On 23 July 2021 I heard an application brought by the respondent (the tenant) to set aside a decision made in the tenant's absence on 11 June 2021. The decision of 11 June 2021 had granted the applicant (the landlord) possession of the retail premises leased by the tenant from the landlord and made directions in relation to the filing of evidence in respect of the landlord's claim for money orders.
I delivered my decision dismissing the tenant's application on 23 August 2021.
At the hearing on 23 July 2021 I directed that, if the landlord did not seek to pursue a claim for $1,521.41 in respect of a lockout in 2019, the landlord's monetary claims would be determined on the papers and without a further hearing.
The landlord subsequently confirmed that it did not pursue the claim for $1,521.41.
The parties have filed submissions addressing the landlord's monetary claim. Prior to the hearing on 23 July 2021, the landlord had filed a "Schedule of Damages" in which it identified the amount of "damages" to which it claimed to be entitled in respect of rent arrears and deferred rent up to 1 July 2021 as $157,538.04.
In submissions filed on 9 August 2021, the landlord claimed orders:
1. That the tenant should be ordered to pay $72,766.29 in respect of rent payable during the "prescribed period" (that is the period during which, pursuant to regulations under the Retail Leases Act 1994 (NSW), the tenant's obligation to pay rent was subject to adjustment by reason of the COVID-19 pandemic).
2. That the tenant should be ordered to pay 24 monthly payments of $2,588 in deferred rent commencing on 1 May 2020; and
3. That the tenant should be ordered to pay $23,192.24 or alternatively $25,717.14 (depending upon whether a rent adjustment due under the lease on 1 April 2021 took effect) in arrears accrued from and after 1 April 2021, that is after the prescribed period.
The landlord attached to its submissions a further statutory declaration from Mr Huxley made on 9 August 2021.
Swiss Concept Australia Pty Ltd v Diamondlite Pty Ltd [2021] NSWCATCD 106 | Case summary | Zoe
The tenant filed submissions on 23 August 2021 asserting that the tenant should be ordered to pay only $6,028.68 in respect of its rental obligations up to 30 August 2021. The tenant attached to its submissions a statutory declaration from Mr Okili dated 22 June 2021 attesting to the fact that, despite requests that it not do so, the tenant's bank had paid the landlord the proceeds of the bank guarantee provided by the tenant pursuant to the lease.
The landlord filed submissions in reply on 30 August 2021.
Both parties submitted that, as the parties had not reached agreement on the rent payable during the "prescribed period", that is the period from April 2020 to 28 March 2021, during which the Retail and Other Commercial Leasing (COVID-19) Regulations 2020, Numbers 1, 2 and 3, were in force, the Tribunal should determine the rent payable during that period, having regard to the requirements of the "National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles during COVID-19" (the Code of Conduct).
The landlord submitted that the rent should be fixed by reference to the minimum requirements of the Code, that is the tenant should be required to pay reduced rent during the prescribed period "based on the reduction in the tenant's trade during the COVID-19 pandemic period and a subsequent reasonable recovery period" and that no less than 50% of the reduction was to be waived and the balance deferred, to be "amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater".
The tenant agreed that the landlord had correctly calculated the rent payable during the prescribed period but submitted that a waiver of 50% of the rent reduction was the minimum which the landlord was required to allow and that the appropriate split between waiver and deferral should be 75%: 25% because:
"(a) Such split is halfway within the range in Principle 4 of the Code;
(b) The period left in the lease is just over 12 months, being approximately half of the minimum period of 24 months to pay the deferred rent."
The parties were also in agreement that the appropriate amortisation of deferred rent was 24 equal monthly instalments. However, the tenant further submitted that, once the lease terminated through the landlord taking possession of the premises, the obligation to make payments of deferred rent ceased. The tenant relied upon the decision of a Senior Member of the Tribunal in Miramax Pty Ltd v Mang Yu Lo [2021] NSWCATCD 12 at [21]-[22].
The landlord submitted in reply that the Code explicitly recognises that a tenant's obligation in respect of deferred rent may extend beyond the termination of the lease.
In relation to the period after 28 March 2021, the landlord sought rent at the rate specified under the lease until 31 August 2021 when the tenant had agreed to vacate the premises. The tenant submitted that, as the lease had terminated on 13 May 2021 when the landlord took possession, the tenant was liable only for mesne profits, which the tenant submitted should be assessed by reference to the market rent the landlord could have obtained for the premises over the relevant period.
The tenant submitted that the onus of proof of the amount of mesne profits lay upon the landlord and that, on the available evidence, "a reasonable measure for the market rent, is the effective rent the landlord received from the tenant during the period from 1 April 2020 to 31 March 2021 being $77,766.29", with the result that the monthly rent payable by the tenant for the period from 1 April 2020 was $6,480.52 per month.
The landlord submitted in reply that the termination of a contract only discharged further performance except to the extent that the contract was properly to be interpreted as providing otherwise.
The landlord submitted that Clause 15.5 of the lease expressly provided that rent should continue from the date of termination until the tenant had complied with its obligations to yield up occupation pursuant to Clauses 15.1 and 15.2. The landlord submitted "rent is payable under the lease to at least 31 August 2021 because the respondent failed to yield up the premises".
The landlord submitted in the alternative that "general contractual principles as applicable to leases would provide that the landlord was entitled under contractual principles to terminate the lease and recover loss of bargain damages in respect of the breach of the essential term that the tenant pay rent".
The landlord noted that the requirement that the tenant pay rent is made an essential term pursuant to Clause 14.2 of the lease.
Neither party submitted that the Retail and Other Commercial Leases (COVID-19) Regulation 2021 had any relevance to the determination of the rent payable by the tenant after 28 March 2021.
The tenant submitted that, as the landlord had called the bank guarantee provided by the tenant in accordance with the lease on 22 June 2021, the tenant's obligations to the landlord should be reduced by the amount of the guarantee, that is $52,668.08.
The landlord submitted in reply that the amount owing by the landlord should not be reduced by reference to the amount received by the landlord following its call on the bank guarantee "because under Clause 16.6 of the lease the return of the bank guarantee is not due until the making good of all defects and the yielding up of the premises". The landlord further submitted that "the amounts due to the [landlord] that are secured by the proceeds of the bank guarantee cannot be finally quantified until the [tenant] has fully complied with its [make good] obligations".
[2]
Consideration
I note the comments of Robb J in Sneaker Boy Retail Pty Ltd t/as Sneaker Boy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 at [158]:
…for the reasons that I have given above, the Court does not have jurisdiction to make orders varying the terms of commercial leases that are subject to the COVID-19 regime. It is for the parties to renegotiate the terms, and in the absence of agreement a dissatisfied party must refer the dispute to mediation by the Registrar. Thereafter, it may be that the Tribunal or the Court has some jurisdiction to resolve the dispute, but that is not a question that is in issue in these proceedings; and in any event, the course to be taken would depend upon presently unknown future circumstances.
In Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774 at [141]-[142]:
[141] In its submissions, Nolde relied on the observations that I made in Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 at [158] to the effect that the COVID-19 regime does not empower the Court to decide the appropriate rent to be paid under an impacted lease, if the parties are unable to renegotiate the lease and the dispute is not able to be resolved by mediation. I accept that there may be cases that must be addressed by the courts where this question arises in future. The difficulty is that, although it may appear to be a mathematical exercise to determine the appropriate reduction in rent by comparing the turnover figures for the current period with the equivalent figures for the 12 months prior, no principles have been established for determining the appropriate split between the waiver and deferral of rent, the appropriate period to allow the lessee to catch up on deferred rent, and whether an extension of the lease should be granted. For the reasons given above, I do not think that this question arises in the present case. That is because a failure by the lessor to comply with the requirements of clause 7 of any version of the COVID-19 Regulation will lead to a permanent prohibition on the lessor taking any prescribed action against the lessee for non-payment of rent while the lessee was an impacted lessee. The position may be different in cases where the lessor complies with clause 7 in good faith, but the parties to the impacted lease are unable to reach an agreement.
[142] It is also unnecessary in this case for the Court to consider whether the NSW Civil and Administrative Tribunal would be empowered by s 72(1)(a) and (b) of the Retail Leases Act to determine the rent payable by an impacted lessee during the prescribed period.
As Robb J observed in Sneaker Boy (No 2) at [91]:
A curious aspect of the relationship between the Code and the COVID-19 Regulation is that the Code, under the heading "Binding Mediation", provides: "Where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including Small Business Commissioners/Champions/Ombudsman where applicable" (emphasis added). The COVID-19 regime in New South Wales does not provide for binding mediation. That is also true for the Conveyancing COVID-19 Regulation, as clause 6 thereof only provides: "Lessor must not do any one or more of the following unless and until the Small Business Commissioner has certified in writing that mediation offered to be conducted by the Small Business Commissioner has failed to resolve the dispute and given reasons for the failure…" (emphasis added). Generally, it is not clear how failures in the required renegotiation process are to be resolved.
However, in circumstances where the parties are agreed as to the reduced amounts of rent payable and have both asked the Tribunal to make a determination of the appropriate split between waiver and deferral, I do not consider it would be consistent with the Tribunal's guiding principle set out in s 36 of the Civil and Administrative Tribunal Act 2013 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceedings to decline to do so.
Section 72(1) of the Retail Leases Act confers upon the Tribunal the power to make an order for the payment of money in proceedings for a retail tenancy claim. "Retail tenancy claim" is defined in s 70 of the Act as:
(a) a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being -
(i) a claim for payment of money (whether or not stated to be by way of debt, damages, restitution or refund),
(ii) a claim for relief from payment of a specified sum of money,
…
(ix) a claim for a declaration of the rights, obligations and liabilities of the parties under a lease,
…
In my view, if the parties are agreed that their obligations to one another are to be as determined by the Tribunal, s 72(1)(a) vests jurisdiction in the Tribunal to make that determination.
I note that the Tribunal did exercise the power to determine the proportions in which rent should be waived and deferred in Miramax Pty Ltd v Mang Yu Lo, although the source of such power was not discussed and its existence rather seems to be have been assumed.
If the Tribunal does not have the power to determine the rent payable in the event negotiations (including mediation) have failed, the only order the Tribunal could make would be to order payment of the whole rent payable under the lease or where, as here, the landlord had conceded a reduction was appropriate, to award the payment of the amount sought by the landlord.
As I am of the view that there is nothing in the circumstances of this case (as they appear from the evidence before me) to suggest that the minimum waiver is not appropriate, I consider it appropriate to require the tenant to pay 50% of the reduction in rent by way of deferred rental payments.
I note that leasing principle 4 of the Code states:
4. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant's capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord's financial ability to provide such additional waivers.
There is no evidence before me to establish that the failure to provide a waiver of more than 50% of the reduction in rent "would compromise the tenant's capacity to fulfil their ongoing obligations under the lease agreement". Nor is there any evidence of the landlord's financial ability to provide "additional waivers".
I do not consider that the matters relied upon by the tenant are relevant in my consideration of the appropriate split of the rent reduction between waiver and deferral. The Code clearly suggests that 50% is the default position, rather than one end of a range. Moreover, before the landlord terminated the lease by reason of the tenant's default in payment of rent, the period left on the lease was not relevant to the determination of the appropriate split between waiver and deferral, as leasing principle 12 of the Code provided that the tenant should be given an opportunity to extend its lease to the end of the 24 month repayment period.
I do not accept the tenant's submission that the obligation to pay deferred rent terminated when the lease was terminated. As the landlord submits, the Code clearly contemplates that the repayment of deferred rent may continue beyond the expiry of the lease. There is no basis in the Code or in the regulations for the conclusion that the termination of a COVID-19 impacted lease must result in the termination of the obligation to make payments of deferred rent.
The decision of the Tribunal in Miramax, relied upon by the tenant, in fact determined the opposite. The finding in that case was that, because the lease had terminated, no rent should be deferred. The tenant received a waiver of one third of the rent, which was 50% of the total reduction which the Tribunal had determined was warranted in the circumstances.
Accordingly, the appropriate order in respect of the deferred rent, as submitted by the landlord, is that the tenant should pay the landlord 24 monthly payments of $2,588. Those payments should be made on the first of each month.
As six instalments (May to October) will have fallen due before this decision is published, I will order six times $2,588, that is $15,528, be paid immediately and 18 instalments of $2,588 be paid on the first of each month, commencing from 1 November 2021.
In relation to the period after the end of the prescribed period on 28 March 2021, I accept the landlord's submission that under the terms of the lease the tenant remained liable for rent at the rate set out in the lease until the tenant vacated the premises. I also accept the landlord's alternative submission that in any event the landlord would have been entitled by way of compensation or damages to the full rent payable under the lease up to the date of termination (at least).
The tenant's submissions regarding mesne profits both ignore the terms of Clause 16.5 of the lease and fail to acknowledge that the tenant was in breach of the lease and liable to pay compensation reflecting the full value of the rent until such time as the tenant vacated the premises and the landlord was able to secure another tenant.
I also accept that the rent due under the lease was $16,832.53 due on 1 April 2021 and $17,337.51 due on the first of each of May, June, July and August 2021. That amounts to $86,182.57. The landlord acknowledged payments by the tenant of $12,771.61 (in two tranches), $16,800, $16,300 and $16,300 in April, May, June and July respectively totalling $62,171.61. The net amount payable in respect of rent since 1 April 2021 is $24,010.96.
The landlord has not sought compensation in respect of any period after 31 August 2021. I note the landlord's submissions explicitly state that its claims in that regard are not waived. I make no comment in that regard.
I note that the landlord's schedule of arrears included within its submissions included claims for $495 and $706.20 in respect of the attempted retaking of possession of the premises on 13 May 2021. Although the landlord may have been entitled to payment of the cost of the attempt to retake possession, the landlord provided no supporting documentation to establish that it had incurred those costs. I am not persuaded on the evidence before me that the landlord is entitled to payment of the sums of $495 and $706.20 in respect of the costs of the attempted lockout on 13 May 2021.
Finally, I find the landlord is not obliged to set off the amount received under the guarantee against the amounts payable by the tenant, until the tenant has complied with its obligations under the lease in respect of the making good of the premises.
The landlord's obligation to return the guarantee (and, having called for payment, to account for the proceeds) does not arise under the lease until the tenant's liability in respect of the make good to the premises has been ascertained.
Accordingly, I will make orders:
1. Pursuant to s 50 of the Civil and Administrative Tribunal Act 2013 (NSW) the applicant's money claims will be determined on the basis of the parties' written submissions and without a further hearing.
2. The respondent, Diamondlite Pty Ltd, is to pay the applicant, Swiss Concept Pty Ltd, the sums of $72,766.29, $15,528 and $24,010.96, totalling $112,305.25, immediately.
3. The respondent, Diamondlite Pty Ltd, is to pay Swiss Concept Pty Ltd the sum of $46,584 by eighteen equal instalments of $2,588, payable on the first of each month commencing 1 November 2021 with the final payment due on 1 April 2023.
[3]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 December 2021
Parties
Applicant/Plaintiff:
Swiss Concept Australia Pty Ltd
Respondent/Defendant:
Diamondlite Pty Ltd
Legislation Cited (3)
Retail and Other Commercial Leases (Covid-19) Regulation 2020(NSW)