Topbeach Pty Ltd v Seafarer Investments Pty Ltd [2010] QSC 459

Wockner Partners Solicitors for the plaintiff/ applicant

O'Keefe Mahoney Bennett Solicitors for the defendant/ respondent

HER HONOUR: This is the matter of Topbeach Pty Ltd and Seafarer Investments Pty Ltd, 8624 of 10 for judgment.

By a claim and statement of claim filed on 16 August 2010, the plaintiff seeks specific performance of an agreement for a lease, a declaration that it has validly exercised an option to renew, specific performance of a five year lease commencing 1 May 2010 and an injunction to prevent the defendant from interfering with the plaintiff's peaceful possession of the premises.

An application for interlocutory injunctive relief was filed on the same day. It was heard yesterday. At the conclusion of the hearing, I indicated I would not grant the interlocutory injunction. These are my reasons for that decision.

The relevant facts are as follows. After a period of negotiation between the plaintiff's director, Mr Ransome and a defendant's agent, Mr Ransome and the defendant signed an offer to lease contained in a letter from the agent dated 23 October 2009.

For the purposes of this application, it was conceded by the defendant that there is a triable issue as to that being an agreement for a lease and further that there is a triable issue as to that agreement for lease being subject to the Retail Shop Leases Act 1994.

The agreement for lease contained the following provisions. The lessor was the defendant and the lessee was Mr Ransome and/or his nominee. Both had solicitors. The term of the lease was six months commencing 1 November 2009. There were two five-year options to renew. The first was exercisable on or before 28 February 2010. The rent was to increase by 3.5 per cent on 1 May 2010 and annually thereafter. There was to be a rent-free period of one month from 1 May 2010 subject to the exercise of the first option. The annual rent was $120,000 plus GST and the lessee was liable for outgoings and additional charges. The lessee was to provide a bond of $12,500 to be increased to $30,000 on the assignment of the lease.

The agreement for lease was conditional upon a number of matters, including the lessor and the lessee entering into an agreement for the sale of plant and equipment. If the lessor replaced the air conditioning, the cost was to be amortised as additional rent over five years. It was subject to and conditional upon a formal lease being signed on terms and conditions satisfactory to both parties.

Mr Ransome provided the agent with a cheque for $25,000 being one month's rent and the bond and went into possession. The plaintiff used the premises as a restaurant.

On 2 November 2009, Mr Ransome and the defendant entered into an agreement for the sale of plant and equipment. Subject to the exercise of the first option, the defendant agreed to sell the plant and equipment for $75,000 payable on 1 May 2010. The plaintiff has used the plant and equipment in its business but has not paid for it.

The defendant's solicitors sent the plaintiff's solicitors draft lease documents by letter dated 9 May 2009. The lease was in the plaintiff's name. At that stage, the documents were subject to the defendant's approval. The draft lease was consistent with the agreement for lease; in particular, it contained terms as to rent, options, rental waiver, plant and equipment and air conditioning.

The plaintiff's solicitor responded by email on 28 November 2009. There was an attempt to renegotiate minor terms, including the time for the exercise of the first option. The agent responded that some matters were acceptable and some were not. Then nothing was heard from the plaintiff's solicitors, and on 20 January 2010, those solicitors told the defendant's solicitors that they had not been able to get hold of their client. The date 28 February 2010 passed without the exercise of the option.

On 25 March 2010, new solicitors for the plaintiff wrote to the solicitors for the defendant beginning, "We refer to the above matter in which the final form of lease was never executed. The initial term of the lease expires on the 30th April 2010 and we have instructions to negotiate a new lease to commence 1st May 2010."

The proposal they put forward was for a five-year lease with three five-year options. In effect, it provided for six months rent-free from 1 May 2010. The proposals about the air conditioning, kitchen and refurbishment were either contrary to the agreement for lease or new.

The defendant's agent responded on 9 April 2010, "As the terms of your offer are so far removed from the original offer, we are instructed to hereby withdraw the original offer to lease and the offer to sell the equipment."

About a week later, the defendant's agent offered a licence to occupy the premises for six months.

On 29 April 2010, the plaintiff's solicitors wrote beginning:

"We refer to the above matter and to the letter of offer of lease of the 19th October 2009 and the subsequent Lease document and now enclose the following documents executed by our client:

1. Original executed Lease together with one photocopy in the form prepared by you in November 2009;

They went on to purport to give notice of exercise of option for the five-year period commencing 1 May 2010.

In subsequent correspondence, the plaintiff claimed that it had a five-year lease and the defendant claimed that it was merely a month to month tenancy.

The plaintiff has not paid all of the rent and other amounts in accordance with the terms of the offer to lease. Approximately $4,000 is outstanding.

The defendant has received an offer from a public company to lease the premises and adjoining premises for significantly more rent than the plaintiff has been paying and with additional security.

Under the general law, upon failure to exercise an option by the due date, the option lapses. See Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101 at 103 and Re Copperart Pty Ltd (1995) 16 ACSR 351 at 356.

A question has arisen whether the general law position is affected by Section 46 of the Retail Shop Leases Act. That provides as follows:

"46. Lessor's notice about when option to renew or extend must be exercised

(1) This section applies if a retail shop lease provides for an option on the lessee's part to renew or extend the lease.

(2) At least 2 months, but not longer than 6 months, before the option date, the lessor must give the lessee written notice of the option date.

'option date' means the date stated in the lease as the date by which the lessee, if the lessee intends to exercise the option, must exercise it."

It is common ground that there has been non-compliance with Section 46. In the plaintiff's submission, where there has been non-compliance, so long as an option is exercised during the currency of the lease, it is validly exercised. The plaintiff's submission relied upon the general law that where there is no time for the exercise of an option, it is sufficient that the option be exercised during the currency of the lease.

Section 46 creates an offence: it provides a penalty for non-compliance. It says nothing about the consequences of non-compliance as between the parties. Counsel for the plaintiff really made no submissions as to why the inference for which he contends should be drawn. I am not satisfied that there is a triable issue as to the application of Section 46.

I then come to section 46AA. This applies where the lease does not provide for an option on the lessee's part to renew or extend and the lease is not the subject of an agreement for its renewal or extension. In other words, section 46AA could apply in the present case only if the plaintiff were now a monthly tenant or possibly a tenant at will. As counsel for the defendant pointed out, that would be contrary to the plaintiff's pleaded case that it has a five-year lease from 1 May 2010.

"(2) The lessor must, by written notice given to the lessee within the notice period -

(a) offer the lessee a renewal or extension of the lease on terms, including terms about rent, stated in the notice; or (b) tell the lessee that the lessor does not intend to offer the lessee a renewal or extension of the lease.

(3) An offer made under subsection 2(a) cannot be revoked -

(b) if the lessee accepts the offer within 1 month after it is made;

(4) If the lessor does not comply with subsection (2), the term of the lease is extended until six months after the lessor gives the notice (the 'extended period')."

The notice period is defined in subsection (6); relevantly for a lease of not more than one year, it is at least three months but not longer than six months before the lease is to end.

The question is whether this provision is applicable to a monthly tenancy.

The Act contains a number of definitions in a dictionary which is a schedule to the Act. By subsection 5, "The dictionary in the schedule defines particular words used in this Act."

"Retail shop lease" is defined as "a lease of a retail shop" (with certain exceptions, none of which applies here).

"Lease" is defined as "an agreement under which a person gives or agrees to give to someone else for valuable consideration a right to occupy premises whether or not the right is -

(b) for a term or by way of a periodic tenancy or tenancy at will."

The application of section 46AA in the case of a monthly tenancy is to say the least problematic. This is so particularly because of the definition of the notice period. The plaintiff submitted that the lessor cannot terminate a monthly tenancy or a tenancy at will without three months notice. Counsel for the defendant submitted that in this section, the general definition of retail shop lease is not applicable to a month to month tenancy.

I observe that section 5 does not say that the definitions apply subject to a contrary intention. It seems to intend that the definitions apply in all cases.

However, it is not necessary to resolve this conundrum, because by sub-section (4A) sub-section 4 applies only if the lessee by written notice to the lessor before the lease would otherwise expire asks for the extension. If this is a month to month tenancy, it will expire on 31 August 2010. No notice has been given, although one has been foreshadowed.

The agreement for lease was subject to a formal contract. Counsel for the defendant submitted that that was a condition subsequent.

There was clearly a duty to cooperate to ensure that a lease was executed within a reasonable time of the agreement. See Highpoint Pty Ltd v Quicknet Internet Provider Pty Ltd [2000] QSC 359 at paragraph 20. The plaintiff did nothing after November 2009 to progress negotiations. In January 2010, its solicitors could not contact it. On 25 March 2010, the plaintiff acknowledged that the lease had never been executed and that it would expire on 30 April. It proposed a new lease. It did nothing then until 29 April. By that stage it was too late. The lease was about to expire; the option had not been exercised.

Clearly, in my view, there was a breach of the obligation to cooperate to ensure the lease was executed within a reasonable time.

Was there a repudiation? It seems to me it was at most a repudiation of the agreement for lease, and it may well have been accepted by the defendant's agent's letter of 9 April 2010.

If the subject to formal contract condition was a condition subsequent which was not fulfilled, that would have led to the termination of the lease the subject of the agreement for lease.

These questions are somewhat academic, because at most there was an agreement for a six month lease with an option, the option was not exercised, and the lease expired by the effluxion of time.

I am not persuaded that the plaintiff has a sufficient likelihood of success in its claim to justify the preservation of the status quo by the grant of an interlocutory injunction.

I will discuss briefly the balance of convenience. The plaintiff's counsel submitted that if an injunction were not granted, his client would lose its business. The defendant's counsel submitted that his client would lose the opportunity to lease these premises and adjoining premises to a public company at a higher rent.

The plaintiff proffers undertakings as to damages - undertakings by itself and by its director, Mr Ransome. The value of the undertakings has been put in issue, and it is for the plaintiff to demonstrate that they do have value in the circumstances.

The plaintiff is subject to a charge in favour of the Commonwealth Bank which was given some time before the agreement for lease. It presently owes about $4,000 in rent. It has not paid for plant and equipment in accordance with the agreement for lease.

There is no material as to the worth of the undertaking which is offered by Mr Ransome.

In all of these circumstances, I consider that the balance of convenience would not favour the grant of an interlocutory injunction. The application is dismissed.