Sun & Anor v Younan

Victorian Civil and Administrative Tribunal|2010-03-04

Sun & Anor v Younan (Retail Tenancies) [2010] VCAT 254

I declare that the Applicants are entitled to a suspension of rental and outgoings from 17 March 2009 until 18 January 2010. All rental and outgoings paid with respect to that period must be credited against rental and outgoings falling due with respect to the period after 18 January 2010.

Order that the Respondents pay to the Applicants $925.50.

Mr and Mrs Younan ("the Landlords") are the owners of a building comprising a shop at the front abutting the street ("the Shop") and a three bedroom flat at the rear (the Dwelling") situated at 20 Emu Parade Jacana ("the Premises"). For a number of years they carried on a Milk Bar and mixed business ("the Business") in the Shop and lived in the Dwelling.
On 24 May 2003 the Landlords sold the Business to the Respondents ("the Tenants") and at the same time entered into a lease ("the Lease") with the Tenants to let the Premises to them for a period of three years commencing 24 May with successive options for two further three year periods.
On 18 January 2006 the Tenants notified the Landlords that they exercised the first option to renew the Lease for a further three years to 31 May 2009. No further lease documents appear to have been prepared but the effect of the exercise of the option would be to grant them the further term to which they were entitled. The Landlords later disputed that the option had been exercised but I am satisfied that it was.
The option for the last three year period appears not to have been exercised but no notice was given by the Landlords to the Tenants in accordance with the Retail Leases Act 2003 of the date by which they were to exercise the option until 1 May 2009, when the Landlords' solicitors provided them notice that the option could not be exercised after 28 October 2009. The option has now been exercised.

In the meantime, on 17 March 2009, the Tenants, who had bought a shop a few doors down in the same shopping strip moved the Business into their own shop including all the signage. On that same day they wrote a letter to the Landlords' solicitors complaining of the following matters:
- (a) A want of repair in regard to the ceiling of the Shop. A section of it had dropped, but the Tenants said in the letter that it was "falling down";
- (b) The reinstallation of the drainage system. This had become blocked and instead of clearing it the Landlords had installed a homemade plumbing installation operated by a pump to take the water up to the ceiling and then to the front of the Premises;
- (c) Gaps in the walls caused by the failure of the foundations. These appear to have been quite wide.
The final two paragraphs of the letters are as follows:

"For safety reasons and precautious measures we cannot serve customers on the premises in current dangerous conditions and have moved part of goods and stock to 28 Emu Parade, Jacana temporarily until the premises are repaired in safe and good condition and suitable for resuming business.

We demand that you rectify all the premise's defects and also reserve the right to recover the partial rental we have paid and will pay to you as a result of the repairs now lost during this temporary period." (sic.)

At or about the same time, the Tenants contacted the Municipal Council which sent an inspector who visited the Premises on 28 April 2009. On 22 May 2009 a notice under s 106 of Building Act 1993 was served upon the Landlords stating that, in the opinion of the inspector, the Premises were unfit for occupation in that they were in a derelict state of disrepair in a number of respects that are set out in the notice. These include the three items above and also other matters. The notice required the Landlords to show cause within 30 days of the date of service of the notice why occupation of the Premises should not be prohibited and why they should not carry out building work in order to bring them into compliance with the relevant regulations.

On 24 June 2009 the Council issued a building order under s 117 of Building Act 1993 prohibiting the occupation of these shops. It remained in force until finally lifted by the Council on 18 January 2010.
Correspondence then ensued between the Tenants and the Landlords and the Landlords' solicitor concerning access to the Premises to enable the Landlords to carry out the work and obtain quotations. This correspondence is dealt with in more detail below. In it the Tenants required the Landlords to make arrangements through their solicitor specifying dates and times for access. In their evidence before me the Landlords claimed that this was not a practical course since it is difficult to get tradesmen to visit at specific times. However they appear to have made no attempt at all to arrange any inspection through their solicitors as requested.
A standoff then ensued until 8 August 2009 when the Landlords cut off the back gate chains and locks of the site, changed the locks and took possession of the Premises. Mr Sun was present at the time and an altercation ensued and the police were called. Mr Sun was required to leave the premises with the Landlords in possession.

This proceeding was then commenced by the Tenants on 14 August 2009 seeking injunctive relief to restrain the wrongful re-entry by the Landlords, relief against forfeiture and damages.
On 18 August 2009 an interlocutory order was made restraining the Landlords from reletting the Premises to anybody else pending the determination of the proceeding.
On 23 September 2009 I ordered the Tenants to remove the cool-room and motor, the pie oven and the cash register from the Premises at a mutually convenient time or times. These were the only items that the Tenants had left in the shop, apart from some rubbish.
The cash register and pie oven were removed but the parties were unable to agree in regard to the removal of the cool-room. On 28 October 2009 I ordered the Respondents to cause the cool-room to be removed from the Premises and delivered to the Tenants' shop three doors down. This was done at the cost of $1,600.00 which the Tenants have paid.

The proceeding was set down for hearing on 20 January 2010 with one day allocated. It came before me for hearing on that day. Mr Sun appeared on his own behalf and on behalf of Ms Zhang. The Landlords appeared in person. There was insufficient time to complete the hearing on that day and so it was adjourned to Monday 25 January 2010. After completing the hearing of the evidence I then visited the Premises and also the Tenants' own shop at 28 Emu Parade. I informed the parties they would receive a written decision.
By the time of the hearing the foundations of the Premises had been underpinned and the cracks had been repaired. The Landlords had also carried out extensive repairs and renovations to the Shop and Dwelling, including the installation of a new stove and kitchen. The Premises had also been painted.

Repayment of rent from 17 March 2009 to 20 November 2009
Outgoings, including insurance, council rates and water rates for that period

Set-up costs for temporary site (ie. Their own shop)
Costs of removal of cool-room

Tools and materials to carry out repairs to the shop
Purchases new kitchen for the residents behind the shop

Repainting of the shop
Repairs said to have been carried out by "Supa Reblocking & Underpinning" being repairs and replacement of tiles to bathroom and kitchen; replacement of door handles and locks; removal of rubbish; replacement of light globes and fluorescent tubes; damage to the wall after the removal of the cool-room; damage to the plaster to the walls by removal of the shop fittings
Lawyer's fees

The Landlords also wished the lease to be terminated because, they say, there is no friendship between themselves and the Tenants. That was apparent from their attitude to one another during the hearing, yet they were once good friends.

Evidence was given by Mr Sun and by both Landlords. In addition, numerous documents were tendered, including photographs.
I am not satisfied that the Landlords are truthful witnesses. In support of their counterclaim they produced what they said was the painter's bill. It is a form of account for $8,700.00 purporting to be from a painter trading under the name "Super Paint Perfection". The printed form has quite obviously been completed in Mrs Younan's handwriting and it is signed underneath by Mr Younan. I put it to them that they had prepared the invoice and they denied it. I am satisfied that evidence was false.
In addition, they produced a bill for $4,070.00 from a company called Supa Reblocking & Underpinning Pty Ltd. This was the company that did the underpinning of the foundations. The underpinning was to repair a structural defect in the Premises and was not something for which the Tenants would have been responsible. The Landlords informed me that they made no claim for the cost of repairing the foundations. However although this bill that they relied upon purported to be from Supa Reblocking & Underpinning Pty Ltd, it was for all of the renovation work and had nothing to do with the underpinning. Interestingly enough, the last two items overlap the "bill" from Super Paint Perfection.
Mr Sun produced a copy of the webpage of Super Reblocking & Underpinning Pty Ltd which sets out the types of work undertaken by that company. Nothing of the type referred to in this alleged bill is specified. When I inspected the Premises it is clear that the paintwork was done in a very amateurish way as was the renovation work referred to in the alleged account claimed to be from Super Reblocking& Underpinning Pty Ltd.
The alleged "account" from Super Reblocking & Underpinning Pty Ltd is not an original but a photocopy. It seems to me that they have used the letterhead from the bill for the underpinning to manufacture this other bill to enable them to claim for work that they have done themselves. Mr Sun said that both this account and the painting bill were fabricated and I agree with him.
For these reasons, where there is any conflict between the evidence of Mr Sun and the evidence of the Landlords I will generally prefer the evidence of Mr Sun. I should add that I was more impressed with Mr Sun as a witness than with either Mr or Mrs Younan.

As to the conduct of the respective parties, I am satisfied that the Tenants moved out of the Premises because of their state and condition. I am also satisfied that there had been earlier complaints as to the state and condition of the roof and ceiling of the Premises which the Landlords had not properly addressed.
Despite this letter of 17 March the Landlords did nothing about the state of the Premises. They first asserted that the option had not been exercised and, after the Tenant pointed out that no notice of the time by which it ought to have been exercised was served in compliance with the Act, they then served such a notice.
On 4 May the Landlords' solicitors served a notice purportedly under s.146 of the Property Law Act 1958, alleging that the Tenants were in breach of the Lease in failing to keep the Business open during normal business hours. The Notice required the Tenants to remedy the alleged breach and pay the costs of the Notice. In response the Tenants wrote back to the Landlords' solicitors referring to their letter of 17 March and stating that they would not move back to the Premises until they are repaired and suitable for resuming business.
Following receipt by the Landlords of the Notice from the Council of 22 May, the Landlords' solicitors, by letter dated 26 May, required that the Tenants grant immediate access to the Premises to ascertain the extent of the works involved. The Tenants wrote back agreeing to provide access and requesting to be advised of a date and time when access was required.
This was not done. Instead, Mr Younan appeared at the Tenants' own shop on 6 June and demanded access. Mr Sun refused on the ground that the requested notice had not been given. This seems to have been quite petty conduct on the part of the Tenants. On 9 June the Landlords' solicitors wrote referring to the incident and stating that the Landlords would exercise their "rights" under the s.146 Notice. The Tenants wrote back giving their version of the incident, reaffirming their willingness to provide access arranged through the solicitors and requiring repayment of the rental they had paid since 17 March. The solicitors responded by saying that the Landlords would exercise their rights. The Tenants replied saying that the Premises were unfit for occupation and that the Landlords must rectify all defects and bring the building into compliance with the legal requirements.
In early July the Landlords attempted to break into the Premises with a bolt cutter but were seen doing so and withdrew.
On 9 July the Landlords' solicitors wrote requiring the Tenants to bring the rental up to date. It is uncertain what the state of the rent was then or is now but a letter from the Tenants would suggest that it was paid to 23 May. In this letter the solicitors state that the Tenants will be advised when the Landlords will be attending the Premises to assess the damage.
Some further letters passed but no arrangement for an inspection was made. Then, on 6 August, the Landlords informed the Tenants in person that they would be re-entering the Premises the following Saturday and required the Tenants to move out their belongings. The Tenants wrote immediately to the Landlords' solicitors complaining about it and threatening to call the police.
Notwithstanding that letter, the Landlords together with some other persons cut the chains off the back gate, took possession of the Premises and changed the locks on 8 August.

Despite the Landlords' denials, I am satisfied that the Tenants sent them the letter of 17 March 2009 in which they set out the faults on the Premises and explained why they were moving out. The Tenants seek an abatement of the rent and outgoings from the time they moved out until such time as it the Premises should be repaired and again made habitable.
Condition 8 of the Lease provides as follows:

"8.1 If the premises or the building are damaged so that the premises cannot be used or accessed for the permitted use then

8.1.1 A fair portion of the rent and outgoings or building outgoings is to be suspended until the premises are again wholly fit and acceptable for the permitted use

8.1.2 The suspended portion of the rent and outgoings or building outgoings must be proportionate to the nature and the extent of the damage or inaccessibility."

In addition, s. 57 of the Act provides (where relevant) as follows:

(1) A retail premises lease is taken to provide the following if the retail premises, or the building in which the premises are located, is damaged-

(a) except where the tenant caused the damage, the tenant is not liable to pay rent, or any amount in respect of outgoings or other charges, that is attributable to any period during which the premises cannot be used under the lease or are inaccessible due to that damage; and

(b) except where the tenant caused the damage, if the premises can be used under the lease but that use is reduced to some extent by the damage, the tenant's liability for rent, and any amount in respect of outgoings or other charges, that is attributable to any period during which the use is reduced is decreased to the same extent; "

The word "damage' is not defined in either the Lease or the Act. In normal parlance it is used to refer to accidental damage but it seems to me that the section envisages any state of disrepair which renders the Premises unable to be used or inaccessible. If rented premises should fall into such a degree of disrepair then I think the section applies. For example if a landlord so neglected his obligation to make structural repairs that the premises fell down it could not sensibly be said to be said that the premises were not damaged. Where the consequences of disrepair were less serious the premises are nonetheless damaged. It is a matter of degree. The want of the repair is the cause. The damage is the effect.
I will therefore declare that the Tenants are entitled to a suspension and outgoings from 17 March 2009 until 18 January 2010 when the building order under s 117 of Building Act 1993 was lifted. There is insufficient evidence for me to calculate any such figure but since the tenancy is ongoing the adjustments can be made between the parties.

I am not prepared to make any allowance for the removal and reinstatement of the cool-rooms. Since it was the Tenants' expressed intention to remain in the Shop and move their business back into there when it was again fit for occupation the sensible course would have been to have left the cool-room there. As it, after its removal the constituent parts were simply stacked in the yard of the tenants own shop.

The parties are in dispute as to the rent to be paid for the final term. According to Item 16 of the Schedule the rental is to be reviewed to market in accordance with Clause 11 of the Lease at the commencement of each further term. A dispute has arisen between the Tenants and the solicitors for the Landlords as to the manner in which this should be done. It is trite to say that the parties must follow the procedure set out in the Lease.

Removal of the light fittings and air conditioner

In the course of carrying out the work to the Premises, the Landlords have removed both the old light fittings from the Shop and also an air conditioner, all belonging to the Tenants. The light fittings have been replaced with new light fittings which will obviously be available for use by the Tenants when they resume possession of the Shop. Mr Sun seeks an order that the old light fittings be reinstated. Such an order would be pointless. Old light fittings are generally regarded as worthless and at the end of the further term the Tenants would either have left them in position or removed them. The only difference here is that the light fittings have been removed now. The Tenants can use them or dispose of them as they see fit.
However I will order that the Landlords pay the cost of re-installing the air conditioner to the place from which they removed it. It should have been left there. In the absence of any evidence as to the cost of reinstallation I shall allow $100.00.

In regard to the set-up costs for the temporary site, the claim for $825.50 is modest. All of the shelving and stock had to be moved which, if done commercially, would have cost many times that sum. The Landlords were critical of some items but I think that I should allow the amount claimed. I will not allow any interest. In addition to the declaration as to the abatement of the rent and the outgoings and the cost of the replacement of the air conditioner, there will be an order that the Landlords pay $825.50

The counterclaim depends on who I believe as to the original condition of the Premises. It is clear that the cracks in the walls of the Shop were caused by a subsidence of the foundation and so that is not the Tenants' responsibility, nor is the faulty ceiling.
As to the cleaning, the Premises were very untidy, but the Landlords forcibly retook possession without giving the Tenants an opportunity to do any cleaning or reinstatement works and so cannot complain that these were not done.
The Landlords rely upon the covenant in Clause 3.3 of the Lease to the effect that the Tenants will refinish all finished surfaces in a workmanlike manner with as good quality materials as previously at least once every five years during the term and any other term. In the present instance the complaint about the Shop was that the walls needed to be redecorated where the shelving had been removed in order to be taken to the other shop. Apart from that, it did appear that the Shop had at some stage been painted but there is no evidence as to when this was.
The Tenancy is still subsisting. When the Landlords re-entered all they had to do was attend to the structural matters referred to in the Council notice and then hand possession of the Premises back to the Tenants. Instead they elected to redecorate the Premises according to their own wishes, apparently in the expectation that the Tenants would not be returning. That was a voluntary decision on their part and it is not a cost they can pass on to the Tenants.

The photographs of the Dwelling tendered show that that it was in a considerable state of disrepair. The dispute here is to who was responsible for that. According to the Landlords, the Dwelling had been their home and was in good condition. They showed some internal photographs of parts of the Dwelling showing those parts to be in good condition. However it appears that those photographs were taken a number of years ago. The Tenants say that there were a number of tenants in the Dwelling after the Landlords ceased to live there and it was those tenants that caused the damage. The Landlords deny that they rented the Dwelling to anyone. There is no independent evidence of the state of the Premises at the start of the Lease.
On this state of the evidence I have to choose whether to believe the Landlords or Mr Sun. Since there is no other reason to disbelieve Mr Sun and since I believe that the Landlords gave false evidence and tendered fabricated documents at the hearing I must prefer the evidence of Mr Sun.

I am unable to terminate the Lease just because the relationship between the parties has broken down. The Landlords suspect that the Tenants will not return and that the move to their own shop is permanent. I am satisfied that the Tenants recognised that they had little time left on the Lease and they believed the Landlords intend to recommence a similar business in the shop as soon as they left and effectively take back the Business. I accept the evidence of Mr Sun that the Landlords once told him that they had such an intention. That might be the reason why the Tenants purchased the shop three doors down. Nevertheless, the Tenants have renewed the Lease and they are entitled to do so and see out the balance of the final term.
I asked the Landlords on a number of occasions whether they were prepared to give an undertaking to the Tenants to the effect that, if the Tenants were to surrender the balance of the term they would undertake not to rent the Shop for use as a milk bar or carry on such a business themselves. They refused to give such an undertaking. Although there was no obligation on them to give such an undertaking it might have helped resolve the impasse between the parties. As it is, it would seem that the Tenants concerns are not without substance.

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Judgment (35 paragraphs)

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