Supreme Court of SA|1997-08-13|Before: Doyle CJ, Olsson JJ

WINCANT PTY LTD v STATE OF SOUTH AUSTRALIA (appellant) No. SCGRG-94-219 Judgment No. 6287 Number of pages - 24 Landlord and tenant [1997] SASC 6287 (13 August 1997)

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

Landlord and tenant - tenancy agreement for twenty-five years of Savings Bank Building at intersection of Pulteney and Rundle Streets - occupied by South Australian Health Commission - tenant installing partitions and other tenant's fixtures with landlord's consent prior to execution of agreement - tenant not removing fixtures or otherwise reinstating premises on vacating premises at expiration of term - appeal against declaration that tenant was responsible for all costs which flow from the obligation to reinstate premises including removal of tenant's fixtures for an agreed cost of $58,550 - no decommissioning clause in agreement but containing clause requiring tenant to yield up the said premises in good and substantial repair and condition - premises not yielded up in tenantable condition - appeal dismissed. Mancetter Developments v Garmanson Ltd and another ; ; Starline Drive-In Theatre Ltd v The Federal Commissioner of Taxation ; ; Proudfoot v Hart ; Anstruther-Gough-Calthorpe v McOscar and another ; Brew Bros Ltd v Snax (Ross) Ltd and another ; Graham v The Markets Hotel Pty Ltd ; on appeal ; , applied. Never-Stop Railway (Wembley) Limited v British Empire Exhibition (1924) Incorporated , distinguished.

ADELAIDE, 4 June and 24 July 1997 (hearing), 13 August 1997 (decision)

Counsel for appellant: Mr A P Moss with him Mr J A Telfer

I have had the benefit of reading, in draft, the reasons for judgment of Matheson J and Olsson J.

I agree with the reasons of Matheson J for dismissing the appeal, subject to the question of whether an order needs to be made to provide for the further hearing in the District Court that both parties appear to contemplate. In brief, my reasons for agreeing with Matheson J are as follows.

I agree with the substance of what Olsson J says in relation to the law relating to fixtures. In brief, a fixture is part of the land, even though it is a tenant's fixture. The lease is to be construed as giving the tenant a right to remove tenant's fixtures, unless that right is clearly excluded. Clause 17 of the lease does not exclude that right. Accordingly, in this case the tenant has a right to remove the tenant's fixtures. Unless that right is exercised, and a tenant's fixture is severed from the land, the fixture remains part of the land and the property of the landlord. There is no reason to imply a general obligation to remove all tenant's fixtures. Nor is there any such express obligation. A landlord who wishes to be protected can be protected by attaching conditions to a consent to attach fixtures or by inserting an appropriate provision in the lease.

As I have said, I agree with all of that as far as it goes.

However, I agree with Matheson J, that the effect of the covenant to deliver up the premises in repair is that they must be delivered up in good repair, having regard to the condition in which they were when possession was taken of them. Although the fixtures were attached to the premises before the lease was entered into, I consider that the premises should be regarded as having been vacant premises when possession was taken. The obligation of the tenant is, therefore, to yield up the premises in a lettable condition having regard to their condition at the time when possession was taken. The presence of certain of the tenant's fixtures in this case means that the premises are not in good and tenantable repair, having regard to their condition when possession was taken. There is no breach of Clause 3 of the lease, having regard to the consent by the landlord to the attaching of the fixtures. The obligation under Clause 17 is a distinct obligation. While Clause 17 permits the removal of tenant's fixtures, the obligation to deliver up the premises in tenantable repair means that if the tenant elects not to remove fixtures, the landlord may require the removal of fixtures, if their presence means that the premises are not in good and tenantable repair. It does not follow that a covenant to yield up premises in good and tenantable repair means that a tenant is always obliged to remove tenant's fixtures. It means only that the tenant can be obliged to remove fixtures, the presence of which has the result that the premises are not in good and tenantable repair. This result is arrived at, not by implying a term, but on the proper construction of Clause 17 of the lease.

It is surprising that there is no authority precisely in point, but counsel have not drawn our attention to any case precisely in point and I have not been able to find one. However, for what it is worth, it seems to me consistent with principle to hold, as Matheson J does, that a tenant is entitled to remove tenant's fixtures, but may be obliged by the landlord to remove them if their presence on the premises means that the premises are out of repair. This is to be contrasted with the result which Olsson J appears to reach, that a tenant is entitled to remove tenant's fixtures or leave them at the tenant's discretion, regardless of the effect of their presence upon the state of repair of the premises. In putting the matter in this general fashion I am, of course, doing no more than stating the effect of their judgments if the lease provides for no more than the usual right for a tenant to remove tenant's fixtures and the usual covenant to deliver up premises in good and tenantable repair.

By a lease in writing dated 6 July 1970 between the Savings Bank of South Australia and the Minister of Works, the Minister agreed to lease the first seven floors of the Savings Bank Building situated at the north western corner of the intersection of Rundle and Pulteney Streets, Adelaide ("the said premises"), for the term of 25 years from 1 February 1968 to 31 January 1993. On 10 November 1989 the plaintiff Wincant Pty Ltd (now the respondent) purchased the freehold of the said premises and thereby became the successor in title to the Savings Bank of South Australia and took the benefit of the lease. The Minister leased the said premises for the South Australian Health Commission ("the Commission"). With the consent of the Savings Bank of South Australia and prior to the Commission occupying the said premises, the tenant made certain "alterations" thereto. When the Commission vacated the said premises at the expiration of the term, it did not remove the alterations, or otherwise reinstate the said premises. The respondent sued the State of South Australia pursuant to s5 of the Crown Proceedings Act 1992, and its case came on for hearing in the District Court. The formal judgment of the court recorded that his Honour declared and determined:

"... that the defendant is responsible for all costs which flow from the obligations to reinstate floors 1 to 7 as they found them when they leased the premises known as the Savings Bank Building situated on the corner of Rundle and Pulteney Streets Adelaide subject to fair wear and tear over the 25 years use of the fabric of the building..."

The State of South Australia has appealed to this court from that judgment, and asks that it be set aside.

It is necessary to set out pars 6.1 to 6.9 of the Amended More Explicit Statement of Claim:

"6.1 In the period of 12 months after the commencement of the term of the lease the defendant erected and affixed pre-fabricated partitions to the premises fitted from a ceiling to floor with some attached to walls. The defendant erected 120 linear metres of such partitions on the first floor to form 20 partitioned offices, 110 linear metres on the second floor to form 18 partitioned offices, 90 linear metres on the third floor to form 12 partitioned offices, 140 linear metres on the fourth floor to form 16 partitioned offices, 60 linear metres on the fifth floor to form 5 partitioned offices, 70 linear metres on the sixth floor to form five partitioned offices and 110 linear metres on the seventh floor to form 12 partitioned offices. There was also a total of 94 doors affixed to the said partitions.

6.2 During the period of the tenancy in particular during the first 12 months of the tenancy the plaintiff laid carpet and underlay over an existing vinyl surface comprising an area of approximately 400 square metres per floor on each of the seven floors of the demised premises with the exception of an area of approximately 40 square metres on the first floor where the defendant laid its own vinyl on a raised portion of the floor.

6.3 During the period of the tenancy at specific times not known to the plaintiff the defendant altered the position of light fittings provided by the original landlord to fit in with the layout of partitioning erected by the defendant on all seven floors of the said demised premises. The defendant also affixed light fittings comprising vertical rods in various places on the first, second, third, fourth and sixth floors.

6.4 During the period of tenancy at specific times not known to the plaintiff the defendant affixed cupboards, wash basin, sinks and towel rails on the said premises. There were 27 cupboards erected in various locations on the eastern and western sides of the first floor, the northern side of the second floor, the eastern side of the fourth floor, the eastern and western sides of the fifth and sixth floors and the eastern side of the seventh floor. There were two wash basins and towel rails erected on the western side of the first floor. There were two sinks erected on the northern side of the second floor and associated therewith two small areas of tiling on the northern wall.

6.5 During the period of the tenancy at specific times not known to the plaintiff the defendant affixed venetian blinds to various windows on all floors of the demised premises and curtains on the southern and eastern windows of the sixth floor.

6.6 At a time not known to the plaintiff during the period of the tenancy the defendant affixed acoustic material to the northern walls of the first and second floors.

6.7 At a time not known to the plaintiff during the period of the tenancy the defendant affixed floor mounts for electrical and telephone connections on various floors in various locations and inserted electrical cabling and wall mounted electrical and telephone connections in various locations on various floors.

6.8 During the period of the tenancy the defendant allowed the building to fall into disrepair by failing to paint or clean the building and by causing damage to the walls and floors of the said demised premises at various locations on various floors.

6.9 During the period of the tenancy at a time not known to the plaintiff the defendant altered the balance of the air conditioning system and thermal detector layout."

It is also necessary to set out clauses 2, 3, 4, 7, 13 and 17 of the lease, whilst noting that the lease was drawn by the tenant's solicitor:

"2. That the Tenant will pay to the Landlord on demand or at such other time or times during the said term as may be agreed upon by the Landlord and the Tenant and in any event prior to the Tenant vacating the said premises any amounts expended by the Landlord upon the installation of any fittings (including special electric light fittings) partitions or other fixtures in the said premises or other expenses incurred by the Landlord in fitting up the said premises for the Tenant's occupation or such proportion thereof as may have been agreed upon between the Landlord and the Tenant and the Tenant shall not necessarily acquire any property in any such fittings partitions or fixtures which shall be and remain the property of the Landlord.

That the Tenant will at all times during the said term repair and maintain and keep in good and substantial repair and condition the said premises and all improvements and Landlord's fixtures thereon and all additions thereto reasonable wear and tear and damage by fire (except fire caused by the Tenant) storm explosion flood lightning earthquake Queen's enemies shells or bombs excepted.

That the Tenant will not affix durex or similar adhesive tape to any walls columns timbers or partitions of the said premises or any part thereof or insert nails screws or plugs or any other article or thing in any of such walls columns timbers or partitions or make or cause or suffer to be made any alterations or additions to the said premises without the consent in writing of the Landlord or the General Manager first had and obtained PROVIDED THAT any alterations or additions whether in the nature of Tenant's fixtures or otherwise when consented to shall be effected under the supervision and to the satisfaction of the General Manager and the fees and expenses in connection therewith shall be paid by the Tenant.

That the Tenant will during the continuance of the said term hereby granted at the costs of the Tenant provide all additional electric light or other points or fittings required for the Tenant's own use upon the said premises and pay for the erection and fitting up of the same PROVIDED HOWEVER that no additional electric light or other points or fittings shall be provided without the written consent of the General Manager first had and obtained AND if any damage or injury shall be done to the walls floors or any part of the said rooms or offices by reason of the erection fixing pulling down and altering or otherwise by the Tenant of any electric light water or Tenant's fixtures the Tenant shall at the costs of the Tenant make good and amend the same upon the expiration or other sooner determination of the said term or shall pay and allow to the Landlord a sum sufficient to pay for such damage or injury without prejudice however to any rights of the Landlord under the provisions hereinafter contained.

That the Tenant will not allow any accumulation of useless property or dust or rubbish on the said premises.

That the Tenant will at the expiration or other sooner determination of the said term peaceably yield up unto the Landlord all the said premises in good and substantial repair and condition reasonable wear and tear and damage by fire (except fire caused by the Tenant) storm explosion flood lightning earthquake the Queen's enemies shells or bombs excepted TOGETHER WITH all the appurtenances thereto belonging and all improvements and additions made to the said premises and all Landlord's fixtures and with the glass in all the windows whole and unbroken and the locks and keys door-fastenings electric light water and other fittings and conveniences thereto belonging in good order and condition and complete in every respect.

At the hearing in the District Court, the parties tendered a Statement of Agreed Facts which read:

"1. The alterations referred to in paragraph 6.1 to 6.7 and 6.9 of the Amended More Explicit Statement of Claim were effected by the defendant and remain on the premises. The agreed cost of the removal of such fixtures is $58,550.00 ...

The damage alleged in paragraphs 6.8 occurred during the defendant's occupation of the building. The question for the Court on this issue is whether by breach of the agreement to repair or by waste the defendant is liable for the damage. The agreed cost of making good such damage is $21,350.00.

The premises required cleaning on account of the state of the premises. The agreed cost of such cleaning is $9,800.00 ...

The premises required painting due to the general condition of the walls and because there was specific damage to various parts of the walls. The agreed cost of painting the walls is $17,585.00 ...

The defendant admits that there was damage to the ceiling tiles in the form of chipping and holes and the agreed cost of replacing same is $5,600.00 ...

The parties agree that in an upgrade of the building undertaken to remove asbestos from beams above the ceiling the ceiling would have to be replaced. In consequence of such upgrade the plaintiff admits that the cost of the damaged ceiling tiles and the costs of cleaning the premises would be absorbed within the asbestos removal programme ...

In addition to the aforesaid costs it is agreed that a further $8,500.00 in professional fees would be incurred in respect of the decommissioning process.

Notwithstanding other matters pleaded by the plaintiff the costs listed above are the total costs sought by the plaintiff in respect of the decommissioning of the building.

The current state of the premises is the state the premises were in at the termination of the lease.

The plaintiff obtained the benefit of the lease as alleged in paragraph 3 of the More Explicit Amended Statement of Claim.

The lease in question and annexed hereto was drawn by the solicitor representing the defendant.

The premises, the subject of the said lease, were new premises in 1967 set up as open space with no fixtures at all on the relevant floors.

The photographs annexed hereto depict the premises as at the determination of the lease.

The premises are not reasonably tenantable in their present state because of the presence of fixtures in the form of partitions, cupboards, sinks, carpets and venetian blinds as referred to in the report of Raine & Horne International annexed hereto." (my emphasis).

The report of Raine & Horne International was dated 1 September 1994 and read as follows:

"In response to your request for advice concerning lettability of premises known as the State Bank Building situated at 156-160 Rundle Mall, it is our opinion, unless the current partition, cupboards, sinks, carpets and venetian blinds were removed the premises would not be provided in a reasonably lettable condition.

In particular the partition fit-out is not symmetrical and was obviously made for the particular purposes of the previous tenant. Also the material used for the partitioning is dated.

In our experience there is limited demand for this type of accommodation in todays market.

Should you wish to discuss the matter further please do not hesitate to contact the writer." (my emphasis).

The learned trial judge also received in evidence a letter signed by the parties which included the following:

"The various items have been agreed between the parties as being of the following nature:-

1 The various partitions, carpets, cupboards, sinks and the 240 volt electrical cabling are classified as tenant's fixtures.

2 Venetian blinds and non-240 volt electrical cabling are classified as chattels."

His Honour had a view of the said premises, and in his reasons for judgment he said inter alia:

" I find that in this case the tenant was a tenant for open space at the time the place was leased and it must have been in the mind of the parties when the lease was entered into that at the determination of the lease again the tenant would have to deliver up the building so that the premises were again in a tenantable condition as it was when they took up the tenancy.

The tenants in this case made complex partitions, sound proofing, plumbing and electrical connections necessary for the particular needs of the Health Commission and unless the Landlord wished to retain the fixtures and fittings which were installed by the Health Commission then I am satisfied that the proper construction of the lease requires that they give the premises up in a similar condition as to when they tenanted them."

"... all the authorities I have referred to are consistent with the obligation of the tenant to leave the premises in a condition in which he leased them rather than an inference suggested by the defendant that all of the fittings and fixtures left by the tenant become the obligation of the Landlord and that there is no requirement by the tenant to remove them."

It is convenient here for me to mention that although the word "waste" is referred to in Agreed Fact No.2, the respondent did not in its actual claim or in argument seek to rely on that tortious doctrine. In that connection, I note that in Mancetter Developments v Garmanson Ltd and another [1985] EWCA Civ 2; [1986] 1 All ER 449, Dillon LJ said at p453:

"Waste is a somewhat archaic subject, now seldom mentioned; actions in respect of disrepair are now usually brought on the covenant."

Before looking at the authorities, I consider certain things should be stressed. The said premises were new, and situated centrally in the City of Adelaide. The lease was of open space. The alterations (as they have been called in the Agreed Facts) are of no value to the respondent. Having viewed the photographs that were tendered as exhibits that does not surprise me at all. It is clear that since the Commission vacated the said premises, they have been untenantable. The appellant argues not only that it is not required to remove the "alterations", but also that its obligation to yield up the said premises in good and substantial repair does not require it "to re-instate floors 1 - 7 as they found them when they leased the premises ... subject to fair wear and tear over the 25 years use of the fabric of the building" - I quote from the trial judge's reasons. There is no dispute that the tenant's fixtures will have to be removed before the said premises can be leased again, but the appellant seeks to rely on the fact that there is no clause in the lease specifically requiring the tenant to remove them prior to the expiration of the term (compare Starline Drive-In Theatre Ltd v The Federal Commissioner of Taxation [1964] HCA 68; (1964) 112 CLR 458).

The argument before this court initially focused on the question whether this tenant could be ordered to remove tenant's fixtures from these premises rather than on the question as to the proper construction of Clause 17. In consequence the appeal was called on again for further argument. There is a dearth of authority on the former question, possibly because in those cases where the tenant did remove the tenant's fixtures before yielding up possession, the landlords would have been pleased to retain them. The appellant sought to rely on Never-Stop Railway (Wembley), Limited v British Empire Exhibition (1924) Incorporated [1926] 1 Ch 877. The plaintiffs were granted the right to occupy sufficient land of the defendants for the purpose of constructing and working a railway until the termination of the Exhibition to be held in the grounds of the defendants at Wembley whereupon the plaintiffs were to be at liberty to sell all their property and other assets at Wembley to a purchaser to whom the defendants agreed to grant an option to occupy the land for a further period of one year thereafter and a further option to continue such occupation from year to year for a total period not exceeding six years from the closing of the Exhibition. The plaintiffs accordingly constructed a railway on the grounds of the defendants. For about half its length, the line was carried on a viaduct supported by a number of massive concrete pillars. The foundation to these pillars, as well as of the rest of the track, were firmly embedded in the soil. The plaintiffs worked the railway until the closing of the Exhibition. The claim of the plaintiffs is not relevant here, but the defendants counter claimed an order against the plaintiffs to remove the erections and other structures from their land or damages for leaving them there.

Lawrence J held that in the absence of any agreement between the parties, there was no obligation on the plaintiffs to take down and remove the erections and other structures, and, secondly, that in the circumstances no agreement imposing any such obligation on the plaintiffs ought to be implied.

In reaching his decision, his Lordship said (inter alia):

" ...under the agreements the plaintiffs were expressly given liberty to sell their undertaking and assets in such a manner as to enable the purchaser to operate the railway line, in which event the defendants were to grant to such purchaser an option to occupy for a further term the land forming the site of the railway, which land would necessarily include the erections and other structures upon it. If the plaintiffs had sold their undertaking under such liberty, and the purchaser had exercised the option, it obviously was not the intention of the parties that the plaintiffs should take down and remove the erections. In such an event, although the plaintiffs' licence to occupy would ex concessis have determined, and the rights and liabilities thereunder as between the plaintiffs and the defendants would have come to an end, yet the erections and other structures would have had to remain on the land for the benefit of the purchaser. This fact points to the conclusion that any implied agreement for the removal of the erections and other structures would require to be carefully moulded, a task which counsel has not attempted. Further, if it be suggested that the implied agreement to take down and remove the erections and other structures should be so framed as to become operative, only if the liberty of selling granted to the plaintiffs were not exercised, then I am of opinion that the refusal by the defendants to carry out their obligation to grant the options affords a good answer to the counterclaim. It seems to me that in that case the defendants would be seeking to enforce in this Court a liability under the agreements, which liability had only arisen because of their own wrongful refusal to perform their part of those agreements."

The agreement in that case was a licence, and so far as can be ascertained from the report, the licence did not contain a clause comparable with the usual clause in a lease requiring a tenant to yield up the premises in good repair. I agree with Mr. Beasley, counsel for the respondent, that the facts of that case were special and the fact that it does not seem to have been referred to in subsequent authorities perhaps confirms that. Be that as it may, I consider that in this case the focus should be on clause 17 of the lease.

A useful starting point in considering such a clause is a passage in the judgment of Lord Esher, MR, in Proudfoot v Hart (1890) 25 QBD 42. At pp 52-53 his Lordship said:

" Lopes, L.J., has drawn up a definition of the term `tenantable repair' with which I entirely agree. It is this: " `Good tenantable repair' is such repair as, having regard to the age, character, and locality of the house, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it." The age of the house must be taken into account, because nobody could reasonably expect that a house 200 years old should be in the same condition of repair as a house lately built; the character of the house must be taken into account, because the same class of repairs as would be necessary to a palace would be wholly unnecessary to a cottage; and the locality of the house must be taken into account, because the state of repair necessary for a house in Grosvenor Square would be wholly different from the state of repair necessary for a house in Spitalfields. The house need not be put into the same condition as when the tenant took it; it need not be put into perfect repair; it need only be put into such a state of repair as renders it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it."

Proudfoot v Hart (at p51) is also authority for the proposition that in construing repair covenants, the construction is the same whether the covenant specifies "tenantable" or "habitable" or "good" repair (see also Hill and Redman Law of Landlord and Tenant 16th Edü par140)

In Anstruther-Gough-Calthorpe v McOscar and another [1924] 1 KB 716, Atkin LJ (as he then was) said at p734:

" Repair ... connotes the idea of making good damage so as to leave the subject so far as possible as though it had not been damaged. It involves renewal of subsidiary parts; it does not involve renewal of the whole. Time must be taken into account; an old article is not be made new; but so far as repair can make good, or protect against the ravages of time and the elements, it must be undertaken."

In Brew Bros Ltd v Snax (Ross) Ltd and another [1970] 1 QB 612, Sachs LJ said at p640:

" It seems to me that the correct approach is to look at the particular building, to look at the state which it is in at the date of the lease, to look at the precise terms of the lease, and then come to a conclusion as to whether, on a fair interpretation of those terms in relation to that state, the requisite work can be fairly be termed repair. However large the covenant it must not be looked at in vacuo."

A useful Australian case is Graham v The Markets Hotel Pty Ltd [1942] NSWStRp 43; (1942) 43 S.R. N.S.W. 98. The successful appeal to the High Court is reported in [1943] HCA 8; (1943) 67 CLR 567, and I quote the facts from the headnote in the last mentioned report:

" The plaintiffs were the lessees of a licensed hotel in Sydney. They granted a sub-lease which was assigned to the defendant. When the sub-lease was granted there was in the basement of the hotel a lavatory which could be approached only by steep and dangerous steps and was badly lighted and poorly ventilated. The sub-lease contained a covenant that the sub-lessee would repair, maintain and keep all buildings and all internal and external walls, sewers, drains and appurtenances and would yield up in repair at the end of the term. During the term the lavatory was dismantled and closed by the sub-lessee and another lavatory was installed in adjoining premises which were leased by the defendant and to which the plaintiffs had no title. At the end of the term the demised premises were yielded up without any lavatory whatever. In order to continue the demised premises as a hotel and to obtain a new licence therefor it was necessary under the Liquor Act 1912 (N.S.W.) for the plaintiffs to install sanitary accommodation. This they did in the course of an extensive remodelling of the premises, at a cost of [sterling]3,078, in accordance with plans prepared in conformity with statutory and departmental requirements and approved by the Licensing Court. The plaintiffs claimed that the defendant had broken the covenant to yield up in repair and sued for damages. The trial judge held that the above-mentioned facts did not constitute a breach of covenant and gave judgment for [sterling]100 in respect of other matters. This judgment was confirmed by the Full Court of the Supreme Court."

Before quoting further from the High Court decision, I propose to quote some useful passages from two of the judgments of the members of the Full Court. At p103 Jordan CJ said:

" The scope of an agreement to repair depends upon its language. If the agreement is to repair so as to maintain a special standard, all repairs must be effected which are necessary to maintain the prescribed standard. Under an ordinary agreement to repair, there is no obligation to replace the structure wholly or substantially if, without the fault of the party agreeing, replacement of this kind becomes necessary. But, as a general rule, the fact that the structure has fallen into such a state of disrepair that the necessary repairs can be effected only by the replacement of part - even a considerable part - of the structure, does not absolve a party from his liability to repair; because repair normally involves replacement from time to time of different parts of the structure: Lurcott v Wakely & Wheeler [1911] 1 KB 905 at 918-9. The extent of the obligation may, however, be conditioned by the state of the structure at the date when the agreement was made. If it was then a first-class structure, it must be repaired so as to maintain it in first class condition. If it was then old and out-moded, it is necessary only to effect such repairs as are required to maintain it in repair at the standard at which it was received: Lurcott v Wakely & Wheeler [1911] 1 KB 905 at 916-7; Anstruther-Gough-Calthorpe v McOscar [1924]1 KB 716 at 734."

" It is well settled that to alter the internal arrangements of a building, or to break down its walls so as to get communication with an adjoining building, constitutes a breach of a covenant to repair: Gange v Lockwood [1860] EngR 76; (1860) 2 F. & F. 115; Marsden v Edward Heyes Ltd [1927] 2 KB 1. Hence, to yield up the premises without restoring the status quo before such alterations were made is a breach of a covenant to yield up in repair." (my emphasis)

" In my view, at the termination of the lease the obligation upon the lessee was to undo what had been done in so far as this was possible, and to restore the premises to a condition in which a licence could be obtained for them, and as the defendant did not do this, the cost of the necessary alterations are damages recoverable from the defendant."

" It is now well established that the repair of a structure may involve renewal or rebuilding of part of it, and that all repairs involve renewal to some extent (Lurcott v Wakeley & Wheeler (1911) 1 KB, at pp.914, 923-926 ). There is a difference between repairing a house and building a new house in place of an old house. It is a question of degree whether rebuilding part of a house does or does not fall within the category of repairing a house. A covenant to repair does not involve the covenantee in an obligation to make improvements, but if he cannot perform his covenant to repair without making improvements, then the expense of making the improvements falls upon him."

" The Defendant took the premises with a lavatory upon them. The Defendant was bound to maintain a lavatory upon them. Instead of maintaining the lavatory, the Defendant abolished the only lavatory which existed on the demised land. The defendant was bound to yield and deliver up the building containing a lavatory at the end of the term. Instead of doing so the Defendant yielded and delivered up the building without a lavatory. In my opinion there was clearly a breach of covenant by the Defendant..."

His Honour then proceeded to deal and disagree with the view that the lavatory constituted a nuisance at the time it was removed by the defendant so need not be replaced.

" The state of repair required by a covenant to yield and deliver up premises well and substantially repaired depends primarily upon the words used. It involves, in the present case, an obligation to yield and deliver up the premises in such a state of repair as that in which they would be found if managed by a reasonably minded owner having regard to their age, their character, their ordinary use and the requirements of the tenants likely to take them at the time of the demise or subletting (Lurcott v Wakely & Wheeler (1911) 1 KB 905; Anstruther-Gough-Calthorpe v McOscar (1924) 1 KB 716. Atkin L.J., as he then was, said in the latter case that such a covenant connotes the idea of making good damage so as to leave the subject matter as far as possible as though it had not been damaged ( (1924) 1 KB, at p734). It involves renewal of subsidiary parts: it does not involve renewal of the whole." (my emphasis)

Rich and Williams JJ agreed with Latham CJ and Starke J that the appeal should be allowed, the verdict of the trial judge set aside and the action remitted for assessment of damages.

In one or more of the clauses of the lease that I have quoted, the phrases or words "landlord's fixtures", "tenant's fixtures", "improvements", "alterations" and "additions" appear. More importantly, the tenant is required to "keep in good and substantial repair and condition" landlord's fixtures, but there is no such express requirement in relation to tenant's fixtures.

Having regard to the wording of clause 17, the authorities to which I have referred and the facts surrounding the lease, I have reached the conclusion that it was not possible for the appellant to comply with that clause without the tenant's fixtures actually being removed. In my view, it can not be right that the respondent should bear the cost thereof, the agreed figure for which is $58,550. In a very real sense the premises have been damaged, and in saying that I do not overlook the fact that the original alterations were consented to. I do not consider that leads to a reading down of Clause 17. It may be that at least during the latter part of the term, if not in the first year or so, that the tenant was also in breach of clause 3 of the lease, and that the respondent did not seek any redress. However, that matter is not strictly raised on this appeal and, in my view, does not bear on the proper interpretation of clause 17.

When the said premises were vacated, they could not have been leased to another tenant, but it does not necessarily follow that the respondent should recover all the sums referred to in the Agreed Facts. Indeed, I have had some concern about the actual wording of His Honour's formal judgment, especially as he has now retired and the action can not be returned to him, even if that was agreed to be the proper course, but neither counsel suggested that, in the event of the appeal being dismissed, the wording of the order appealed against should be varied. They both seemed to contemplate a further hearing in the District Court before another judge. I would dismiss the appeal, and hear the parties, after they have had a chance to consider the judgments herein, as to whether any further order is required. Costs also will have to be considered.

This is an appeal from a judgment of a District Court Judge, in which he declared and determined that the appellant was responsible for all costs which flow from "the obligations (sic) to reinstate floors 1 to 7 as they found them when they leased" premises situated at corner of Rundle and Pulteney Streets, Adelaide, subject to fair wear and tear over the 25 years use of the fabric of the building. The premises in question were levels 1 to 7 inclusive in an office tower located on the north-west corner of the intersection in question, known as the Savings Bank Building. I will refer to them as "the subject premises".

The relevant narrative facts are, for the most part, not contentious and are simply stated.

The building in which the subject premises are situated was erected to completion stage in about 1967. The Minister of Works ("the Minister") took the subject premises on lease from The Savings Bank of South Australia ("the Bank"), the then owner of the building, as an initial tenant. He leased the premises for actual occupation by the South Australian Health Commission ("the Commission"), which appears to have become entitled to possession from about 1 February 1968. I shall, as a matter of convenience, use the expressions "the Minister" and "the Commission" somewhat interchangeably at times.

A formal memorandum of lease was not executed until 6 July 1970. It purported, retrospectively, to evidence a lease of the subject premises for a term of twenty-five years commencing on 1 February 1968.

The present respondent purchased the freehold of the office tower site on 10 November 1989 and, therefore, became the successor in title to the Bank.

When the Commission (through the Minister) became entitled to occupation of the subject premises all seven floors were open, clear areas in a newly completed structure. It proceeded to install partitions and other facilities required for its activities. As the learned trial judge pointed out, the subdivisioning was quite complex and included special sound-proofing of some areas, and plumbing work and electrical connections specific to the needs of the Commission. All of these works were done at the expense of the Commission.

There was simply no evidence before the learned trial Judge as to how it came about that the partitioning and other facilities were installed. Bearing in mind that it is obvious that the open space leased would have had to be fitted out for occupancy, the only reasonable inference to be drawn is that the Bank must have consented to what was done. Counsel for the respondent did not seek to contend to the contrary. There was no evidence that any conditions were ever attached to such approval.

The memorandum of lease, as eventually executed, stipulated that the lessee was not to make any alterations or additions to the subject premises without the prior written consent of the Bank. However, the subdividing of them had clearly been carried out long before the formal lease was executed, otherwise the Commission could have not moved into the building.

The covenant not to make alterations or additions read as follows -

"4. That the Tenant will not affix durex or similar adhesive tape to any walls columns timbers or partitions of the said premises or any part thereof or insert nails screws or plugs or any other article or thing in any of such walls columns timbers or partitions or make or cause or suffer to be made any alterations or additions to the said premises without the consent in writing of the Landlord or the General Manager first had and obtained PROVIDED THAT any alterations or additions whether in the nature of Tenant's fixtures or otherwise when consented to shall be effected under the supervision and to the satisfaction of the General Manager and the fees and expenses in connection therewith shall be paid by the Tenant."

In reproducing that clause I have emphasised portion of the text to illustrate that the draftsman clearly intended that the expression "alterations and additions" comprehended tenant's fixtures - a point which is of significance in relation to the interpretation of a somewhat similar expression "improvements and additions" which appears later in the memorandum of lease, in Clause 17.

However, it cannot be emphasised too strongly that this and the other covenants in the lease simply did not exist at the time when the open space was actually subdivided for the needs of the Commission. Certainly Clause 4 could not possibly have been applied to that situation. Its only relevance, for present purposes, is as an aid to interpretation of the overall instrument.

Clause 7 of the memorandum of lease was expressed in these terms -

"7. That the Tenant will during the continuance of the said term hereby granted at the costs of the Tenant provide all additional electric light or other points or fittings required for the Tenant's own use upon the said premises and pay for the erection and fitting of the same PROVIDED HOWEVER that no additional electric light or other points or fittings shall be provided without the written consent of the General Manager first had and obtained AND if any damage or injury shall be done to the walls floors or any part of the said rooms or offices by reason of the erection fixing pulling down and altering or otherwise by the Tenant of any electric light water or Tenant's fixtures the Tenant shall at the costs of the Tenant make good and amend the same upon the expiration or other sooner determination of the said term or shall pay and allow to the Landlord a sum sufficient to pay for such damage or injury without prejudice however to any rights of the Landlord under the provisions hereinafter contained."

That instrument was totally silent as to the issue of what was to happen with respect to fixtures and fittings installed by the Commission in the subject premises, on termination of the lease. It contained no decommissioning clause.

The only provision of potential relevance, with regard to the expressed obligations of the tenant on yielding up the premises, is to be found in Clause 17, which reads as under -

"17. That the Tenant will at the expiration or other sooner determination of the said term peaceably yield up unto the Landlord all the said premises in good and substantial repair and condition reasonable wear and tear and damage by fire (except fire caused by the Tenant) storm explosion flood lightning earthquake the Queen's enemies shells or bombs excepted TOGETHER WITH all the appurtenances thereto belonging and all improvements and additions made to the said premises and all Landlord's fixtures and with the glass in all the windows whole and unbroken and the locks and keys door-fastenings electric light water and other fittings and conveniences thereto belonging in good order and condition and complete in every respect."

The term of the memorandum of lease expired on 31 January 1993. The appellant yielded up possession to the respondent on that date. In doing so it did not seek to remove the partitioning and fixtures which had been installed for the purposes of the Commission's occupancy.

I should mention, for the sake of completeness, that, in its statement of claim, the respondent asserted that it had been either an express or implied condition of every approval of the lessor for the making of alterations by the Minister (i.e., the Commission) that, upon cessation of its occupancy, the premises would be restored to their original condition. In his reasons for decision the learned trial Judge did not advert to that plea and the tenor of what he wrote is inconsistent with a finding to that effect. Counsel accepted, on this appeal, that the plea was never made good.

It was common ground before the learned trial Judge that, in their present, highly specialised, configuration, the subject premises are not in a reasonably lettable condition, from a commercial viewpoint. Moreover, the respondent contends that considerable moneys will, in any event, have to be spent in repairs to damage, repainting, cleaning and ancillary costs, due to the state in which the subject premises were left when vacated.

The total costs of attending to all of the matters said to require rectification were said to be of the order of $121,385. The respondent claimed that sum from the appellant.

In the course of his written reasons for decision the learned trial Judge noted the provisions of the clauses above adverted to and also drew attention to Clause 3, which was couched in these terms -

"3. That the Tenant will at all times during the said term repair and maintain and keep in good and substantial repair and condition the said premises and all improvements and Landlord's fixtures thereon and all additions thereto reasonable wear and tear and damage by fire (except fire caused by the Tenant) storm explosion flood lightning earthquake Queen's enemies shells or bombs excepted."

He also made reference to Clause 4, which I have earlier cited.

Having done so, he expressly found that "all of the fittings in issue, whether they be fixtures or fittings, are those of the tenant and have never been fixtures or fittings of the landlord" (i.e., as, for example, referred to in Clause 7).

His ultimate reasoning appears to have been based on the concept that, despite a complete absence of any specific decommissioning clause in the memorandum of lease, dealing with the removal of tenant's fixtures or fittings at the end of the lease, the prima facie implication, reading the instrument as a whole, is that "if the tenant is to give up the leased part of the building in good order and repair, it must imply that it gives it up in the order that it leased it, that is, as an open floor, with cleared ceilings, floors and walls".

" Although the facts in that case and in most of the authorities referred to me are distinguishable from the facts in this case all the authorities I have referred to are consistent with the obligation of the tenant to leave the premises in a condition in which he leased them rather than an inference suggested by the defendant that all of the fittings and fixtures left by the tenant become the obligation of the Landlord and that there is no requirement by the tenant to remove them."

He made reference to a series of authorities which, whilst arising from different factual situations, in his view, afforded some support for those conclusions. He therefore held that the appellant was responsible for payment of the heads of cost claimed by the respondent.

By its notice of appeal the appellant challenges that conclusion and complains that

(1) in relation to the fixtures in question he failed to take into account that, as fixtures, they became the property of the lessor;

(2) in relation to the alleged damage, painting and cleaning, he failed to consider whether they were costs arising out of fair wear and tear attributable to the occupancy of the premises during the term of the lease;

(3) in relation to alleged damage to ceiling tiles, he failed to take into account the agreed fact that, in order to remove asbestos from beams above the ceiling (which the respondent is bound by law to do), the tiles would have had to have been replaced in any event; and

(4) he failed to consider whether all, or part of, ancillary professional fees claimed arose from any matter for which the appellant was legally responsible.

All that need be said as to (2), (3) and (4) is that, on the hearing of the appeal, it rapidly became apparent that the learned trial Judge had an almost complete dearth of factual material before him as to the topics in question. Because of the global mode of expression employed in the formal judgment entered by the him, it became common ground that the appeal ought to be allowed, in any event, to the extent necessary to enable those topics to be explored and determined, in due course, on a proper basis of evidence.

I therefore come to what is the core issue debated on the appeal.

It was an agreed fact that all of the partitioning and physical facilities, the subject of these proceedings, are to be legally categorised as tenant's fixtures.

So much was expressly agreed by the parties before the learned trial Judge. There were, in fact, never any landlord's fixtures installed in the subject premises.

In addressing the matters debated on this appeal it is, in my opinion, necessary to approach the problem by initially directing attention to first principles.

One therefore commences with a consideration of the legal concept of what constitutes a fixture and the legal incidents related to it.

A useful starting point is what fell from Matheson J in Pan Australian Credits (SA) Pty Ltd v Kolim Pty Ltd (1981) 27 SASR 353 at 355-6. He there indicated that one of the clearest expositions of the principles applicable to determining what is, in law, a fixture is to be found in the judgment of Jordan CJ in Australian Provincial Assurance Co Ltd v Coroneo [1938] NSWStRp 35; (1938) 38 SR(NSW) 700 at 712.

As the learned Chief Justice pointed out in the latter case, the legal concept of a fixture involves the notion that an item, which is originally a chattel, becomes, in law, land, by virtue of having been fixed to it. Whether that transformation actually occurs in particular circumstances depends upon whether the chattel has, in fact, been fixed to the land and, if so, how and for what purpose.

At common law if a chattel is actually fixed to the realty to any extent, by any means other than its own weight then, prima facie, it is a fixture. The test is whether it has been fixed with the intention that it shall remain in position permanently, or at least for an indefinite or substantial period; or whether it is merely in situ for a temporary purpose (Holland v Hodgson (1872) LR 7 CP 328 at 335-7). Jordan CJ commented that -

" If a thing has been securely fixed, and in particular, if it has been so fixed that it cannot be detached without substantial injury to the thing itself or to that to which it is attached, this supplies strong, but not necessarily conclusive, evidence that a permanent fixing was intended."

He cites abundant authority for that proposition, to which I would add a reference to Billing v Pill [1954] 1 QB 70.

It is abundantly clear, on the authorities, that the basic common law rule was, and still is, that, in general, fixtures, properly so characterised, having become part of the relevant realty, pass with it - quicquid plantatur solo, solo cedit. That principle originally applied without exception.

However, as Dillon LJ indicated in Mancetter Developments Ltd v Garmanson Ltd and Another [1985] EWCA Civ 2; [1986] 1 All ER 449 at 453 ("Mancetter"), the absolute rule came to be mitigated over time. As he pointed out, the mitigation "came about

not by any change in the concept of what is a fixture, but by a qualification of the tenant's obligation not to remove fixtures once they had been affixed to the land: See per Kindersley V-C in Gibson v Hammersmith and City Pty Co (1863) 2 Drew & Sm 603 at 608, 62 ER 748 at 750".

Dillon LJ further directed attention to the fact that the precise nature and degree of mitigation in question also underwent development over time, particularly as to issues such as rectification of damage caused by any removal.

Be that as it may, the common law evolved the concept that it was appropriate to draw a distinction between what came to be known as "landlord's fixtures", on the one hand and so-called "tenant's fixtures", on the other. In simple terms the former were all fixtures which could not properly be placed in the latter category; and as to which the original common law rules continued to operate unabated.

As was said by Lord Denning MR, in New Zealand Government Property Corporation v H.M. & S Ltd [1982] 1 QB 1145 at 1157 ("New Zealand Property Corporation"), the term "tenant's fixtures" came to encompass those fixtures which the tenant has fixed into the premises for the purposes of conducting its trade or undertaking, but did not become an inherent part of the original structure itself, as an accessory to it (c.f. Atkin LJ in Boswell v Crucible Street Company [1925] 1 KB 119 at 123). Lord Denning instanced, as examples in the latter category, doors or windows put in place by a tenant, in substitution for the original items, or other improvements such as a new frontage, or the like. He made reference to Poole's Case (1703) 1 Salk. 368, which related to a soap-boiler who, in premises leased for his business, had installed vats and coppers and paved a yard area.

In that case Sir John Holt CJ is reported as saying -

"First, That during the Term the Soap-boiler might well remove the Vats he set up in Relation to Trade, and that he might do it by the Common Law (and not by virtue of any Special Custom) in favour of Trade and to encourage Industry: But after the Term they become a Gift in Law to him in Reversion, and are not removeable. Secondly, That there was a Difference between what the Soap-boiler did to carry on his Trade, and what he did to compleat the house, as hearths and Chimney-pieces, which he held not removeable." (The emphasis is mine)

As appears from the segment of the dictum which I have emphasised there is a very clear distinction between those items which constitute tenant's fixtures and those which do not. In the instant case nice questions could potentially have arisen in relation to some of the fixtures in issue (e.g., plumbing and electrical items). However, the court was spared the task of delving into such aspects by the agreement of the parties as to categorisation

as I have recited all were to be taken to be tenant's fixtures for present purposes.

Before departing from Poole's Case there is one important further comment to be made. Although Sir John Holt adverted to non removal of tenant's fixtures resulting in a gift to the landlord in reversion, it is obvious that he was using that expression in a descriptive, rather than a technical, sense. The authorities render it quite clear that the modification of the common law rules did not alter the legal incidents of installing fixtures in premises. It simply conferred on tenants certain rights of removal, which, if not exercised, left the normal rule as to fixtures to operate unabated. The fixtures became part of the realty and passed with it. No question of the making of a gift in the true, technical sense was involved. In a loose, commercial sense that may simply have been the de facto, practical result of not exercising a right of removal - but it was not the legal basis of title accession, so far as the landlord was concerned.

So it was that, in Penton v Robart [1801] EngR 487; (1801) 2 East 88; 102 ER 302, a rule developed to the effect that, in the case of tenant's fixtures, the normal vesting of the fixture in the landlord was subject to a type of defeasance, namely, that the tenant was entitled, at any time whilst remaining in possession of the leased premises (even if only holding over - New Zealand Property Corporation) or within a reasonable time after termination of the relevant occupancy, to remove any tenant's fixtures (Ex parte Brook; Re Roberts (1878) 10 ChD 100; Smith v City Petroleum Co Ltd [1940] 1 All ER 260; Braidwood v Dunn [1917] NZGazLawRp 17; [1917] NZLR 269; D'Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317; Concept Projects Ltd v McKay (1984) 1 NZLR 560). Although there is some lack of clarity on the authorities, the better view appears to be that, if damage is caused to the leased premises by virtue of any removal of tenant's fixtures, then the tenant must make it good (Mancetter).

It is important to note that, as is expressed by Professor Bradbrook in his text "Australian Real Property Law", legal title in tenant's fixtures does not revert to the tenant unless and until the tenant actually exercises his or her right of removal and thereby severs the object from the rented premises (Crossley Bros Ltd v Lee [1908] 1 KB 86; Bain v Brand (1876) 1 AC 762).

I have dwelt at some length on those fundamental principles because, absent their modification by some express covenant between the parties, (see, for example, Cooney v Millar [1921] ArgusLawRp 31; [1921] VLR 254; Starline Drive Inn [1964] HCA 68; (1964) 112 CLR 458), it follows, as night the day, that the removal of tenant's fixtures - bearing in mind the mode of evolution and nature of the right to do so - is a matter of election on the part of the tenant. It is a prerogative which, if not availed of, simply leaves the situation that the items in question remain vested in the landlord. As a matter of common law concept the tenant cannot be required to make such an election. In cases in which there is a positive lease covenant to remove tenant's fixtures (e.g., the type of decommissioning clause often seen in major commercial leases) the situation is, of course, different. This is because the tenant is under a contractual obligation to make the election.

It therefore comes as no surprise that, in Never-Stop Railway (Wembley) Limited v British Empire Exhibition (1924) Incorporated [1926] 1 Ch 877, Lawrence J held that, absent some contractual agreement to the contrary, a tenant or party holding tenure akin to tenancy under a licence, was under no obligation to remove tenant's fixtures on quitting the premises. Given the somewhat unusual circumstances related to the arrangements in that case, there is no reason to question the general application of the ratio of it, as is evidenced by its citation not only in Professor Bradbrook's text, but also in Halsbury's Laws of England, Fourth Edn Reissue, Volume 27(1) in note 1 to paragraph 143 and the Digest, Annotated British Commonwealth and European Cases, 2nd Release Vol 31(1) p 364.

It logically follows from the foregoing analysis that the claim of the respondent could not succeed unless it was able to demonstrate that some contractual obligation existed between the appellant and the Bank, whereby the former was bound, at its expense, to remove the relevant tenant's fixtures by virtue either of -

(1) an express condition, imposed by the Bank and accepted by the appellant, of any approval to install the fixtures; or (2) an express or implied term of the memorandum of lease executed on 6 July 1970.

As already appears, it is not now contended that there was any relevant express term of approval. Rather, the respondent contends that it was an implied term of the lease that the appellant remove the tenant's fixtures at the expiration of the lease.

The basis of reasoning relied upon by the respondent in that regard and my comments in relation to them are as follows -

* the letting to the Commission was for premises which were new, open space suited to tenants using office space;

[That is undeniable, but it was patently in contemplation that they had to be fitted out to meet the specific requirements of the Commission, prior to occupation.] * when executed the lease provided that:

any expenses incurred by the Bank in fitting up the premises for the tenant's occupation were to be paid for by the tenant and any fittings partitions or fixtures installed by the Bank were to be and remain its property, notwithstanding any payments made.

[No such expenses were actually incurred. The fact that, even if paid for by the Minister, any fittings, partitions or fixtures, as above, were to remain the property of the landlord is scarcely indicative of an implied term that, if items of that type were installed by the tenant, they were to remain its property.]

the Clause 3 obligation to maintain was limited to landlord's fixtures on the subject premises

[That is actually an incomplete (and potentially misleading) resume of the provisions of Clause 3. Whilst it does so provide, it further imposes the same obligation on the tenant to maintain "all [other] additions" to the premises. Not only is that expression, construed in isolation, apt to include tenant's fixtures, but it is plainly intended to do so. They had already become portion of the subject premises as "additions thereto". Clause 4 expressly goes on to stipulate that, in relation to any alterations or additions to the premises made by the tenant with the consent of the landlord, such "alterations or additions whether in the nature of Tenant's fixtures or otherwise, when consented to, shall be effected under the supervision and to the satisfaction of the [Bank's] General Manager ...". The whole tenor of that covenant is patently inconsistent with any notion that the tenant's fixtures were always to remain the property of the Commission and had to be removed by it on yielding up possession.];

the tenant was required by Clause 7 to restore any damage consequent upon the eviction or pulling down of any tenant's fixtures

[This is, of course, the normal common law obligation in any event, as I have already demonstrated.];

the tenant is not to allow any accumulation of useless property or dust or rubbish in the subject premises (Clause 13)

[Such a provision, in terms, manifestly has nothing whatsoever to do with items such as tenant's fixtures. The items referred to are clearly a broad genus and the words employed must be read ejusdem generis.];

the tenant is required, by Clause 17, ultimately, to yield up the premises in good and substantial repair "TOGETHER WITH all appurtenances thereto belonging and all improvements and additions made to the said premises and all Landlord's fixtures ...".

As to the provision last referred to Mr Beazley, of counsel for the respondent, sought to argue that the express reference to landlord's fixtures somehow implied that tenant's fixtures had to be removed. There are, in my opinion, two obvious ripostes to such a suggestion.

First, the Clause also requires the delivery up, in appropriate condition, of "all improvements and additions made to the said premises", expressions which are wide enough to include tenant's fixtures remaining on the premises. Secondly, the express reference to landlord's fixtures does no more than recognise the fact that the tenant has absolutely no right to remove them in any circumstances, whereas it might well, in its discretion, elect to remove some or

all of the tenant's fixtures - in which case it would be incongruous to include an unqualified covenant also to yield up all tenant's fixtures in good repair.

It is, in any event, a quantum leap to move from a proposition that the tenant may not be under a contractual obligation to maintain tenant's fixtures, so as to yield them up in good repair if left on the premises, to a situation that there is a term clearly implied in the lease to remove all tenant's fixtures on yielding up the premises. There is simply no suasive reason for making that leap. By operation of law the tenant's fixtures had, at time of installation, become portion of the "said premises", subject only to the common law right of defeasance, if exercised.

As was reiterated by Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 -

"The basis on which the courts act in implying a term was expressed by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd ... in terms that have been universally accepted: "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying ..."

The conditions necessary to ground the implication of a term were summarised by the majority in GP Refinery (Westernport) Pty Ltd v Hasting Shire Council (1977) 52 ALJR 20 at 26: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

The onus which lies upon a party seeking to propound the existence of an implied term is thus very substantial. In my opinion that onus was never discharged by the respondent in the instant case. At the end of the day it simply could not be said, with conviction, that an implied term to remove tenant's fixtures was something so obvious that it went without saying. Indeed, for reasons which I have expressed, the content of the lease contra-indicates such a situation. Moreover, in a document which sets out the respective rights and obligations of the parties, one would have expected such a fundamental term, if it had been agreed, to be expressed in clear and unambiguous terms.

The silence of the document on that score is deafening, against the background of what must have been known to the parties as to the common law principles related to fixtures; and also in light of the fact that, by the time that the detailed terms of the formal lease were agreed and the instrument was executed, the tenant's fixtures had long since been installed, with the apparent unqualified approval of the landlord. If it had expressly been in contemplation that these were to be removed on expiration of the lease a failure to include a specific decommissioning clause to that effect in the instrument is utterly inexplicable. This is the more so as it must have been apparent for all to see that the tenant's fitout was of a highly specialised nature.

A curious feature of the respondent's outline of argument is that it blandly asserts that "In principle a landlord must be in a position to be able to direct a tenant to remove or leave tenant's fixtures". The obvious answer to that suggestion is that the authorities to which I have referred negate such a proposition. There is no such principle.

It must firmly be borne in mind that it always remains open to a landlord to protect itself from the type of situation here complained of, either by attaching express terms of approval to install tenant's fixtures, or including in the lease a specific covenant for removal by the tenant upon yielding up the relevant premises. For reasons best known to itself, the Bank did neither in the instant case; and it is not open to it to seek to imply a condition in the lease which does not compellingly arise on the face of it. The attempt to do so is redolent of wisdom, borne of hindsight, after the event. The clear factual implication is that the Bank simply did not, at the time of approving the fitout of the premises, adequately reflect on the possible impact of that fitout on the reversion, then some twenty-five years hence.

It seems to me, with respect, that, in the course of his reasons for decision, the learned trial Judge seems to have reversed the onus of proof. As appears from his reasons (AB 87), he has approached the problem by saying that there is an implied condition that a tenant from year to year (which the appellant was not) will yield up the demised premises in a similar condition as they were in when the tenancy commenced; and that the onus is on the tenant to demonstrate a contrary intention.

Such reasoning is, with respect, patently inappropriate to the case at bar because -

* this was not the case of a tenant from year to year (as in Marsden v Edward Hayes Ltd [1927] 2 KB 1), but one who had a lease for a fixed term of twenty-five years. A special rule exists in the case of tenancies of the former type, based on a common law obligation not to commit waste. The rule is inapplicable to a fixed term lease of the type here under consideration;

* the condition of the premises, when leased as new, was such that it was obvious that considerable work had to be done to it to render it useable, particularly for a long-term occupancy; and

* there was absolutely no compelling reason to imply that, at the end of the twenty-five year term, it was in mutual contemplation that the tenant would strip the premises back to the four bare walls when substantial permanent fixtures (involving plumbing and electrical fittings) had been installed with the consent of the lessor.

The learned trial Judge also seems to have sought to derive comfort from a series of authorities which really reflected obligations under covenants to repair. The obvious riposte to that suggestion is that they have no logical connection with the issues arising in this case.

In this regard I would point out that, to the extent to which it is sought to rely on clause 17 of the lease and to assert that the covenant to yield up the subject premises at the expiration of the lease "in good and substantial repair and condition ..." carries with it an obligation to remove all of the fixtures installed by the Commission, such an argument necessarily implies that the initial installation of those fixtures placed the subject premises in a state which breached Clause 3 of the lease - notwithstanding the consent of the Bank to their installation. To state such a proposition is, in my view, to demonstrate that it is inherently illogical and patently untenable. If such a proposition was correct it would totally negate the law relating to fixtures.

Counsel for the respondent sought to contend that Clause 3 of the lease simply did not apply to tenant's fixtures because it referred only to landlord's fixtures in specific terms. However, I have already demonstrated the fallacy in such an argument. Moreover, it must be borne in mind that the drafting of the overall document leaves a good deal to be desired and considerable caution must be exercised in seeking to derive mere implications from its expression when phraseology employed is apt, on normal construction, to include a particular situation.

In the course of his supplementary submissions counsel for the respondent sought to draw some comfort from the reasoning of the Court of Appeal in Lambourn v McLellan [1903] 2 Ch 268. However, it seems to me that this case is no more than a practical example of the distinction to be drawn between landlord's fixtures and tenant's fixtures. The point made was that there was nothing in the normal clause to yield up possession which negated the settled common law principle. Mr Beazley was driven to proffer the submission that, under what is essentially a normal clause to yield up possession at the determination of a lease, the landlord has the option to keep or reject the "gift" of what are tenant's fixtures if the tenant does not positively elect to remove them. That is, in fact, a complete reversal of the basis of the common law principle and is, in my opinion, untenable.

Insofar as Clause 17, in terms, speaks of yielding up the premises "together with the appurtenances thereto and all improvements and additions made" to them it is, I consider, simply making the point that, to the extent that the tenant does not exercise its right of defeasance in relation to any tenant's fixtures it must leave them in a proper state of repair on quitting the premises. I cannot see that, almost by a side wind, it can be said to negate the normal common law principle. I repeat, it was open to the landlord specifically, to deal with the decommissioning situation in one of two ways and it did neither. To seek to torture a normal covenant to yield up into achieving that result by implication is contrary to both commercial reality and the rules of documentary construction. It is also of interest to refer to one of the authorities cited by Mr Beazley. In the course of his judgment in Bailey v J Paynter (Mayfield) Pty Ltd [1966] 1 NSWR 596 at 599, Isaacs J specifically held that a lessee is not bound, under a covenant to repair, to restore structurally premises which have been altered by the lessor or with his consent prior to the commencement of the lease. In reality, the same type of reasoning is apposite to the situation in the instant case. Here the work was done after entry into possession but before execution of the formal lease, with the unqualified consent of the lessor. The conceptual reasoning appears to me to be essentially the same.

In my view the learned trial Judge fell into error in his reasoning and thereby arrived at an end result inconsistent with authority and principle.

I would allow the appeal, set aside the declaration made and substitute for it an order of dismissal of the respondent's action, save as to the issues relating to alleged damage, painting, cleaning, ceiling tiles and professional fees unassociated with removal of tenant's fixtures. These issues should be remitted to the District Court for hearing and determination on a proper basis of evidence. Their resolution will depend on the application of the terms of the memorandum of lease to the facts as found.

Crown Proceedings Act 1992

WINCANT PTY LTD v STATE OF SOUTH AUSTRALIA

At a glance

Court

Decision date

Before

Source

Judgment (185 paragraphs)

WINCANT PTY LTD v STATE OF SOUTH AUSTRALIA (appellant) No. SCGRG-94-219 Judgment No. 6287 Number of pages - 24 Landlord and tenant [1997] SASC 6287 (13 August 1997)

By its notice of appeal the appellant challenges that conclusion and complains that

Parties

Legislation Cited (4)

Cases Cited (8)