation, within the obligations encompassed by the implied term to which I have referred, to make the Premises suitable for their intended purpose by making them secure. One can hardly carry on a business in which valuable goods and equipment are used in premises which invite theft. It seems to me, therefore, that the failure to provide a flashing, such as to make the premises secure from theft, is a breach of the implied covenant to complete the building work in such a way as to make the premises suitable for their intended purpose. 67 It seems to me that this work ought to have been completed in accordance with the implied term by the end of the sixty day period referred to in the Interim Occupation Certificate, and the works certainly ought to have been completed by the date of the theft, namely, 13 October 2003. The question is, then, whether the breach of this term led to the Plaintiff's loss in the form of the theft. 68 It seems to me that it is a natural inference that lack of security in the Premises was a primary cause of the theft. Ready access would have been, in a real sense, an open invitation or temptation to theft and it seems to me to be a natural and reasonable consequence of the Defendant's breach in this regard that a loss from theft would be suffered. In those circumstances, I hold that the Plaintiff is entitled to recover damages for breach of the implied covenant to make the Premises safe in the amount of the value of goods stolen from the Premises. 69 There is a dispute as to whether the Plaintiff is required to pay any part of the outgoings in respect of the Premises. Clause 5.1.2 of the lease states that the tenant must pay the landlord "the share stated in Item 14A in the schedule of those outgoings stated in item 14B in the schedule" . The schedule provides: " Item 14 Outgoings (cl 5) A. Share of outgoings: [nothing shown]

B. Outgoings - (a) local council rates and charges; $3,392.72 (being current year) (b) water sewerage and drainage charges; (c) land tax; Nil (d) insurance Approximately $2,000.00

for the land or the building of which the property is part fairly apportioned to the period of this lease."

The Plaintiff submits that because no share of outgoings is stipulated in the schedule, the Plaintiff is obliged to pay no part of the outgoings. The Defendant contends that because no share of the outgoings is stated in the schedule, a consequence is that the Plaintiff must pay the whole of the outgoings. I am unable to accept the Defendant's submission. 70 Clause 5.1.2 is quite clear that only a part of the outgoings are to be paid by the tenant and that part is as stated in Item 14 of the schedule. It may well be that by inadvertence no figure was inserted in item A of Item 14. However, there has been no claim for rectification in these proceedings. There has been no evidence whatsoever that the share of outgoings was expressly agreed between the parties at any time prior to the execution of the lease. It seems to me, therefore, that as a matter of construction the absence of any stated share of outgoings in Item 14 of the schedule means that the share of outgoings for which the Plaintiff is liable is nil. 71 There is an issue whether the Plaintiff is entitled to set-off, against any rent owing under the terms of the lease, the amount of any damages to which it has been found entitled. Mr Sharpe submits that because the lease simply requires the rent to be paid, then that rent must be paid without deduction. There is not in the lease, however, any prohibition against off set or deduction from the rent, as is often found in commercial leases. 72 The Plaintiff's claims in damages arise out of breaches by the Defendant of the terms of the lease. It is by the lease itself that the Defendant is entitled to rent. It seems to me that there is no reason why the ordinary principle of law as to set off of related claims should not apply in the present case. The Plaintiff's claim for damages for breach of the lease should, in my view, be set off against the amount which the Plaintiff owes to the Defendant for rent under the lease, and I so hold. 73 The Defendant seeks an order for possession of the Premises on the basis that the Plaintiff must have been in breach of its covenant to pay rent from January 2005 to date. The fact is that the Plaintiff has not paid any rent from January 2005 to date by reason of the fact that the main gates to the Premises were locked, by order of WorkCover. I have dealt with this argument in the course of my reasons for judgment and I held that the Plaintiff was not entitled to take the attitude that no rent was payable as from the locking of the gates. However, as Mr Sharpe rightly concedes, the Plaintiff's claim for damages in respect of relocation costs which were incurred, in substance by June 2004, exceeds the amounts outstanding for rent which would have been accumulating up to the present time so that even at the present time the Plaintiff is, as it were, in credit in respect of rent when one takes into account its offsetting claim for damages. 74 In those circumstances, it seems to me that the Defendant is not properly able to say that the Plaintiff has ever been in default of the rent payment obligations under the lease, and, accordingly, there is no basis upon which the Defendant could validly terminate the lease and require the Plaintiff to give up possession. Accordingly, I would refuse the application for an order for possession. 75 I will stand the matter over to Friday, 11 November 2005 at 9.30am so that the Plaintiff may bring in Short Minutes of Order to reflect my reasons for judgment. ~ oOo ~

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At a glance

Court

Decision date

Before

Source

Judgment (31 paragraphs)

Parties